tesco report

8/3/2019 Tesco Report

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An Urban & Environmetal Policy Institute Repo

Amanda ShafRobert GottlVanessa Zajf

Mark VallianaBenjamin Nybe

Peter Dre

August 1, 20

Shopping for a MarketEvaluating Tescos Entry into

Los Angeles and the United States

A Report of thUrban & Environmenta

Policy Institut

Amanda ShaffeRobert GottlieVanessa Zajfe

Mark VallianatoBenjamin Nyber

Peter Dreie

August 1, 200

Photo by Gene Hunt.


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Shopping for a Market has been produced by the Urban & EnvironmentalPolicy Institute (UEPI) at Occidental College. UEPI has several centers andprograms, including the Center for Food & Justice that has been monitoringissues related to the food retail industry for a number of years. PreviousUEPI reports on these subjects include The Persistence of L.A.s Grocery GapFood Access in Central and South Los Angeles, Thinking Outside the Big Box andTransportation and Food.

About this Report


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ContentsIntroduction 1Section 1: A Prole of Tesco 3

Becoming Number One 4

Food Deserts: Food Access Issues 7

Workplace Issues: A Great Place to Work? 10

Environment and Nutrition and Health Issues 14

Supply Chain Issues: Farmer and Supplier Relationships 18

Tesco Goes Abroad 21

Section 2: Coming to America 24

Crossing the Atlantic 25

Laying the Groundwork 26

Food Access and Store Locations: Tescos Initial Roll Out Strategies 27

Part-time and Non-Union: Tesco Constructs its U.S. Labor and Workplace Strategy 33

Tescos Environment and Health Prole 36

Establishing a Supply Chain in the U.S. 38

Tesco in the U.S.: Questions that Remain 41

Section 3: To Be a Good Neighbor 42

The Importance of Policies, Community-Based Agreements, and Accountability 43

Food Access 44

Workforce 44

Environment and Health 45

Supply Chain 46Road Map for Accountability 47

Endnotes 51

Appendix: Table of Store Locations 61


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1SHOPPING FOR A MARKET

Tesco has emerged as the largest food retailer in the United Kingdom and isnow the third largest in the world. As it prepares to enter the United States, it isimportant to provide a background portrait of Tescos vast reach in the UnitedKingdom and its growing international operations, and to evaluate its marketingmessages in the context of its actions.

Introduction

In the fall of 2005, Tesco, the worlds thirdlargest food retail corporation, quietly entered theUnited States to launch its most signicant effort

at global expansion. Tesco has already establisheditself as the largest food retail company in the UnitedKingdom with more than 30% of the market, and hasa presence in a dozen countries in Europe and Asia.1Nevertheless, Tescos executives have concluded that

the United States offers the most lucrative opportunityfor continued company growth. Tesco is looking tobuild as big a business in the United States as it hasin the United Kingdom,2 chief executive Terry Leahycommented to the British newspaper, The Independent,claiming that the U.S. market could easily accom-modate such expansion in the food retail sector. Toachieve that goal, Tesco plans to spend $2 billion on

its U.S. entrance and expansion, and hopes to turn aprot by 2009.3

Tescos entry into the U.S. market comes at amoment when a number of issues are being raised:

inequitable food access in low-income communities widening income gaps; environmental degradationpoor diet; questionable food safety; and a squeeze onsmall family farms and local producers. Each of theseconcerns is inuenced by the dramatic restructuring

and transformation of the food retail sector. Thirestructuring has now taken on a global dimensionwith Tescos decision to launch a new and potentiallhuge operation within the United States.

Tesco plans to open its rst U.S. stores i

four regions, including Los Angeles, San Diego, Las Vegas and Phoenix. The company has established new brand name for its stores the Fresh & EasyNeighborhood Market based on small to mediumsized stores (approximately 10,000-15,000 square feet)that emphasize freshness and convenience, includinga substantial focus on ready-made meals. Whilethe company has no immediate plans to expand by

developing the other store formats it has establishedin the United Kingdom and other countries, such apossibility is always available.4 Tesco has particularlydeveloped a large number of its hypermarkets --similar to Wal-Marts Supercenter stores -- in numerouslocations in the United Kingdom and around theglobe.

The speed at which Tesco plans to enter andexpand within the U.S. market is breathtaking. It iparticularly bold in light of the uneven track record ofother global food retailers, to establish or successfullysustain operations in the United States. Rather thanfollow in the footsteps of such food retailers, Tescois not at this point seeking to acquire an existing U.Scompany, but to develop an entirely new operationIt has even brought with it some of its major U.Ksuppliers to help develop its U.S. supply chain andproduct packaging. Tesco currently plans to launchmore than 100 Fresh & Easy Neighborhood Marketsin the four targeted regions by the end of 2007 and into2008. It has already begun plans to expand into a fth

region, Northern California, and anticipates a rapidexpansion to other parts of the country in subsequentyears.6 An assessment by the investment nanciaservices rm Credit Suisse observed that, one major

Cashiers in a Tesco Store.Photo by Lee Jordan.


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2A Prole of Tesco

attraction of the U.S. for Tesco is the relative lack ofregulatory barriers, and that since the U.S. is a veryopen market (unlike other mature economies) Tesco

would not be constrained to the same degree byplanning, pricing and/or other trading laws. TheCredit Suisse assessment also noted that Tescoassumed that its roll out strategy combined with theease of growing quickly in the United States wouldlead to success where other non-U.S. chains havefailed.7 However, there are also indications that Tescoscommitment might not be open-ended and that thecompany may set a limit on how much it is willing tospend, and how long it will be willing to wait, before its

operations become protable.8

This report is being released prior to the openingof any Tesco stores in the United States to help informpolicymakers and the public, as Tesco pursues its rollout strategy. The authors envision this as a continuingevaluation of Tescos U.S. operations and intend toexamine future developments as they occur.

