SAN BEDA UNIVERSITY

College of Arts and Sciences

Case Analysis

Submitted by:

Casambre, Justin

Emralino, Enrico

Mendoza, Christian

Mestidio, Melfred
 1. Company Background

Tesco Homeplus was the first retailer to create the world's first virtual grocery store in
South Korea in 2011. The experiment was conducted in a subway station. The results
were remarkable: the number of newly registered members increased by 76%, online
sales increased by 130%, and Tesco Homeplus became South Korea's number one
online grocery retailer, surpassing its rival e-mart; therefore, this experiment was one of
the first crucial steps in Tesco's digital transformation. Following this phenomenal
success, Tesco opened its first European online grocery store at Gatwick Airport in the
United Kingdom.

2. Situational Analysis
a. Customer

“Customer Lifestyles” is a term developed by Tesco Homeplus to describe how

customers live. It is a behavioral segmentation based on the notion that "you are what
you buy" that helps Tesco, and its suppliers ensure that they appeal to all types of
customers and target advertising in the appropriate locations. Tesco Homeplus is
relocating to the high street and argues this is a cheaper option if you consider the
points provided to customers. However, it is still sold to people particularly concerned
with quality.

Understanding the Consumers

South Korea, a country with a population of approximately 50 million, has the fourth-
largest economy in Asia and the twelfth-largest economy in the world. In general, South
Koreans have greater levels of education, a higher average household income, and
better living standards than their counterparts in other Asian nations. Over the past
several decades, the nation has relied on its most valuable resource - its people - to
achieve rapid economic expansion via exports of manufactured goods. It is now a
significant manufacturer of autos, electronics, steel, and high-tech items, including
digital monitors, mobile phones, and semiconductors.
South Korea has evolved significantly over the previous decade and has been molded
by ongoing innovation, technology, and westernization. Multiple variables influence the
buying habits and behavior of South Korean customers in the present day.

According to a survey by McKinsey & Co., South Korea is one of the most
technologically advanced nations in terms of internet penetration and has more than 10
million smartphone users. In other words, one out of every five South Koreans utilizes a
smartphone. Nielsen also reports that South Korean households make six percent fewer
shopping trips. When they shop, an increasing proportion of South Koreans do so
online.

Long working hours/busy lifestyle: Despite a decline in the average yearly hours worked
per person in South Korea; the country still leads the OECD with 2,193 hours. This is
somewhat unsurprising, considering South Koreans' work ethic and way of life are
formed early. According to the BBC, South Korean parents pay tens of thousands of
pounds annually for after-school tutoring. South Korea has just under one hundred
thousand hagwons or private academies, and around three-quarters of Korean children
attend them.

South Koreans spend a considerable amount of time traveling on public transit, primarily
between their homes and places of employment. The fact that public transportation is
dependable, affordable, and the quickest and most efficient mode of mobility has
helped.

The launch of Tesco Homeplus virtual stores in subways maximized commuters' time
spent waiting for public transportation, allowing shoppers to utilize their limited time for
grocery shopping. This altered how customers shopped and expanded Tesco's potential
market. These customers may not have had the opportunity to go grocery shopping
between their personal and professional obligations, opting instead to get takeout.

This suggests that South Korean supermarket shoppers are more time-crunched and
less price-sensitive. They place a premium on convenience and technology to
complement their hectic lifestyle.
 b. SWOT

Strength Weaknesses

- Biggest grocery retailer in the UK

- Leading Market Share - Lack of Geographic Diversification
- Geographically Diversified - Getting in the back of on Competitors
- A Growing Number of Stores
- Diversified Stores
- Diversified Market and Product Range
- Europe’s largest private
- Obtained Several International
- Superior Technology
- Efficient Supply Chain Network

Opportunities Threat

- Expanding Jacks’ business

- Strategic alliances with other
- Joint ventures
- Online shopping
- Emerging Tesco’s Threats
- Christmas ad controversy
- ”Fake Farm” legal threat
- Brexit Referendum
- Competition with supermarket giants
- Economic crisis and credit crunches

c. 5 Porter’s Analysis

Rivalry Among Existing Competitors

Although hypermarkets are anticipated to remain the major retail channel in Korea, the
segment's growth could probably decrease more. It is because there is less room for
new stores on the market. Therefore, prominent players are aggressively investigating
chances for consolidation. The Major Hypermarket Chains in South Korea (2009) are as
follows:

Tesco Innovation to compete with their existing competitor

 Self-Counter checkout
o To reduce the waiting line and labor cost while the other department store
still using cashier in counter

Threat of substitute products and services

South Korea has become one of the world's most advanced markets for online retail.
Because they enjoy the changes in consumer lifestyle, which is a more efficient
shopping environment, and supported by the development of information technology,
have fueled the rapid growth of an online retail business, including internet shopping
malls, internet open markets, and TV home shopping over the last ten years. And now,
the online retail segment has stepped up to the second-largest retail channel in Korea
since 2005.
Tesco Homeplus recognized this threat by operating both a hypermarket and an online
store to retain their customers. Tesco Homeplus provides a customer-required,
omnipresent product. Therefore, not just for purchasing but also for searching for
information. Customers can obtain geographical information, e-brochures with pricing
and promotion details, and even shop on smartphones.

Threat of New Entrants

A big investor is required for a new entrant to succeed in this type of retail sector. As
stated previously, the segment's growth is anticipated to slow down further due to the
space issue. Moreover, Tesco Homeplus is not concerned about the new entry.

Bargaining Power of Customers

In 2009, each Korean household spent an average of KRW 306,610, or 14.2% of its
monthly expenditure on groceries. In their trips to the grocery shop, Korean customers
seek better value, convenience, new flavors, and healthier items, just as consumers
elsewhere do.

The following table illustrates the breakdown of monthly household expenditures on

Grocery Products:
 :

The remarkable rise of the Korean economy and consumer income over the past year
has increased both the quality and quantity of product demand. Additionally, they need
something quickly. Moreover, we believe this is why Tesco Homeplus is growing into
online shopping.

Bargaining Power of Suppliers

Korea relies significantly on imports for both raw materials and finished goods.
Moreover, something like this favorable shopping environment is good for Tesco
because imported products can compete better with locally manufactured or grown
products. Most Korean imports originate in the United States, which has become one of
Tesco Homeplus’ strengths.
 d. Competitive Analysis

HOW TESCO HOMEPLUS IS DIFFERENT FROM ONLINE SHOPPING?

Tesco Homeplus Online Shopping

The customer can explore the product Only the image of the product is available
from all the angles by rotating, zooming in
and out and scanning the product from all
angles

Custoe can be assured of the presence of There is rarely a physical existence of a

physical store which provide a sense of store.
security to them

Placed at convenient position like in the Such impulse buying is not created
subway. The customer is reminded of the
grocery they need and provide them
capability to quickly purchase with their
smartphones

Customer can see the product on big This is not possible

screen i.e., virtual wall.

Provide a feel of satisfaction to customer Customers have less trust on online

because of its physical place identity transaction due to presence of many fake
sites

3. Market Analysis
 a. Segmentation

Segmentation Basis Segmentation

Geographic Region South Korea

Density Rural and Urban

Demographic Age All age categories

Gender Males and Females

Income Low- and Middle-income

category

Occupation Students, employees,

professionals

Education High school, technical,

bachelors

Social Status Working class, skilled

working class, lower middle
class, middle class

Family Size Single individuals, nuclear

and extended families

Psychographic Lifestyle Traditionalists, contended

conformers
 Personality Easy-going, determined

Behavioral Occasions Regular

Benefit Sought Cost advantage, variety

User Status Active user

Attitude Skeptical, positive

b. Targeting

Tesco Homeplus has been taking an "everything to everyone" method, which has
allowed it to cater to nearly all market segments. Tesco has product lines that appeal to
consumers who are price conscious (Value) and to those with a taste for champagne
(Finest); lines that are aimed at consumers who are concerned with their health (Health
Living) or the environment (Organic). Additionally, it offers products for people with
special dietary needs (such as halal meat) and various specialties based on regional
preferences. To attract clients seeking a comprehensive shopping experience, Tesco
Homeplus also provides non-food items like apparel, technological products, and
financial services.

c. Positioning

Tesco employs a variety of positioning methods to attract its target consumer segment.

Functional positioning is related to a greater variety and quality of product and service
functionalities. Using functional positioning, Tesco sells its Tesco Homeplus Finest line
of items, for instance. Consequently, the quality of this variety of items serves as the
primary advertising focus for a particular customer category. Products marketed through
functional positioning are typically more expensive than Tesco Homeplus essential
selection, as higher quality and enhanced usefulness can only be obtained at a cost
premium.

