The Association of Business Executives

QCF

International Business Case Study

Tesco plc
29 November 2011, Afternoon

6IBCS1211

This is an open-book examination and you may consult any previously prepared written
material or texts during the examination.

Only answers that are written during the examination in the answer book supplied by the
examination centre will be marked.
053886

6IBCS1211 ABE 2011 J/601/2793

Notes

l As in real life, anomalies may be found in this Case Study. Please simply state your
assumptions where necessary when answering questions. ABE is not in a position to
answer queries on Case data. Candidates are tested on their overall understanding
of the Case and its key issues, not on minor details. There are no catch questions or
hidden agendas.

l After the publication of the Case Study, subsequent developments may occur. The
examination is based on the published Case Study, and students who do not mention
such developments will not be penalised. However, students may consider such
developments in their answers if they wish.

6IBCS1211 2
 Tesco plc

Tesco plc is a global grocery and general merchandising retailer headquartered in the United
Kingdom. It is the third-largest retailer in the world measured by revenues and the second-largest
measured by profit. It has stores in 14 countries across Asia, Europe and North America and is the
grocery market leader in the UK (where it has a market share of around 30%).

Tesco plc has come a long way since its humble beginnings in 1919. It is currently the leading
grocery chain in the UK with a sizeable amount of sales in non-food items such as clothing
and electrical goods. In a sense, it is a victim of its own success, and its high market share has
led to regular calls for its market power in the UK to be curbed. Any such limitation will greatly
affect Tescos sales and profit growth. This threat has led Tesco to focus more on developing its
international business, a development that began at the beginning of the 21st century. Its main
global competitors are the US-based chain Walmart and the Carrefour organisation, based in
France.

In the UK the various operations are operated as sub-brands under the main umbrella brand of
Tesco, as shown below:

l Tesco Extra - these are larger, mainly out-of-town hypermarkets that stock nearly all of
Tescos product ranges.

l Tesco Superstores - Tesco superstores are standard large supermarkets, stocking groceries
and a much smaller range of non-food goods than Tesco Extra stores.

l Tesco Metro - these are smaller stores between Tesco Superstores and Tesco Express
stores. They are mainly located in city centres, the inner city and on the main streets of
towns.

l Tesco Express - these are neighbourhood convenience shops, stocking mainly food with an
emphasis on higher-margin products (due to small store size, and the necessity to maximise
revenue per square foot) alongside everyday essentials. They are found in busy city centre
districts, small shopping precincts in residential areas, small towns and on Esso petrol station
forecourts.

l Tesco Homeplus - these are stores that offer all of Tescos ranges (except food) in
warehouse-style units in retail parks.

There are other outlets which are operated under the One Stop and Dobbies identities. One Stop
is a chain of convenience stores that was purchased in 2002 and Dobbies is a chain of garden
centres (outlets which sell products for the garden), which Tesco purchased in 2007. These two
businesses (One Stop and Dobbies) are the only exceptions in the UK to Tescos normal strategy
of house name /umbrella branding. Appendix One shows the numbers and the size of each store
category.

6IBCS1211 3 [Turn over

The History of Tesco

Jack Cohen founded Tesco in 1919 when he began to sell surplus groceries from a stall at Well
Street Market, Hackney, in the East End of London (ironically, the market is now much smaller
than in those days; a large Tesco Metro store now sits on the site). The Tesco brand first appeared
in 1924, Tesco was floated on the London Stock Exchange in 1947 as Tesco Stores (Holdings)
Limited. The first Tesco self-service store opened in 1956 in St. Albans, Hertfordshire (Tesco was
not the first organisation to open a self-service store in the UK).

During the 1950s and the 1960s, Tesco grew both organically and also through acquisition until it
owned more than 800 stores, mostly in the southern half of England.

Jack Cohens business motto was pile it high and sell it cheap and this was the key element of
Tescos strategy in the 1960s and 1970s. A major sales promotional tool at the time was the use of
a scheme based upon giving Green Shield Stamps to further increase customer loyalty. However,
in a massive repositioning of its business in 1977, it stopped issuing stamps and instead cut its
prices by 25% overnight.

In May 1987, Tesco completed its hostile takeover of the Hilliards chain of 40 supermarkets in the
North of England for 220million as part of its strategy of becoming a national chain instead of
being perceived as a southern chain.

In 1994, the company took over the well-respected Scottish supermarket chain William Low, which
operated 57 stores. This paved the way for Tesco to expand its presence in Scotland, where it was
weaker than in England.