The report is organized in to three sections.Section I provides a prole of Tescos operations in

the United Kingdom and other countries. It examineshow the company has achieved its current position asone of the top multinational operations, with atten-tion given to key issues that have relevance for Tescos

U.S. plans. These include questions of food accessand competition with other food retail operations; its

workplace environment; its store operations and itsrelationships with its suppliers; environmental, nutri-tion, and health questions; its supply chains, branding,

and sourcing operations; and its expansion into inter-national markets.Section II examines Tescos U.S. plans. This

section explores why the company decided to enterthe U.S. market and how it has developed its roll outstrategy. It details the store sites under consideration,its marketing initiatives (including its focus on environ-ment and health) and its initial plans for developinga U.S. supply chain and distribution strategy. Thissection places Tescos U.S. plans in a broader context.It outlines briey the evolution of food markets in the

United States, and the development and persistence ofa grocery gap between afuent and low-income areas.

It also looks at how Americas changing food system isshaping the nature of the work force throughout thesupply chain, as well as inuencing the diversity of

products available to consumers.Finally, in Section III, the report offers a detailed

set of recommendations and potential opportunitiesfor public and community agreements with Tesco,including what have been characterized as commu-nity benet agreements between private businesses,

public agencies and community groups. In doing so,the report builds on the growing number of suchagreements around the country, some of which wereidentied in two previous UEPI reports on the urban

grocery gap and on Wal-Marts entry into the foodretail business.9

An assessmenthe investmenfinancial servifirm Credit Suobserved thatone majorattraction of thU.S. for Tesco the relative lacregulatorybarriers.


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SHOPPING FOR A MARKET

Section 1:A Profile of Tesco

Tesco store in PraguePhoto by Jons Pics


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American Anti-Trust Institute, to comment, Howdelicious.20

Tesco operates ve different store formats in the

United Kingdom, ranging from the Express at 3,000square feet to the Extra at >60,000 square feet.21 (Seetable 1) It has aggressively expanded into non-foodareas, particularly through its Extra and Homeplusstores. The company has also proven to be the mostsuccessful online retailer in the United Kingdom,commanding two thirds of the online retail marketand bringing in approximately $2.5 million a day.22 In

order to market to consumers with a variety of incomelevels and food preferences, Tesco has developedseven different own-brand labels ranging from thosethat target low-income consumers (Tesco Value)to those that target high-end consumers and otherspecialty preferences (Tesco Finest, Tesco StandardBrand, Tesco Healthy Living, Tesco Organics, Tesco

Wholefoods and Tesco Kids).

23

Tesco wields its size and inuence around a wide

range of public issues. For example, it has weighedin on recent debates about climate change, with Leahystating that he wants Tesco to be a leader in helpingto create a low-carbon economy.25 However, Tescohuge presence and dominance of the U.K.s food (andincreasingly non-food) market has also generatedcriticism from a variety of sources. (See Box 1A) ItU.K. critics have joined to create a coalition, Tescopoly(www.tescopoly.com), that aims to curb the power ofBritish supermarkets and to highlight the abuses of

Tescos business model. Additionally, a number o

books have been written about the company, includingTescopoly: How One Shop Came out on Top and Why iMatters by Andrew Simms of the New EconomicsFoundation.26 Some of the criticism was reinforced byinquiries during 2000, and again in 2006-2007, by theCompetition Commission, a public entity establishedthrough the Fair Trading Act of 1973, regarding the

growing dominance of the food retail market by Tescoand the three other major U.K. food retailers.27

In response to its critics, Tesco has sought tomarket itself as a socially responsible corporation(See Box 1B) The company has used a number ofslogans -- including be a good neighbor, a great

place to work, and every little helps to portrayitself as socially responsible. In a Channel 4 Dispatchedocumentary about the rise of Tesco, Keith VazLabor MP stated, Theyre very successful at dealing

with critics. Whenever I put down a motion, criticizingTesco, Im telephoned by one of their very clever peopleat headquarters who offers to come and take me outo lunch or have tea with me. They must be taking theorder paper home into bed with them to know exactly

what every MP is asking about.28 In many ways, Tescorepresents a global retail and marketing corporationand has sought to position itself on diverse publicissues such as food access, local sourcing, work placeconditions, the environment and nutrition and health

while aggressively promoting itself as a good corporate citizen. Tescos critics strongly challenge Tescomarketing messages and criticize many of its actions

This report evaluates those arguments and counterarguments in the context of Tescos operations in theUnited Kingdom and internationally.

TABLE 124

ore Type Size Description

tra 60,000+ sq. ft. Combines food retail with non-food items such aselectronics.

perstore 20-0,000 sq. ft. Traditional sized supermarket with an emphasison food, but also selling some non-food items

etro 7-1,000 sq. ft. Small sized supermarket with ready-made meals.

press ,000 sq. ft. Convenience store size with an emphasis onproduce, alcohol and fresh-baked foods.

meplus -0,000 sq. ft. Emphasizes non-food products, includingclothing.

Anti-Tesco graffiti.Photo by foolfillment.


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Box 1A Tesco Critics

Tescos dominant role in the United Kingdom has generated anumber of critical publications, campaigns and government andpublic interest investigations. Below are four organizations thathave created substantial campaigns and/or issued reports thathave challenged Tescos U.K. and global business activities.