Symbolic positioning is subjective and is based on the customer's values, goals, and
aspirations. Tesco Homeplus uses this form of positioning for its Fair-Trade product line
in the food and grocery market. Tesco Homeplus employs symbolic positioning with
apparel products by refusing to use cotton cultivated in places where child labor is
utilized to produce cotton. In this instance, the business appeals to a particular
customer demographic’s physiological and emotional concern. Tesco Homeplus
promotes its Fair-Trade product line to a small client demographic at a high price to
fulfill its self-perception as responsible consumers.

Tesco applies price positioning to a variety of its own-brand products. The company
employs price positioning to target specific consumer segments more concerned with
price than other marketing mix elements.

As the term suggests, experiential positioning involves providing clients with sensory or
cognitive stimulation. Tesco Homeplus mainly employs experiential positioning to attract
people to its health and beauty items.

Multi-segment positioning is an alternate positioning strategy used to target multiple

market segments with different products simultaneously. Tesco Homeplus uses multi-
segment placement extensively. 

Tesco Homeplus employs various positioning methods, including user positioning,

product class positioning, and competitor positioning. All these strategies, however, can
be stated as variations of the four main positioning methods discussed previously.

4. Marketing Objectives
a. Market Shares
As the population ages faster than in any other industrialized economy and as
households downsize, retail sales in South Korea have increased by only 1.4% annually
over the past two years, trailing overall economic development.

Last year, however, e-commerce grew by 17% to 45,2 trillion won or 14% of total retail
sales. Hypermarkets have been vying for market share in a fragmented online industry
where most businesses lose money.

According to Euromonitor data in a CLSA analysis, Tesco Homeplus portion of South

Korea's online retail sector has increased consistently but was still just 645 billion won
last year, for a market share of barely 2 percent, on par with larger rival E-Mart.

An analyst at Yuant Securities Korea, Kim Tae-Hong, stated, "Hypermarket chains such
as Homeplus have increased their online sales as a prospective development strategy,
albeit one of few alternatives."

Warehouses with lower prices have been an additional source of success for Korean
retailers. However, while E-Mart and Lotte Shopping's third-placed Lotte Mart include
warehouse brands, Tesco Homeplus does not.
Since 2012, when new regulations mandated that hypermarkets close on two Sundays
per month to safeguard conventional markets, existing hypermarkets' total revenues
have fallen. Same-store sales at Tesco Homeplus fell for two consecutive years.

b. RACE with KPIs

REACH - The virtual shops are placed in public areas, most frequently in busy subways
and bus stops where the busy people of South Korea are often found.

KPIs:

- Site Traffic: indicates that the more users visit the app, the more traffic
occurs.
- Social Reach: the app is accessible to people from all walks of life–this is
true with regard to the fact that the virtual shop is located in public
transportation areas that are easily accessible to the general public and
that more than 10 million South Koreans own a smartphone.

ACT - Customers who are interested can install the Homeplus app on their cell phones.
Then, customers scan the QR codes of the products they want to buy using their
smartphones.

KPIs:

- Leads: in this area, we can determine the busiest periods by observing

when users use the app which is usually in the hours of 10 am and 4 pm
when consumers are usually commuting to and from their workplaces.
- Bounce Rate: we must track how many visitors leave the app after only
viewing it; if the figure is large, we should take a look into why visitors are
leaving the app instantaneously.

CONVERT - Tesco's virtual stores were introduced in subways to make use of

commuters' waiting time for public transportation and give them more time for grocery
shopping.
 KPIs:

- New and Returning customers: New customers are first-time users of the
app while returning customers have been using the app before. These
metrics can be used to assess the success of digital marketing strategies
for the app.
- Average Session Duration: The average session duration is the length of
time a user typically spends on your website during a single visit.

ENGAGE - The convenience and multichannel alternatives (such as online and mobile)
are significantly more important to Tesco customers than price.

KPIs:

- Email Subscription: This is utilized to keep the customers updated about

any promotions such as their discounts (buy one take one offers and
promos) and updates that the app has adopted (such as bug fixes) to
improve user experience.
- Social Media: A company’s following can be used to measure brand
awareness and consumer loyalty. How frequently the followers engage
with the brands on social media is shown by their level of social media
engagement.