In 1995, Tesco introduced a loyalty card, branded Clubcard and, later, an Internet shopping
service known as Tesco Direct. This incorporated a printed catalogue enabling customers to order
from a vast range of non-food merchandise. As of November 2006, Tesco was the only food
retailer to make online shopping profitable.

In 1996, the typeface of the logo was changed to the current version with stripe reflections
underneath, whilst the corporate font used for store signage was changed from the familiar
typewriter font that had been used since the 1970s. Sir Terry Leahy assumed the role of Chief
Executive on 21 February 1997.

On 21 March 1997, Tesco purchased the retail arm of Associated British Foods, which consisted
of grocery stores in the Republic of Ireland and Northern Ireland, plus associated businesses, for
640million. The deal was approved by the European Commission. This acquisition gave Tesco a
significant presence in the Republic of Ireland and also a larger presence in Northern Ireland than
one of its main UK rivals, Sainsburys.

In 1997, Tesco and Esso (the UK business of Exxon Mobil) created a business alliance that
included several petrol filling stations on lease from Esso, with Tesco operating the attached stores
under the Express format. In turn, Esso operates the forecourts and sells their fuel via the Tesco
store. Two hundred Tesco/Esso stores now exist across the UK.

In July 2001, Tesco became involved in Internet grocery retailing in the USA when it obtained a
35% stake in GroceryWorks. In 2002, Tesco purchased 13 HIT hypermarkets in Poland. It also
made a major move into the UK convenience store market sector with its purchase of T & S
Stores, owner of 870 convenience stores in the UK.

In October 2003, the company launched a UK telecoms division, comprising mobile and home
phone services, to complement its existing Internet service provider business. 2003 also saw
further international expansion when Tesco purchased the C Two-Network in Japan and acquired
a majority stake in the Turkish supermarket chain Kipa.

6IBCS1211 4
In January 2004, Tesco acquired Adminstore, owner of 45 Cullens, Europa, and Harts convenience
stores in and around London, which further strengthened its presence in this sector. In August 2004,
it also launched a broadband service.

In late 2005, Tesco acquired 21 Safeway/BP petrol filling station stores.

In September 2005, Tesco announced that it was selling its operations in Taiwan to Carrefour and
purchasing Carrefours stores in the Czech Republic and Slovakia. Both companies stated that
they were concentrating their efforts in countries where they had strong market positions.
In mid-2006, Tesco purchased an 80% stake in Casinos Leader Price discount supermarkets in
Poland.

In 2007, Tesco took part in a joint venture with the telecoms company O2 to form Tesco Mobile.
Tesco continued to be a major advertiser on television and a television ad campaign featuring
the Spice Girls was used in Christmas 2007. The Spice Girls were reportedly paid 5million
(US$10million) to appear in the campaign.

In April 2010, Tesco negotiated a deal to become the official England team sponsor for the
duration of the football World Cup, which was estimated to have cost Tesco US$4 million.

Tesco continues to bring effective solutions to the marketplace and, in February 2011, it
announced that, as well as using home delivery for Tesco Direct products, it would set up a system
whereby customers can collect their orders from the large Tesco stores (see Appendix Two).

Tesco has, for many years, produced solid financial performances and is one of the most
successful UK companies (the financial results are shown in Appendices Three, Four and Five).

Tesco Corporate Strategy

Tesco has successfully appealed to many, if not all, segments of its market. One element of the
strategy has been Tescos use of its own-brand products, including the up-market Finest brand,
which competes with retailers such as Marks and Spencer, the mid-range Tesco brand and the
low-price Value brand, encompassing several product categories such as food and beverage
which, together with low priced suppliers labels, enable Tesco to compete with the so-called hard
discounters such as Lidl and Netto. It also has been successful in providing customers with home
products and clothing. Other products such as mobile telecoms and financial services (insurance
and banking) complete the range.

Beginning in 1997, when Sir Terry Leahy took over as CEO, Tesco began marketing itself using
the phrase The Tesco Way to describe the companys core purposes, values, principles and
goals. This phrase became the standard marketing speak for Tesco as it expanded domestically
and internationally under Leahys leadership, implying a shift by the company to focus on people,
both customers and employees.