TescopolyTescopoly was founded in 200 as an alliance of multipleorganizations, ranging from international NGOs, unions,environmental groups and local U.K. community organizations.It was established to highlight and challenge the negativeimpacts [from] Tescos behavior along its supply chains bothin the United Kingdom and internationally, on small busi-ness, on communities and the environment. On its web site(www.tescopoly.org ), the group also states that growing evidenceindicates that Tescos success is partly based on trading practicesthat are having serious consequences for suppliers, farmers andworkers worldwide, local shops and the environment.

The Tescopoly web site has itself become a central resourcefor information monitoring Tescos activities worldwide, withparticular attention to Tescos impacts on farmers, workers,environment, food poverty, unhealthy food, animal welfare andlocal independent stores.

Friends of the EarthFriends of the Earth (FOE) is a large, internationally recog-nized network of environmental groups working to influencepolicy in support of people and the planet. FOE in the U.K.(www.foe.co.uk) has focused considerable attention on Tesco andits effects on the environment, people and the planet. FOE hasreferred to Tesco and other large supermarket chains as bullies

and references The Tesco Takeover in one of its supermarketreports. In addition, FOE has issued a series of press releases,

advertisements and reports that criticize Tesco practices,including Tescos Green Claims and The Tesco Takeover.

Corporate WatchCorporate Watch (www.corporatewatch.org.uk) monitors theactivities of corporations and public officials and has expressed

serious concern with Tescos business model. As a researchgroup that supports many of the campaigns that have success-fully influenced corporations to reduce environmentallyand socially destructive practices, Corporate Watch has alsospecifically compiled a comprehensive documentation on Tescoand its international practices. Its reports on these issuesinclude, Tesco: A Corporate Profile, and Off the Peg: Tescoand the Garment Industry in Asia.

War on WantWar on Wants (www.waronwant.org) is an organization thatfights poverty in developing countries in partnership and soli-darity with people affected by globalisation. The organization

has specifically challenged U.K. supermarket chains such asTesco and Asda/Wal-Mart with respect to suppliers in developingcountries. Its reports on these issues include Fashion Victims,(which highlights the problems in garment factories that supplyAsda and Tescos cheap clothes) and Growing Pains, (whichexposes the human cost of cut flowers.) These reports andWar on Wants own campaigns, including a 2007 shareholderresolution that gained considerable support at the Tesco annualmeeting in June are designed to demonstrate how supermar-kets increasingly hide behind voluntary standards such as theSupermarket Code of Conduct as a defence of their practices.The organization concludes, ...without effective audits andunions to give workers a voice, conditions are still below stan-

dard even where codes are in effect.

Box 1B Tescos Approach to Corporate Responsibility

Tesco argues that it aims for the highest standards of corpo-rate behavior.6 The company website provides a number ofexamples of what it considers to be part of a corporate respon-sibility approach. It also publishes a Corporate ResponsibilityReview (CRR) document that identifies ten areas that constitutethe CRR agenda as well as a set of performance indicators foreach of the ten areas. In the 2007 CRR, the ten areas include:

Corporate Responsibility in our BusinessBeing a Good EmployerClimate ChangeSustainable ConsumptionWaste, Packaging and RecyclingFarmers and Local SourcingRetail and the High StreetHealth, Nutrition and Well-BeingEthical Trade and Developing CountriesCharities and Community

The performance indicators then provide a set of goals for2007-2008 in comparison to goals established the prior year.

Some examples include to initiate six regeneration partner-ship stores; to exceed 80% retention of experienced staff(although whether such staff were part-time or full-time isnot identified); to reduce by 8% in 2007/2008 the amount ofCO2 used in its distribution network per case delivered by itsvehicles and to reduce energy consumption per square foot by10%; to increase sales of local products by 0%; and to carry

out independent ethical assessments of 100% of our high riskown-brand suppliers.7

Tesco has also created a company Steering Wheel to identify itsbusiness goals. Within the last year, Tesco added Communityto the existing Customer, Finance, People, and Operationsspokes on its wheel. Tesco stated that adding the Communityspoke, with its two slogans, Be Responsible, Fair and Honest,and Be a Good Neighbor, was a significant step in buildingour commitment to community, corporate responsibility, andsustainability.8


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Tescos role regarding food deserts where low-income residents have limitedaccess to fresh and healthy food has been a signicant and at times explosiveissue, due to the giant retailers huge presence throughout the United Kingdomits enormous real estate acquisitions and inuence over land use, its aggressiveefforts to bypass or avoid regulations, and its squeeze on small independentstores in town centers. In response to criticism, Tesco has touted the develop-ment of its smaller stores as increasing fresh food access and has also pointedto its regeneration partnerships that are promoted as creating economicopportunities in low-income communities. This section examines these

contrasting positions regarding Tescos impact on food access.

Food DesertsFood Access Issues

During the late 1990s, a number of studies in

the United Kingdom introduced the concept of fooddeserts29 to describe a growing problem -- the lackof access to an affordable, healthy diet in low-incomecommunities. A number of factors were identied, but

one common thread pointed to the transformation ofthe food retail sector, with its increasing concentrationinto a handful of chains, led by Tesco. Studies showedthat these large chains were locating bigger stores,including hypermarkets, at the periphery of towns,

which in turn led to the decline and displacement

of smaller, independent food retailers that had beenxtures in their communities. The loss of competi-tion in the United Kingdom was also associated witha reduction in choice of the types of food available,particularly for low-income residents. This includedhealthy food options as well as the increased preva-lence of processed food, unhealthy food items withhigh sugar, fat, or salt content, and low-priced alcoholproducts.30 The grassroots community campaigns thatsubsequently developed around such food access issueshelped stimulate a widespread public debate about theneed to improve the local food retail economy.