5. Strategies and Tactical Plans

a. Internet Marketing Promotional Strategies

The working hours in South Korea are among the longest in the world, and young,
upwardly mobile professionals are frequently too busy to go grocery shopping at a
typical supermarket. Tesco, a large retailer in the UK, tried to take advantage of this
situation. It offered "virtual storefronts," essentially a product display on the walls of bus
stops and metro stations. Tesco modified its value proposition to accommodate its on-
the-go consumers as the economy developed and South Koreans spent more time and
money in their jobs and high-tech equipment. Tesco Homeplus can carry out its new
localized value proposition by launching the virtual store: supply the variety of products
that the customer needs in a convenient location and at a reasonable price.

To boost sales without adding more physical stores, Homeplus merged the ideas of the
physical store, QR code, mobile device, and online marketing. In Seoul subways, it
introduced a brand-new idea of shopping called "virtual stores," where commuters may
buy food from a virtual wall with all 3D products that are identical to those in actual
supermarkets (Celentano 2011; Martina 2011)

Virtual Store Implementation:

Step 1: Customers who are interested can install the Homeplus app on their cellphones.

Step 2: Then, customers scan the QR codes of the goods they want to buy using their
smartphones. The virtual stores are particularly user-friendly because the posters are
made to look like the actual aisles and shelves of a Tesco store.

Step 3: The scanned items are kept in the clients' online shopping carts, where they can
be paid for when their orders are ready. According to Homeplus, the bulk of orders are
placed between the hours of 10 am and 4 pm, when individuals are traveling to and
from work.

b. Strategies for 7S Framework

Strategy

By 2012, Homeplus intends to be the "World's Best Value Retailer." Homeplus must be
improved, simplified, less expensive, and faster to attain this goal.

Homeplus created and employed an effective delivery method to simplify work and
reduce costs.  It automatically places orders and enables vendor-managed inventory.
Through this method, cooperating companies can monitor the process, and Homeplus
can forecast sales and inventory. Typically, the Delivery procedure consists of four
steps: cargo handling, inspection, categorization, and release. However, Homeplus
ends the procedure after the cargo works to save on shipping costs, and the following
three processes are completed automatically. Consequently, this delivery process takes
only 90 minutes and 75-80 minutes per truck, which also saves time. Moreover,
Homeplus has built three big warehouses equipped with high-technology systems to
build the distribution network, which makes the distribution process more efficient by
saving costs.

For better customer satisfaction, Homeplus offers customer service in many situations.
One example is that the company compensates when consumers come to know that a
product, they buy at a Homeplus store is priced more expensive than other nearby
stores. Homeplus also adopts eco-friendly strategies. It aims to decrease carbon
dioxide emissions by 50% compared to 2006 by 2020. Specifically, it manages five
green stores, which reduce the emission of carbon dioxide by 50% and energy use by
40% compared to those of other Homeplus stores. Furthermore, the company has used
the 'Homeplus Carbon Footprint Tool" to control the amount of carbon dioxide it
discharges since 2006.

Structure

Tesco Homeplus lets the expert group decide the critical decision. Thus, they can
remove a channel. By creating a flat organization, they can speed up the decision-
making process. Home Plus is organized according to its functions and divisions. It is a
result of its independent company structure as a general merchandise store operating
solely as a retail outlet. The vertical structure is done by passing words to one's direct
manager. Horizontal decision systems and widespread devolution serve personal
respect for creativity and innovation and build an efficient SCM and the networks and
connections in Homeplus. To address communication issues, the corporation has
devised a plan to bring the departments together through a series of social events.

Systems

The most vital aspect of this company's compensation system is that it provides
performance incentive payments and profit sharing to both regular and part-time
employees. Even though it is well-known that individual incentives can be successful in
many situations, the corporation concentrates solely on team performance. They have
plans to improve their compensation system so that they have the best compensation
system among companies of the same type. For instance, they will enhance the
proportion of performance incentive payments and create a system allowing equitable
contribution evaluation. In addition, they will combine short- and long-term
compensation. For the assessment, they emphasize the balance between methods and
outcomes. The report is updated quarterly, and there is a performance review with an
individual every quarter. The performance is graded on a scale of five (Excellent - Good
- Acceptable - Poor - Very weak).

Staff

First, Homeplus employs general criteria comparable to those of other companies. This
company recruits new employees through a process of Application Review and
Interviews. Criteria such as group discussion and presentation are utilized in the
interview process. Unlike other businesses, Homeplus does not regard English skills as
necessary. Homeplus believes their employees do not need to be fluent in English
because their business primarily focuses on the domestic market and the distribution
industry. However, after the section chief position, the corporation requires English
proficiency to communicate with the head office in England. However, Homeplus
recruits new employees using unique means. They acquire human resources through
the firm's internal market.