A core part of the Tesco expansion strategy has been its innovative use of technology. It was one
of the first to install self-service tills and use cameras to reduce queues. The way that Tesco has
been able to introduce changes successfully, particularly in both the number and structure of its
workforce, is clear testimony to the excellent quality of its management, and this flexibility enables
Tesco to constantly evolve in line with changes in its trading environment. This can be contrasted
with the problems that Sainsburys faced in trying to introduce new point of sale systems in the late
1990s.

Tescos main advertising slogan is Every little helps. This simple advertising phrase in fact
serves as a quasi mission statement and gives the company and its large workforce, the majority
of whom are part-time, a broad guide on how to deliver excellent customer service. The Tesco

6IBCS1211 5 [Turn over

advertisements in print and on television mainly consist of product shots (or an appropriate image,
such as a car when advertising petrol) against a white background, with a price or appropriate text
(e.g., Tesco Value) superimposed on a red circle. On television, voiceovers are provided by well
known/high profile actors and television presenters.

In early 2011, Tesco outlined its future strategy as follows:

Tescos strategy is, and will remain, about broadly-based, profitable growth - and we

have multiple opportunities to pursue that growth - in the UK, internationally, in food and
other categories and in services. We also believe growth and sustainability are aligned,
for example through our commitments to the communities we serve and the low-carbon
programme we are pursuing in our business and our supply chain. So the fundamental
elements of our strategy wont alter but some are evolving - as, for example, our increased
focus on internet retailing, demonstrates.

We have set six immediate team objectives against which we intend to be judged, they are as

follows and we plan to report on these in each of our results announcements going forward:

1. Keeping the UK business strong

2. Becoming outstanding internationally - not just successful
3. As the combination of stores and online becomes compelling for customers, we intend
to become multi-channel wherever we trade
4. We will deliver on the potential of Retailing Services - of which Tesco Bank is a big
part
5. By applying Group skill and scale we will add more value and competitive advantage to
our businesses
6. Delivering higher returns for shareholders - on a continuous basis
 Source - Annual report 2011

Tesco - Legal and Regulatory Concerns

In 2007, Tesco was placed under investigation by the UK Office of Fair Trading (OFT), which
was formerly known as the Monopolies and Mergers Commission, for acting as part of a cartel
of five supermarkets (Safeway, Tesco, Asda, Morrisons and Sainsburys) and a number of dairy
companies to fix the price of milk, butter and cheese. In December 2007, Asda, Sainsburys
and Safeway admitted that they acted covertly against the interests of consumers while publicly
claiming that they were supporting 5,000 farmers recovering from the foot and mouth crisis. They
were fined a total of 116million. Tesco, which maintains that it was not a part of the cartel, is
still under investigation by the OFT. Walmart and Carrefour have both been the subject of similar
investigations in their respective key markets.

More recently, Tesco has been the focus of local protests in the UK with regard to its dominant
position in some towns and cities such as Bristol and Liverpool, to the detriment of small
businesses. In the case of Bristol, there was some civil unrest that was compared to the protests
that have accompanied recent meetings of the G20 nations.

Corporate Social Responsibility at Tesco

In 1992, Tesco started a revolutionary computers for schools scheme, offering computers to
schools and hospitals in return for obtaining vouchers from people who shopped at Tesco. Since
the start of the scheme, it is estimated that equipment worth over 120 million has gone to these
organisations. The scheme has also been implemented in Poland.

Tesco has made a commitment to Corporate Social Responsibility (CSR) in the form of
contributions of 1.87% of its 2010 pre-tax profits to charities/local community organisations. This

6IBCS1211 6
compares favourably with Marks and Spencers 1.51% but unfavourably with Sainsburys 7.02%. In
his role as chief executive of The Work Foundation, Will Hutton has praised Tesco for leading the
debate on corporate responsibility (see Appendix Six).

The following extract from Tescos 2011 annual report gives an insight into Tescos CSR policies:

Communities are at the heart of what we do and we have established a leadership role on
climate change. Our achievements this year include:

 aring for the environment. We have exceeded our target to reduce carbon emissions from
C
our baseline portfolio of buildings by 5.5% compared to 2009/10. In total we have footprinted
over 1,000 products, and carbon labelled over 500 products in store and online in the UK. We
have also continued our carbon labelling programme in South Korea.

 ctively supporting local communities. We have exceeded our 2010 target of donating
A
at least 1% of pre-tax profits to charities and good causes, donating 1.8%. We have also
exceeded our target to raise 7m for charity through staff and customer fundraising: in the
UK alone, we raised 7.2m for our nominated Charity of the Year. Since the start of our
computers and sports for schools schemes, we have given 170m worth of equipment to
schools in the UK alone. We work with Marys Meals to provide daily meals to over 4,000
school children in Malawi, India, Kenya and Thailand.