As the leading food retailer, Tesco was a

particular target of those community campaigns. Inseveral instances, local community opposition to thelocating of a Tesco store led government ofcials to

postpone or prevent issuing the needed permits, orrequired Tesco to alter its plans. (See Box 2) Tescoresponded to the criticism of its role in creating fooddeserts by establishing what it called regenerationpartnerships.31The partnerships were part marketingstrategy to respond to its critics, and part investmentopportunity to locate in areas that other retail chainshad abandoned. Tesco became adept at linking withlocal community organizations to identify and reclaim

abandoned or underutilized sites, train and employlocal residents, and help to regenerate economicallytroubled areas.32 In some cases, Tesco accomplished itsregeneration goals, but on occasions, the company hasoperated such partnerships in a manner that subvertedand manipulated planning laws. (See for exampleStockton site in Box 2).

The impact of Tescos new store developmentson health and diets in low-income communitiescontinues to be debated within the United KingdomFor example, a study of a store in the Seacroft area

of East Leeds found a modest improvement inthe diet of area residents after a Tesco regenerationstore opened.33 Conversely, a study of a new Tescodevelopment in the Glasgow area found that while athird of the residents switched to the Tesco store, thehypermarket did not appear to have signicant effects

on the diet of the local community.34 The researcheralso pointed out that product mix was signicant in

its impact on diet, and that the Tesco store provided awide variety of unhealthy as well as healthy items. Thestudy determined that product placement (the locationof particular items within a food store) and productavailability were important factors in inuencing

purchases, particularly unhealthy items such as largetins of confectionary and high sugar Sunny Delighfruit drinks that were prominently and attractivelydisplayed in the Tesco hypermarket.35

A second area in which Tescos store developments have been debated relates to store locationsland purchases and land use planning issues. Tescodomination of the food industry in the UnitedKingdom affects whether and where other companieare able to locate, especially smaller independentsrms. These issues became an important focus of

the Competition Commission whose proceedings


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8A Prole of Tesco

its rapidly growing small Express stores, which, as anacademic study funded by Tesco found, provides accessto fresh food otherwise available in supermarkets.42

Tesco has also asserted that the sheer number of itsstores in the United Kingdom has reduced the nationsfood desert problems. A Tesco store, the companysays, is now located within a thirty-minute drive inmost parts of the United Kingdom, a factor due toits aggressive store expansion, including locating morestores outside urban core areas. The combination ofsaturating multiple regions with its stores, maintaininga low or competitive price for its products, andestablishing some regeneration partnerships to

overcome lack of food access in certain communities,essentially constitutes Tescos rejoinder that it seeks toserve everyone whatever their social, cultural or ethnicbackground.43

In sum, food access remains a signicant issue

in the United Kingdom, and Tescos role remainscentral to whether and how the food access questionis addressed. On the one hand, Tescos role in restruc-turing the food retail sector, particularly its morepredatory practices, as well as locating an increasingnumber of huge Extra hypermarkets at the edge oftowns, has inuenced the loss of independent food

stores and extended the problem of food access.

On the other, Tescos massive reach, including thedevelopment of its smaller Express stores, maypotentially increase access to healthy food in areas thatare lacking full-service food stores. Nevertheless, accesscannot be considered separately from questions about

what products are available, where they are sourced,their land use impacts and whether they undermine orenhance peoples food choices.

also included third party submissions that character-ized Tescos aggressive land purchases and efforts toinuence the planning and permit processes as a

strategy to squeeze out local competitors, undercutlocal opposition, and establish full market dominance.The critics also identied the use of dummy or front

companies, inaccurate information about store size todisguise its plans and misleading information aboutthe degree of local support for its developments.39By undercutting prices in urban centers, Tescoshypermarkets have thus had the impact of exacerbatingthe decline of urban core areas, according to localofcials and community groups in those communi-

ties.40

Moreover, Tesco, in conjunction with othersupermarket chains, has been effective in inuencing

U.K.-wide planning policy in favor of continuing toallow large market development. In 2007, for example,

Tesco, along with Asda and Sainsburys, wielded itsinuence to persuade the British government to scrapthe needs test that had been established in 1996

to impose environmental standards on new retaildevelopment. The needs test required retail chainsto prove that there was an identiable need for

additional retail space before development couldproceed; a provision that had been key in protecting

historic town centers.41 Tescos lobbying in this casehelped protect its ability to continue to develop itslarge stores, particularly its hypermarkets.

In response to criticisms about store size andomnipresence, Tesco has argued that its efforts tolocate new stores have increased food access andimproved local economies. This includes increasedopportunities through its hypermarkets or through


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Box 2 Conflicts over Tesco PracticesUse of PricingOne of the major concerns of the Competition Commission hasbeen use of what are called predatory practices such as pricing,as well as the manipulation and avoidance of local regulatory andplanning oversight regarding land use and store location issues.On the question of pricing, one particularly noteworthy exampleinvolved Tescos pricing strategies that impacted Proudfoot, apopular local supermarket in Withernsea. Proudfoot, whichhad won an award for the best independent retailer of the yearin 2002, also offered, besides food, Post Office services, arestaurant and car park. Following its unsuccessful attempt topurchase the Proudfoot Supermarket, Tesco opened a competingstore that sought to undercut Proudfoot by offering customers8 off for every 20 spent in their Withernsea branch. Thisamounted to a 0% discount across the board that indicated astrategy involving below-cost selling. Further, this price warstrategy was limited to the Withernsea store, which in turnundermined the viability of the Proudfoot Supermarket, turningit into a marginal operation. Once the pricing strategy achievedits goal of weakening its competitor, Tescos prices returned to alevel closer to the national average.

