Supply Chain

Closing Case Out Supply-Chaining the King of Supply Channers
It’s no secret that Walmart is the largest retailer (indeed, the second-largest corporation) on the planet, with total revenues in 2017 of $486 billion. It’s almost five times larger than the number two retailer in the United States, Home Depot (2017 revenue: $99.2 billion), and it’s bigger than Europe’s three largest retailers—France’s Carrefour, Britain’s Tesco, and Germany’s Metro AG—combined. It is, according to the business-information service Hoover’s, “an irresistible (or at least unavoidable) retail force that has yet to meet any immovable objects.” One key to Walmart’s success has been astute supply chain management. For example, Walmart was among the first to use point-of-sale scanners to track product sales and reorder quickly to meet shifting consumer buying patterns. And Walmart has also been ruthless at forcing its suppliers to continuously lower their own costs.

But some experts have recently noted that Walmart is actually getting beaten at its own game by one of its European rivals, Tesco. Food-retail analyst Kevin Coupe points out that “there isn’t a place in the world where Tesco has gone one-on-one with Walmart and Tesco hasn’t won.” In Britain, for example, U.K.-owned Tesco, the world’s third-largest retailer, commands a 34-percent market share—double that of Walmart-owned Asda.

Tesco’s 6,553 stores in 13 countries utilize five basic formats, customized to match the needs of the local market. Its ability to manage stores in multiple formats as well as multiple markets is one of the company’s greatest strengths. The key to this core competence is technology—or more precisely, data management, which is critical in any effort to optimize inventory selection, size, and distribution. Tesco, reports retail-industry analyst Scott Langdoc, “is ruthless in supply-chain management.” In the United Kingdom, for instance, a wireless network connecting all Tesco stores facilitates real-time management of distribution and transportation. Workers use handheld PDAs for data entry and reporting, and radio frequency identification (RFID) tags allow them to conduct crates and pallets to stores carrying anywhere from 3,500 to 60,000 different products in markets located anywhere from Sussex to Seoul.

Tesco is good not only at applying data management to supply chain management, but it has also developed considerable skill in applying data management to the analysis of consumer preferences in different markets. Tesco relies on a data-mining firm called Dunnhumby (of which it has majority control) to manage everything from targeting sales promotions to designing store formats and, perhaps most importantly, developing private-label products. Along with its ability to manage multiple store formats, many analysts regard Tesco’s ability to provide a better and broader range of private brands—products manufactured for retailers who sell them under their own names—as one of the most important factors in the company’s marketing success. U.S. retailers, on the other hand, have never been quite able to convince consumers that private-label products are as good as their brand-name counterparts. Walmart, for example, struggles to get 35 percent of its sales from private-label goods. In many countries, however, Tesco gets as much as 60 percent of its revenue from private-label products.

The difference? Tesco, explains New York retail consultant Burt P. Flickinger III, knows which products to develop, how to price them, and how to integrate them into the product lines of its various stores. “[Our] range of high-quality own-label products,” says CEO Terry Leahy, “. . . is an integral part of our offer in every market in which we operate.” Tesco offers about 12,000 private-label and specialty brands at every price point. Some high-range products, such as Tesco Finest Chocolates, even sell at 50-percent premiums to established brands like Cadbury, and all of them sell at significantly higher margins than national brands.

According to Flickinger, “Tesco is arguably the finest food retailer in the world,” and he suggests that, armed with a unique set of competencies, the British grocer may well be “Walmart’s worst nightmare.” But, like every business, Tesco isn’t perfect. In 2007, it rolled out a new chain of food stores, called Fresh & Easy, in California, Arizona, and Nevada. Unfortunately, its timing and location choice couldn’t have been worse. Tesco acquired its properties at the height of the U.S. property boom of the mid-2000s. Unfortunately, California, Arizona, and Nevada were among the worst-hit areas when the bubble in the U.S. housing market burst, dooming Fresh & Easy’s viability. Tesco is now in the process of winding down the chain’s operations. Despite this setback, Walmart knows it cannot rest easy, for the U.S. market is too big for a skillful and aggressive rival like Tesco to ignore.