Furthermore, the process, also known as Talent Spotting, facilitates recruitment. In

conclusion, Talent Spotting is a debate between an employee and his superior over his
or her career. Homeplus defines superior as the individual most qualified to evaluate the
specific employee. Moreover, superiors can discern an employee's attributes and traits
through this debate. In addition, these details are collected and organized into
databases. If workers with a particular skill are required, the organization can select the
most qualified employee from the inside.

Skills
Homeplus is confident in its ability to sell products at low prices because of its
automated delivery system and high-quality systems, such as warehouses.

Homeplus separates itself from competitors by aiming to produce "valued stores" rather
than simple discount stores. Its bright and spacious locations give Homeplus a
competitive advantage, making clients feel as though they are in a department store
rather than a discounted store. The structure of Homeplus stores differs from that of
other large discount retailers. Moreover, the whole store's design and interior are
elegant, which is a competitive advantage. Customers can find basics on the front
shelves of other cheap stores, but, Homeplus has food courts and other amenities that
make shopping more fun. In addition, it has stores that sell everything, such as
pharmacies, photo studios, and even cultural centers, which sets it apart from its
competitors.

Homeplus also offers excellent customer service. It offers various sorts of customer
assistance based on the issues consumers confront. In addition, the profit from selling a
thousand different PB items under Homeplus's brand accounts for more than 10 percent
of the total. At least five PB goods are two to three times more profitable than popular
brands. Rice, eggs, paper, and textiles are examples of PB products.

Homeplus is also a company where people enjoy working the most. In the distribution
industry, the pay is relatively good, and the rate at which temporary workers become
permanent workers depends on the amount of effort they show. 

Superordinate Goals

Mission

Tesco's mission statement is "We make what matters better, together". The
statement makes it evident that everyone contributes to this company's success. As a
result, it creates an environment where everyone may reach their full potential and
contribute to the corporation's success.
Vision

Tesco's vision is "to be the most highly valued business by the customers we
serve, the communities in which we operate, our loyal and committed colleagues,
and of course, our shareholders". The statement indicates that the happiness of all
stakeholders is a critical factor for measuring the company's vision and progress.

Core Values

Tesco's core values are "customer-centric, caring for all, and every little bit helps".
These main principles have defined Tesco as a corporation for over a century. They
have built a solid internal culture within Tesco, which has made it a trustworthy brand by
valuing its customers.

Tesco identifies customers as an essential aspect of its business. Therefore, its culture
emphasizes providing clients with the most current and accommodating retail
environment possible. This organization has strategies to encourage its employees'
growth and motivation to achieve seamlessness and cooperation with all parties. In
addition to helping the social and economic growth of the communities it serves, Tesco
enhances its reputation.

6. Customer Journey
Home Plus generated large, detailed photographs of food items and placed them on the
walls of train platforms, just as they would be displayed in a store.

Each item has an associated QR barcode, and those waiting on the station can view the
things on the massive screen and scan the corresponding QR code with their mobile
device. This instantly adds the item to the customer's Home Plus shopping basket.

The concept was to make online shopping more aesthetically appealing during train
delays, when individuals are stuck and bored. The goods can be delivered within hours
of the order, meaning they may arrive just as the commuter arrives home.

This is part of Home Plus's ambition to become the leading supermarket in South
Korea, where one-fifth of the population of 50 million uses a smartphone.

The plan was effective. In three months, online sales for Home Plus increased by 130
percent, while the number of registered users increased by 76 percent. Additionally, the
shop is reducing the gap with its primary competition, E-Mart.

Ordering process:

 Scan the QR – Code of your

chosen products with your
phone
  After you scan the QR – Code, it
will automatically add to your
cart and after checking your
cart, click the buy now button
and process how you will pay it.

 After you finish paying for your

groceries, Tesco Homeplus will
prepare them and deliver them
to you on time.

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& Ireland) Conference, University of Liverpool Management School, UK, 29-31. March

Nast, C. (2011, June 30). Tesco brings the supermarket to time-poor commuters in
South Korea. WIRED UK.

Tesco Homeplus opens first virtual store in South Korea. (2011, August 26). FoodBev
Media.
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