Planning IssuesIn 200, Tesco proposed a regeneration store in Stockton. Theplanning council, worried about the impact the new store wouldhave on traffic and local businesses, limited the size of the

proposed Tesco store. However, Tesco ignored the council rulingand built the store at the size the company had initially proposed 20% larger than the approved size. The council members wereoutraged, but felt their hands were tiedif they ordered Tescoto tear down the store (which they had the authority to do) theywould lose the 00 jobs the store would bring to the community.Richard Kemp, Deputy Chairman of the Local GovernmentsAssociation and 2 year veteran of the Liverpool City Councilsaid, after conceding to Tesco about a new store site, Tescos arefar more predatory and aggressive than anyone else that Iveever dealt with. Ive no doubt at all that they do bully councilsand that they do bully councilors in the way they go about things.This is a real David vs. Goliath battle.6

Similar to the Stockton situation, from 7 to as many as 100different U.K. townships and neighborhoods have opposed Tescoplans to expand operations in their areas. Several intensivecommunity campaigns have been organized to stop specificTesco planning permit applications and prevent what the groupshave characterized as Tescos attempt to undermine localautonomy and turn a local area into a ghost town. In 2007,local groups in such towns as Finchley, Yiewsley and Tolworth ingreater London succeeded in stopping Tesco plans to enter areaswhere local retailers were already established. These victoriesdemonstrated that local Councils can stand up to huge retailers,as one local official put it.7


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10A Prole of Tesco

Tesco prides itself as being a good employer and highlights what it calls itspioneering partnership with the union that represents its store employees.48 That union partnership stands in contrast to Tescos more contentiouslabor relationships with other U.K. unions and in several of its internationaloperations. Tesco suppliers have also been sharply criticized for workplaceabuses. This section examines Tescos workplace record as well as that of itssuppliers and subcontractors.

Workplace IssuesA Great Place to Work?

As the U.K.s largest employer with 260,000employees, and with nearly 400,000 employees world-

wide, Tesco plays a powerful role in determining key

workplace issues, such as wages, working conditions,union representation, health and safety concerns andthe overall workplace environment. Tescos reach isnot limited to those who work at Tescos stores andat its corporate ofces. Tescos web of inuence, as a

purchaser of goods and services, includes a vast supplychain, involving substantial numbers of contractorsand subcontractors. The wages, benets and workingconditions of these operations, in turn, are signicantly

inuenced by the conditions set by Tesco.

In the United Kingdom, Tesco prides itself thatits stores are a great place to work.49 It emphasizesthe loyalty of its employees and its good workingconditions. Tesco employees have been unionizedsince 1969, represented by one of the U.K.s largest

unions, the Union of Shop, Distributive and Allied Workers (Usdaw). The unions largest unit is Tesco,with more than 120,000 members, or nearly a third ofUsdaws entire membership. Tesco promotes its rela-tionship with Usdaw as a model of employer-employeepartnerships. Instead of the typical approach of collec-tive bargaining, Tesco has established partnershipagreements with the union on a range of issues thathelp establish joint annual agendas. Also unique, Tescoencourages its store employees to join Usdaw through

a tear-off union membership form on job applications.The most recent Tesco-Usdaw partnership agreementspecies the unions ability to recruit each new Tesco

employee at a 30-minute session, where informationpackets are made available and where a Tesco-Usdawpartnership video can be screened. According toUsdaw General Secretary John Hannett, the Tesco-Usdaw partnership agreements are one of the best,if not the best, trade union/company agreements inEurope.50

Tescos willingness to establish partnerships withits employees unions does not extend throughoutits work force. In 2001, members of the Services,

Industrial, Professional and Technical Union (SIPTU)and the Mandate union, threatened a strike at all of

Tescos 76 stores in Ireland due to pay rates that werelower than competitors in other Irish stores, an issueexacerbated by Tescos reports of increased prots

and handsome bonuses for company executives. Thestrike action was called off after Tesco agreed to apay increase.51 In a more recent example, in Scotland,

Tescos truck drivers, represented by the Transport andGeneral Workers Union, engaged in a bitter three-daystrike during a peak shopping period between May 24and May 26, 2007. Tesco was criticized as behavingin a truly draconian fashion which puts one in mind ofthe behavior of 19th Century pit-owners,52 accordingto the areas member of Parliament, Jim Devine. Thestrike was precipitated by Tescos decision to closedown several existing warehouses and transfer workersto a new national distribution center, where they would

Tesco cashier checks oucustomer.Photo by griff le liff.


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be paid on a different, and, in some cases, lower, payscale. Tesco argued that it was simply offering analternative method of payment changing the way

we pay our existing staff - not what we pay them,53

according to a company spokesperson. However, theScottish paper, the Edinburgh Evening News, reportedshortly before the strike that Tesco had offered driversat another haulage rm as much as $1,000 each, as

well as food and drink and hotel accommodations, tomake deliveries during the strike period. The driversrefused the offer once they learned they would have tocross picket lines. The union and public opinion nally

pressured Tesco management to open negotiations on

these issues after the union threatened a second strikethat was to take place on June 5th.54

Beyond the issue of restructured jobs, critics havesuggested that Tescos transfer policies and redundancyactions55 in fact constitute a rst step in eliminatingmore contentious unions as well as ultimately layingoff workers; concerns that have emerged in other