 uying and selling products responsibly. Under our Trading Fairly programme we now
B
have our own experts in China, Bangladesh and South Africa working directly with local
suppliers to tackle labour issues. We have increased sales of local products in the UK to
1bn. We are co-leading a project across the consumer goods industry to achieve zero net
deforestation by 2020.

 iving customers healthy choices. We have 100% nutrition labelling of eligible own-brand
G
food lines in all our markets. In Thailand, around 4 million people participated in an aerobics
competition, a Walkathon and football clinics. In the UK, around one million primary school
children ran in the Great School Run and over 740,000 children have taken part in the F.A.
(Football Association) Skills Programme.

Creating good jobs and careers. We have increased the total number of staff in the Group

by 21,000. Our basic hourly rate of pay for a customer assistant in the UK is 7% higher
than our three largest food retail competitors. Also in the UK, 216,000 staff shared a total
of 105.5m through our Shares in Success scheme in 2010, and we opened a record eight
Regeneration Partnership stores this year.

Inevitably an organisation the size of Tesco attracts controversy. In 2009, Tesco used the phrase
Change for Good in its advertising, which is trademarked by Unicef for charity use but not for
commercial or retail use. This prompted Unicef to say, It is the first time in Unicefs history that a
commercial entity has purposely set out to capitalise on one of our campaigns and subsequently
damage an income stream which several of our programmes for children are dependent on. They
went on to call on the public, ...who have childrens welfare at heart, to consider carefully who they
support when making consumer choices. (See Appendix Seven for further details.)

Leadership in Tesco

In 2010, Sir Terry Leahy (the CEO) announced that he was to retire. His replacement, another
internal appointment, was Phillip Clarke. The key question is whether an internal appointment will
give the organisation the necessary international perspective/leadership that say someone like Luc
Vandevilt gave at M & S between 2000 and 2004. This is thought to be important especially for
European markets.

6IBCS1211 7 [Turn over

However Phillip Clarke, who has been with Tesco all his working life, has experienced at first hand
the transformation of Tesco to become the worlds third largest retailer. After gaining a university
degree, Phillip Clarke joined the Tesco Management Programme, which provided him with a
perfect platform to work his way to the top of the organisation. Previously, he had direct and overall
responsibility for the supply chain and information technology parts of the business. His expertise
gained in IT is thought by many to show Tescos determination to take on Walmart, who are very
good at using IT to maximise efficiency in all aspects of the business.

More recently, he became responsible for the businesses outside of the UK, leading Tescos entry
into China and the United States with the opening of the Fresh and Easy stores.

Commenting on the appointment of Mr. Clarke a leading retail analyst, Rahul Sharma, from the
organisation Neev Capital, believes that Mr. Clarke needs to sharpen the Tesco price image once
again and should also be more open to the idea of recruiting external talent.

The Global Grocery - Mass Retailer Market

The global grocery market is dominated by three organisations who have expressed international
ambitions - Carrefour, Walmart and Tesco. Alongside these, there are the so-called hard discount
stores of Aldi, Lidl, Leader Price and Netto, who operate from smaller outlets with a restricted
range of products, particularly in non-food items. When entering a foreign country, there is likely to
be significant competition from domestic operators, such as exists in Germany and Spain.

Carrefour

With over 450,000 employees, Carrefour, based in France, is one of the worlds largest private
sector employers. It is seen as a pioneering entrant in countries such as Brazil (1975) and China
(1995). The group currently operates in three major markets: Europe, Latin America and Asia, with
a presence in34 countries. Over 57% of group turnover derives from outside France. The group
sees strong potential for further international growth, particularly in such large markets as China,
Brazil, Indonesia, Poland and Turkey. Their stores operate under many different brands, often
reflecting the local situation. In 2009, the company had annual sales of 85.9 billion euros. Although
a major presence globally, it is not the largest retailer in France, being ranked second behind the
Leclerc group.

Tesco

Tesco currently operates in 14 countries. The property division of Tesco has established
successful shopping mall businesses in South Korea, Thailand, Malaysia, Central Europe and
China.