Tesco redundancy actions where existing warehousework has also been reorganized. In recent weeks, for

example, Tesco has announced redundancy plans foas many as 400 of its 1500 warehouse workers at theMilton Keynes area in Fenny Lock.56 A similar disputeto the Scottish situation has been brewing at another

Tesco distribution center in Wales, where concernhave been raised concerning the substitution of lowerpaid agency workers brought in from Poland andSlovakia.57

In other countries, too, Tescos relationshipswith employees and their unions have at times beenproblematic. In Czechoslovakia, after Tesco took oveseveral stores owned by the French retailer Carrefourit clashed with unions who opposed Tescos plans to

hire temporary employees in place of permanent staffIn Turkey, the law mandates that for a union to berecognized, more than 51% of a companys employeemust be signed up for union representation. Despitethe workers achieving such a majority, Tesco soughto pressure employees to resign from the union, in aneffort to reduce union membership below the 51%gure.58

Box Workplace Issues Along Tescos Supply Chain

Work place issues along Tescos supply chain include abuses dueto the practices of suppliers and subcontractors as well as thepressures imposed by Tesco. T&G union members employed byS&A Producer, Tescos major strawberry supplier, for example,protested the companys unfair treatment of workers, includingexcessively long shifts, inadequate worker supplies and unfaircharges for medical and administration dues. In anotherexample, Britains Transport and General Workers Unionthreatened a strike in 2007 against Grampian Foods, pork andpoultry processors and a Tesco supplier, over pay freezes, pensioncuts and increasing casualisation (a process by which long-term,full-time or contracted employees are given more casual andless secure working positions). In this case, Grampian finallyagreed to provide a % pay increase which the union accepted,although the deeper structural issues associated with casualisa-tion still remained.60 These types of U.K. workplace/supply chainissues are in part a direct result of the price pressures, flexiblelabor demands, and just-in-time growing and processing of itsproducts required by Tesco to maintain its low-price, high volumeretail signature. The way we operate is cheaper for Tescosituates one of the operational goals in Tescos Steering Wheelfor measuring performance and sets the context in which supplychain issues develop.61

A 2006 report by the United Kingdom non-profit group ActionAidhighlighted some of those issues, particularly the squeeze

on various Third World suppliers, such as South African fruitfarms, that supply Tesco stores around the world. According toActionAids submission to the Competition Commission, whichparalleled findings by Oxfam and several academic studies,this squeeze on suppliers resulted in below minimum wages;exposure to dangerous pesticides and other dangerous workingconditions; excessively long hours; increased use of temporarycontracts in place of full-time employees; forced overtime;and poor housing conditions for the agricultural work force,including lack of water and electricity.62 Tesco argued in turn thatno evidence has been found to substantiate any of the claimsmade, but that it would use independent multi-stakeholderaudits [in the future] to reassure ourselves and others that thestringent standards we expect are in place and maintained.6

When Tesco has been faced with sharp criticism about itssubcontractors abuses, the company has at times reversedpolicies. One example unfolded after a November 2006 reportdocumented widespread abuses by a key Tesco contractor,the large food processor Katsouris.6 The abuses includedpreventable worker injuries such as loss of worker fingertipsresulting from unsafe working conditions when the companyincreased the speed of the processing line at the companyplant in North London. The report noted Katsouris poor safetyrecord, including two or more worker injuries a day. The GMBunion had in fact nominated Katsouris as the employer with the

Tesco promotesits relationshipwith Usdaw

as a modelof employer-

employeepartnerships.


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12A Prole of Tesco

Box Continuedworst safety record in Britain.6 In response to these accusations,Katsouris parent company, Bakkavor, argued that, todays foodretailing environment is challenging. The last couple of years havemarked an unprecedented period of continuous pressure.66

Media exposure of these working conditions, public outrage, aswell as an investigation by the Competition Commission aboutworkplace and food safety problems led Tesco to pressure Katsouristo change its health and safety procedures. Tesco sent its own teamof inspectors to visit Katsouris north London processing plants,

where they found a number of areas for improvement. Tescosubsequently stated that it would work with Katsouris to developan action plan to achieve this improvement and we will be carefullymonitoring its progress.67

Government watchdogs, consumer groups, and unions havewelcomed Tescos pledge to police its subcontractors, butbeyond this specific change, Tesco has not directly addressedthe underlying structural problem of how its contractors orga-nize their production. In fact, the concern over supply chainpressures extends even to Tescos mid-level management. In2007, Tesco lost much of its development team (includingthe development director, program director and companyarchitect, among others) because, as Building reported,The chief executive of one of Tescos main contractors said

the supply chain was being screwed down as far as possibleto save money and that some of his staff now refused towork on Tescos projects because of the groups increasinglycut-throat and aggressive methods.68

Tescos labor relations have been compoundedby its extensive network of suppliers and subcontrac-tors, both in the United Kingdom and in other coun-tries. (See Box 3) This includes the agricultural laborassociated with the growing and processing of food,and the increasing use of contractors and subcontrac-tors to supply non-food items such as garments.

In the 1990s, Tesco established, through one

of its main suppliers, Natures Way Foods, a set ofsubcontracting relationships with other farms andlabor contractors. These labor contractors, knownin the United Kingdom as gangmasters, supplyup to 100,000 workers a year to farming and shing

industries. They have been criticized for a wide rangeof abuses of the largely migrant and female contract

workers, including agricultural workers within Tescossupply chain. These abuses include failure to payemployees for their work, payments below the legally-mandated minimum wage, excessively long workshifts, employees evicted from their company-ownedhousing, failure to provide water and electricity for

company-owned housing, document fraud affectingmigrant workers, and worker fears of physical retalia-tion for making complaints.69

When The Guardian reported on abuses fromseveral of Natures Way subcontractors after a year-longinvestigation of gangmaster practices in the Sussexregion, Tesco said that it took its responsibilities veryseriously and while we dont pretend to get thingsright every time, we always act swiftly if any issues areidentied.70 Tesco has also maintained a policy thatit could not take direct responsibility for any specic

gangmaster abuses, arguing that its vast network

of suppliers and subcontractors makes it nearlyimpossible to monitor such problems.71 Many Amer-ican companies, including Nike, Wal-Mart and othermultinationals, have offered this same response whencritics point out abusive working conditions among itssubcontractors around the globe. However, a numberof global companies have acknowledged their moraland even legal responsibility for such abuses. In

California, the state legislature enacted a law makinggarment companies like The Gap legally responsiblefor workplace abuses by their subcontractors, sincesubcontractors work under terms imposed by the largedepartment stores and clothing labels.72

Tesco has also argued that it has supportedimproved working conditions along its supply chain,pointing to its acquisition of fair trade products as wellas its participation in the voluntary Ethical TradingInitiative (ETI) that seeks to establish a code ofconduct regarding supply chain labor issues.73 Criticspoint out, however, that so long as these standards are

voluntary, and lack any objective enforcement mecha-

nisms, they cannot be relied upon to improve workingconditions among Tescos suppliers.74 A recent reportby the human rights group, War on Want, pointed tothe gap between promise and reality in the Ethical

Trading Initiatives statement about working condi-tions. The ETI stated that workers were not to workmore than 48 hours per week, with at least one day off,and that overtime was not to exceed 12 hours. Theinvestigation of the garment factories that supply Tescostores found that working conditions far exceededthis maximum.75

This lack of enforceable accountability has led

They [gangmaters] have beecriticized for awide range ofabuses of the

largely migranand femalecontract workwithin Tescossupply chain.


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to various campaigns to make Tesco (and its counter-parts) more directly accountable for working condi-tions among its contractors. Specically, submissions

to the Competition Commission called for mandatorycompliance requirements to be extended throughoutthe supply chain, while also strengthening account-ability provisions. Additionally, a resolution preparedfor the June 2007 Tesco stockholders meeting calledfor appropriate measures, to be independently audited,to ensure that workers in its supplier factories areguaranteed decent working conditions, a living wage,job security, freedom of association and of collectivebargaining including, where available, the right to join

a trade union of their choice.76

The presentation ofthe shareholder resolution led to a contentious annualmeeting, and included testimony from a South African

fruit picker and a Bangladeshi garment worker. Nearly20% of the shareholders agreed to the resolutionan unprecedented vote rebuking the Tesco management.77

While other supermarket chains, includinWal-Mart and its U.K. subsidiary Asda, have also beencriticized for their supply chain labor relationships

Tesco has received a great deal of attention regardingworkplace concerns--especially in light of the compa-nys promotion of its commitment to corporate sociaresponsibility. Its successful partnership with Usdawmay help make Tesco a great place to work in theUnited Kingdom, but the experience of workers in

Tescos international stores, as well as along its supplychain, challenge the company mantra.


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1A Prole of Tesco

Environmental and Nutrition andHealth Issues

Tesco has said that it wants to, help deliver a revolution in green consump-tion,78 through its initiatives around climate change and other environmentalconcerns such as energy use and waste generation. The company has also indi-cated that it wants to identify ways to improve the health and nutrition of bothcustomers and employees. The individual consumer has been the target of mostof these initiatives, including educational labeling and Tesco Clubcard incen-tives. Some Tesco critics have faulted aspects of the companys track recordon the environment and its mixed signals on health-related issues. This sectionexamines several of Tescos environmental and health-related initiatives.

In recent years, food retailers, including Tesco,have been among the businesses receiving scrutinyregarding their environmental practices and carbonfootprint.79 Such retailers use substantial energyto power their stores, rely heavily on trucks and airtransport and sell products with environmental impactsof their own. Historically, Tesco tended to fare poorlyregarding some of its environmental impacts, evenas compared to some of its food retail competitors.However, during the 1990s, Tesco became particularly

sensitive regarding its environmental prole and

initiated several programs to reduce wastegeneration and encourage recycling, as well as reduce itsoverall energy use. Despite specic energy reduction

initiatives, its overall energy use did not decline, due inpart to store expansion.80

Through the next decade, Tesco honedits environmental message and implemented anumber of environmentally oriented programs.Its most dramatic initiative aimed at securing anenvironmental reputation came in January 2007, at a

Tesco-sponsored forum, where Leahy announced Tescos new approach regarding climate change. Atthe forum, Leahy asserted, I am determined that

Tesco should be a leader in helping to create a low

carbon economy. Three months later, Tesco joinedBritish Prime Minister Tony Blair and executives fromBritish Gas and Marks and Spencer to announce theireco-friendly/Were in This Together crusade. Atthis press event, Leahy asserted that rms like Tesco

now need to build climate change in their businessmodel.81

Tescos new climate change/greenhouse gasreduction approach included continuing initiativesaround energy use (e.g., lower energy lighting) andemploying new technologies in the construction ofits stores and warehouses, and paying some attentionto the sourcing and transport of its products. The

companys most ambitious plan involved the develop-ment of a carbon label identifying the amount ofcarbon released in the production and transportationof each of its products. Such a label, which Tescohopes will become an industry standard, is to bedeveloped through research contracted with theEnvironmental Change Institute at Oxford University.