6IBCS1211 8
Tesco International Results: 52 weeks ended 26 February 2011

million at actual exchange rates

United Rest of United Tesco

Asia Total
Kingdom Europe States Bank
Revenue 40,117 10,241 9,159 495 919 60,931
Trading profit/(loss) 2,504 570 527 (186) 264 3,679

Walmart

Sam Walton opened the first Walmart store in 1962 in the US. He had previous experience of
regional discount stores. Expansion was comparatively slow until Walmart launched its shares on
the New York Stock Market in 1972 and, within 8 years, the number of stores had grown to 276
across 11 US states. In 1983, the first Sams Club members warehouse store opened. By the end
of the 1980s, there were 1,402 stores and 123 Sams Club locations. Its first real global initiative
outside North America was the purchase of the Asda grocery chain in the United Kingdom in 1998.

The company has more than 9,000 outlets, trading under 60 different banners in over 15 countries
globally. The organisation employs over 2.1 million people, many of whom are part-time. The
company views its people not simply as employees, but as associates. In 2010, total sales
amounted to over $421 billion.

Sam Walton died in 1992, but his philosophy of giving customers what they want still underpins the
mission of the company. His main goal was to save people money to help them live better, and this
has been translated globally into an internal productivity programme known as every day low cost
(EDLC) which means every day low prices (EDLP) for its customers.

International Sales versus Domestic Sales

Store Group International Domestic

Carrefour 57% 43%
Tesco 30% 70%
Walmart 30% 70%

Number of Outlets by Region

Region Carrefour - 2009 Tesco - 2010 Walmart - 2010

Asia 718 1,424 747
Europe 13,237 3,894 386
North America nil 164 6,468
Central & South America 1,365 nil 1,381
Middle East 23 nil nil
Africa 72 nil nil
Australia/New Zealand nil nil nil

6IBCS1211 9 [Turn over

Future Issues

In addition to the impact of the PESTLE factors, there are specific issues regarding international
retailing.

The key question is: can retailing based upon grocery/food become a truly globalised brand and, if
so, how can Tesco achieve this?

A recent independent study identified some key factors in determining the strategy for international
development for organisations such as Tesco, Carrefour and Walmart. These are:

1. The degree of sophistication/development in the supply chain.

2. The level of economic development in terms of the degree of car ownership, levels of
urbanisation and disposable income after key costs such as housing expenses have been
taken into account.
3. The availability of suitable retail sites, notably out of town locations.
4. The attitudes within the local culture towards customer service.
5. The opportunity to use CSR activities to build relationships with local and national
communities.
6. The availability of suitable local managers.

There are problems facing development in countries such as India and many African nations where
there are significant, and very remote, rural populations. These problems will require imaginative
solutions, as illustrated by the initiative undertaken by leading global brands in India to ensure
maximum distribution (Appendix Eight).

For Tesco, the focus of future plans will be on how to repeat the successful UK strategy globally,
and to what extent a standardised approach can be used.

Rahul Sharma from Neev Capital, among others, stresses that Tesco needs to go global.
He believes that growth opportunities in Tescos domestic UK market are limited because of
competition and the fact that population growth is not at the rate that would be needed to enable
Tescos profits to continue to grow at their current rate.

Although Tesco has enjoyed success in most of its international operations, it is still to break even
on its US operations.

6IBCS1211 10
 Appendix One

Tesco outlets by type in the United Kingdom - 2011

Total Percentage
Format Number
area (m) of space
Tesco Extra 212 1,400,885 41.08%
Tesco Superstores 470 1,297,112 38.04%
Tesco Metro 186 194,632 5.73%
Tesco Express 1,285 272,392 7.99%
One Stop 521 74,044 2.04%
Tesco Homeplus 13 51,468 1.53%
Dobbies 28 121,053 3.57%
Total 2,715 3,411,586 100%

Source : Tesco Preliminary Results 2011

6IBCS1211 11 [Turn over

 APPENDIX TWO

Tesco Direct looks at click-and-collect

By Neil Crave

26 February 2011

Tesco is considering a plan to allow customers to pick up their internet orders from its vast network
of convenience stores. The strategy would see the supermarket giant drop off orders from its non-
grocery site Tesco Direct to about 1,400 Express and Metro stores through its existing delivery
network.

This could effectively cut out the need for the chain to rely on Royal Mail and significantly reduce
the cost of delivery.

Discussions about the project are understood to be at an early stage, but Tesco last year
separately began trials of a grocery service commonly known as click-and-collect.

Analysts said the plan for non-grocery items would require limited reorganisation in its shops to
drop off packages and provide space to store orders, but would otherwise require little investment
by Tesco.

The last mile is seen as a key barrier for home delivery, said supermarket analyst Clive Black at
stockbroker Shore Capital.

A lot of people might be persuaded to order online if they could turn up to a local store rather than
wait for hours at home until the delivery arrives.

Tesco declined to comment. However, click-and-collect operations are becoming increasingly

popular with shoppers and retailers.

Black said Sainsburys, which has about 400 convenience stores, is likely to watch closely any
developments at Tesco.

Several other retailers have begun to encroach on the territory traditionally seen as the preserve of
catalogue retailer Argos.

Marks & Spencer operates a collect service called Shop Your Way, while John Lewis last year
began allowing shoppers to pick up orders from its sister chain Waitrose.

Tesco has also launched Argos* style catalogue service desks in some of its large Extra stores.

* Argos is a retailer of non-food products such as toys and electrical goods that sells its goods
through catalogues with customers placing and collecting orders from outlets which are smaller
than traditional retail outlets because there is no need to display the goods.
 Source: Mail Online 26/02/2011

6IBCS1211 12
 APPENDIX THREE

Summary of Tesco Financial Performance

52 weeks to 26th February 2011

Increase vs 2010

Group sales (inc. VAT) 67,573m 8.1%

Group revenue (exc. VAT) 60,931m 7.1%
Group trading profit 3,679m 7.8%
Underlying profit before tax 3,813m 12.3%
Group profit before tax 3,535m 11.3%
Underlying diluted earnings per share 35.72p 10.8%

Dividend per share 14.46p 10.8%

Net debt 6.8bn Down 1.1bn
Return on capital employed 12.9% Up 0.8%

Source: Tesco Preliminary Results 2011

6IBCS1211 13 [Turn over

 APPENDIX FOUR

Tesco plc - Group Balance Sheet - million

2011 2010
Non-current assets
Goodwill and other intangible assets 4,338 4,177
Property, plant and equipment 24,398 24,203
Investment property 1,863 1,731
Investments in joint ventures and associates 316 152
Other investments 1,108 863
Loans and advances to customers 2,127 1,844
Derivative financial instruments 1,139 1,250
Deferred tax assets 48 38
Total 35,337 34,258
Current assets
Inventories 3,162 2,729
Trade and other receivables 2,314 1,888
Loans and advances to customers 2,514 2,268
Loans and advances to banks and other financial assets 404 144
Derivative financial instruments 148 224
Current tax assets 4 6
Short-term investments 1,022 1,314
Cash and cash equivalents 1,870 2,819
Sub total 11,438 11,392
Non-current assets classified as held for sale 431 373
Total 11,869 11,765
Current liabilities
Trade and other payables (10,484) (9,442)
Financial liabilities
- Borrowings (1,386) (1,529)
- Derivative financial instruments and other liabilities (255) (146)
Customer deposits (5,074) (4,357)
Deposits by banks (36) (30)
Current tax liabilities (432) (472)
Provisions (64) (39)
Sub total (17,731) (16,015)
Net current liabilities (5,862) (4,250)
Non-current liabilities
Financial liabilities
- Borrowings (9,689) (11,744)
- Derivative financial instruments and other liabilities (600) (776)
Post-employment benefit obligations (1,356) (1,840)
Deferred tax liabilities (1,094) (795)
Provisions (113) (172)
Sub total (12,852) (15,327)
Net assets 16,623 14,681

Source: Tesco Preliminary Results 2011

6IBCS1211 14
 APPENDIX FIVE

Tesco plc Group Income Statement

52 weeks ended 26 February 2011

2011 2010
m m
Continuing Operations 60,931 56,910
Revenue (sales excluding VAT)
Cost of sales 55,871 52,303
Gross Profit 5,060 4,607
Administrative expenses (1,676) (1,527)
Profit arising on property related items 427 377
Operating profit 3,811 3,457
Share of post-tax profits on joint ventures and associates 57 33
Finance income 150 265
Finance costs (483) (579)
Profit before tax 3,535 3,176
Taxation (864) (840)
Profit for the year 2,671 2,336

Earnings per share 33.10p 29.33p

Dividends per share 14.46p 13.05p

Source: Tesco Preliminary Results 2011

6IBCS1211 15 [Turn over

 APPENDIX SIX

10 May 2006

Tesco is leading the debate about what corporate responsibility means, says The Work
Foundation

Welcoming the launch of Tescos new community programme, Will Hutton, chief executive of The
Work Foundation, today said:

The Work Foundation commends Tesco for leading the debate about how big business should
interact with society. Its 10 commitments put some detail on the aspiration of many leading
businesses to be a good neighbour.

Too often, corporate responsibility has existed at the level of rhetoric, while employers have
struggled to spell out how it will change the way business is done. It has thus become easy to paint
it as pure spin.

Sir Terry Leahy has today broken with this tradition with a series of substantial pledges. The
Work Foundation hopes that this programme acts as a tipping point for the development of new
corporate sustainability initiatives among organisations. We hope it encourages other businesses
to think in practical terms about a companys obligations beyond keeping shareholders satisfied.
The Tesco plan looks good on paper; time will tell what effect it has on our lives as consumers and
citizens.
Source: The Work Foundation

6IBCS1211 16
 APPENDIX SEVEN

Article by Louise McBride - Irish Times - Sunday July 26 2009

Supermarket giant Tesco in Ireland is refusing to pull (withdraw) the adverts for its latest price
cutting campaign - despite complaints from the childrens charity Unicef Ireland.

Tesco last month launched its 100m Change for Good campaign, which involves a nationwide
roll-out of price cuts recently introduced in its border town stores - much to the annoyance of
Unicef, which has been running a charity campaign under the same name since 1987.

Under Unicefs Change for Good campaign, passengers on long-haul flights are asked to donate
any foreign currency to the childrens charity. The campaign, which involves a partnership with the
Irish airline, Aer Lingus, has raised over 6.8m for Unicef since 1997.

Its a short-term campaign that we are running in Ireland. The two campaigns are completely
separate, said a spokesman for Tesco.

Unicef, however, said: it is the first time in Unicefs history that a commercial entity has purposely
set out to capitalise on one of our campaigns.

We fail to understand why a company with a multi-million euro advertising budget finds it
necessary to use a childrens charity slogan which we have spent years developing, said Melanie
Verwoerd, executive director with Unicef.

Source: Irish Times 26 July 2009

6IBCS1211 17 [Turn over

 APPENDIX EIGHT

The Big Brands reaching Rural India

Lawan is a long way from nowhere. The remote village is dry, hot and dusty. It is still morning,
but the sun is already burning. Only the brave venture out into the harsh, radiating heat. Glowing
barbs of white sunlight bounce off the small, mud-brick buildings. The closest market to this village
is nearly 40km away. The best way to get there is on a slow-moving tractor. These are not ideal
conditions for a spot of shopping in rural Rajasthan.

Reaching rural India

For many years, rural India has been a somewhat untapped market for consumer goods and
services companies. Big and small, Indian and foreign, many have tried to set up shop, but few
have had lasting success. Hundreds of millions of Indians call rural and remote India home. Many
of them live and work in tiny, obscure, off-the-map villages.

In recent years, the big consumer goods companies that produce everything from toothpaste to
crisps have established a presence in small and mid-sized towns and districts. However, few have
been able to establish direct contact with villages of 5,000 people or less.

United Villages, a new rural supply company operating in Jaipur in Rajasthan, believes it can fill the
gap in rural Indias supply chain and get big brands to even the smallest of villages.

The company claims that by combining the use of existing infrastructure with rural marketing and
wireless applications, it can turn a $7.4bn opportunity into a rural retail reality.

Chintan Bakshi, co-founder and chief operating officer of United Villages, says that multi-brand
firms like Hindustan Unilever are able to reach out to rural India through rural-facing incentives and
schemes. However, for small and mid-sized companies, the economics of operating in rural India
do not, at present, make good business sense. The outsourcing of distribution by big companies
means that smaller areas that fall outside targeted districts or regions are seldom tapped as
potential sales areas.

Experts have long said that technology will play a critical role in getting products, services and
assistance to remote India. If done correctly, many argue, it could open up a potential consumer
market of hundreds of millions of people. And not least, connect big brands with the smallest of
villages, all at the push of a button.

Hard work

For nine months, United Villages has been operating in rural areas around Jaipur in Rajasthan. So
far, it has built a distribution network that caters to more than 700 rural retailers.

The company says the concept is simple: field staff take orders from retailers, wire them via a
mobile application to a central warehouse, and products are delivered to local corner shops and
stores, neatly packed in boxes. This, they say, is modern-day door-to-door service.

Mr. Bakshi says the proliferation of mobile phones in rural India has made providing a service like
this possible. Furthermore, reliable phone connections and networks have made establishing a
mobile supply network in Rajasthan relatively easy. However, doing business in remote areas, he
warns, is far from easy.

6IBCS1211 18
Mr. Bakshi claims that one of the biggest challenges is hiring and retaining staff with good local
knowledge and an ability to incentivise the use of new products and make bigger sales.

Mahesh Sharma, a United Villages representative, travels from shop to shop in Lawan village, a
little over an hour away from Jaipur. He says at first, retailers hesitate to buy new products and to
stock unknown items on their shelves. But he adds that once they get used to the system, retailers
begin to appreciate its benefits.

According to the firms own research, retailers in Indian villages with a population of less than
10,000 people usually have to leave their immediate areas to procure 81% of their stock.

Mr Sharma says that before United Villages began its mobile supply operations in rural Jaipur,
retailers had to shut their shops and travel 30 to 40km to the nearest market to get supplies.

That, he says, used to waste valuable time and lead to a loss of sales. Now, he claims, vendors
can have products delivered right to their doorstep in a cost-effective manner that makes
operational sense.

Retailers such as Vinod Kumar Vati from Baswa village say it takes a lot to convince rural
consumers of the benefits of trying something new.

Checking inventory lists in his small corner store in a quiet, cramped lane, Mr. Vati says his
customers like to stick to what they know.

Be it cleaning powder or sweets, he says his customers insist on product guarantees. Doing
business in rural India, face to face or through mobile technology, is all about building trust and
sustainable relationships on the ground.

Sales representatives and retailers agree that it may be some time before the consumption
patterns of rural India begin to look like those of the countrys big cities.

However, mobile technology may be the first step towards opening up potentially large and
lucrative pockets of consumers to big retail business.

Connecting the masses

In recent years, the race to reach rural India has picked up pace.

Companies big and small, as well as government-driven programmes, have been moving deeper
into the countrys hinterland in a bid to generate more business and connect customers, vendors
and industries together via mobile technology.

From real-time mobile phone alerts updating farmers on the price of crops, to business
correspondents taking portable banking to rural households, mobile technology is being used to
unlock a potentially large and lucrative consumer base.

However, when it comes to bridging gaps in the rural retail supply chain, United Villages claims
it is not facing any direct competition. Mr. Bakshi says that some microfinance firms have piloted
similar concepts in South India, but so far, United Villages hold a unique place in the countrys
retail landscape.

Mr. Bakshi insists that demand is not a problem, but bottlenecks in the supply system are.

6IBCS1211 19 [Turn over

Big plans

It is still early days for United Villages, but the company already has big plans for expansion.

By the end of the year, Mr Bakshi hopes to have four operational hubs dotted across Rajasthan.
Using them as bases to supply rural areas, United Villages aims to reach out to around 36,000
small retailers across the state.

This, he adds, could then pave the way for expansion of the mobile retail model into surrounding
states.

There is a growing desire among people in rural India to be part of the countrys modernisation
process, which includes the provision of modern goods and services.

Experts claim that if mobile technology in rural India remains progressive and accessible, and if
supply networks on the ground are built to last, more big brands may find themselves doing big
business in places they may not have endeavoured, or thought, to visit before

Source: BBC 27 March 2011

BBC MMXI

6IBCS1211 20
 APPENDIX NINE

Location of Stores/Operations for Carrefour, Tesco and Walmart

X = commercial presence
Country Carrefour Tesco Walmart
Argentina X X
Brazil X X
Belgium X
Canada X
Chile X
China X X X
Columbia X
Costa Rica X
Cyprus X
Czech Republic X X
Dominican Republic X
Egypt X
El Salvador X
France X
Greece X
Guatemala X
Honduras X
Hungary X X
India X X
Indonesia X
Iraq X
Ireland (Republic of) X
Italy X
Japan X X
Malaysia X X
Mexico X
Nicaragua X
Poland X X
Portugal X
Romania X
Qatar X
Slovakia X X X
Singapore X
Saudi Arabia X
South Korea X
Spain X
Sultanate of Oman X
Taiwan X
Thailand X
Tunisia X
Turkey X
United Arab Emirates X
United Kingdom X X
United States X X

Source: Companies Annual Reports

6IBCS1211 21
 BLANK PAGE

6IBCS1211 22
 BLANK PAGE

6IBCS1211 23
6IBCS1211 24 691139