The carbon label is also designed, according to Leahy,to raise consumer awareness and establish individualresponsibility for the environmental consequencesof product choice, similar to the decision to selecta product with an organic or fair trade label. Alongthose lines, Leahy has also spoken of developing aSustainable Consumption Institute, identifying theconsumer, rather than the producer or the retailer, asthe focus of the companys climate change initiative.82

As part of its focus on the consumer, Tesco haspromoted its Green Clubcard point system, utilizingits popular club card program to demonstrate environ-mental commitment. Shoppers are able to accumulateGreen Clubcard points through such activities asreusing a bag for groceries rather than requesting anew one (one point), recycling mobile phones (500points), or recycling old inkjet cartridges (100 points).In addition, Tesco has highlighted its own store-related

recycling initiatives for such items as paper, cardboard,and plastic.83

Tesco has further positioned itself as supportiveof fair trade and organic products, and has sought tofeature a range of organic products at its stores. Alongthose lines, Tesco approached environmental garmentmanufacturer Katharine Hamnett to create a line offair trade organic cotton products to highlight andsell at Tesco stores. Hamnett recalled that at rst she

felt like she was walking into the jaws of hell, butalso wanted to seize an opportunity where organiccotton products, in particular her Choose Love lineof organic t shirts (with such slogans as Worldwide

Hamnett felt lishe was walkinto the jaws ohell, but alsowanted to seizan opportunitywhere organiccotton product

have wideexposure.


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Nuclear Ban Now and Save the Future for Me forchildrens t-shirts) would have wide exposure. Tescosigned contracts with several organic cotton farmersto supply the cotton and agreed that the manufacturingconditions would comply with the Ethical TradingInitiative labour code. The only way that people willproduce ethically and environmentally is if they canmake money out of it. If Tesco can make money outof it, other manufacturers will do the same, Hamnettsaid of their relationship.84

However, Tescos environmental initiatives,including its climate change program, have also beensubject to criticism when some of the companys

practices appear to undercut its environmental objec-tives. Although Tesco prides itself on highlightingorganic products in its stores, concerns about highlytoxic pesticide exposure have been raised in relation tosome the companys suppliers.85 For example, in 2006,The Guardianreported that a government agency foundresidues of the fungicide carbendazim, a possiblecarcinogen and suspected hormone disruptor, on

Tescos organic garlic, which is imported from Spain.The residues were found at the maximum legal safetylevel set for non-organic produce for about 40% of theorganic garlic tested, while a small number (approxi-mately 2%) exceeded the legal limit. Tesco objected

to how the information was highlighted in the reportand said it was taking steps to control the problem.Other imported products, such as apples from South

Africa, sold in both Tesco and Asda stores, were foundin another survey by a government agency to havesignicant pesticide residues.86

Tescos climate change initiative has appearedparticularly vulnerable to the companys variouscost-cutting techniques. Long distance supply chainsand tax avoidance strategies are both areas in whichprotability concerns outweigh environmental consid-eration. One complicated arrangement involves CDsand DVDs shipped by Tesco through its internetbuying service. When a customer orders a CD orDVD, a distribution rm in London packs it in an

envelope. These envelopes are then put in crates andsent to a large warehouse in the canton of Thurgauin Switzerland, in enormous articulated lorries thatplough across the quiet Swiss countryside, as onenewspaper account described it. The envelopes arethen posted from Switzerland to customers in theUnited Kingdom in order to avoid paying a large(17.5%) value added tax (VAT) on each product. Thejourney to and from Switzerland adds an extra 1400miles to the distribution route of a DVD, resulting in

a striking increase in the products carbon footprintThis procedure was defended by Tesco since it allowedthe company to continue to offer these great pricesfor our customers.87

Issues have also been raised regarding land useimpacts. In Hungary, for example, Tescos plans tobuild a hypermarket south of Budapest were opposedsince the store would have been located on forest-lands that served to create an air and noise pollutionbarrier between the town of Dunaujvaros88 and theDanube Iron Works plant. Tesco argued that theforest no longer fullled that function. In this case

the opponents, including workers from the plant who

had originally planted the oak, hornbeam and pinetrees, prevailed.89 Environmental activists in SheptonMallet, Somerset, were not as successful at protectingthe woodlands in their community, when Tesco wona high court hearing and proceeded to cut down 200mature trees to construct a new store.90

In addition to its focus on the environmentTesco has sought to develop a high prole in the area

of health and nutrition. These have included producreformulation, educational product labelling andemployee focused initiatives. (See Box 4) During theperiod when low-carb diets were in vogue, for example

Tesco established a Carb Conscious logo to b

placed on as many as 120 items such as cheese, nutsand sh that were naturally low in carbs. In addition

Tesco unveiled 40 new Tesco brand products that werelow or lower carbohydrate versions of standard bakeryproducts and ready-made and frozen meals. We nowhave the largest range of low and lower carbohydrateproducts of any U.K. retailer, asserted Hamish Renton

Tescos project and brand leader for health.91 Tescohas also developed low cholesterol products that useplant sterols in place of traditional fats and oils. Withhalf the U.K. population experiencing high cholesterolevels, Tesco hoped to become the market leader inwhat industry gures dene as health food.92

Tescos health and nutrition approach, similato its approach towards climate change, has focusedon providing consumers information about specic

products through labelling. In 2005, the WorldHealth Organization issued a set of recommendationsregarding diet-related health issues. The following yearthe City University Centre for Food Policy conductedan evaluation leading U.K. retailers, processors andfood service companies regarding how they addressedkey recommendations. The City University researcherreviewed company policies, actions and commitmenton a wide range of health-related issues. The repor


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indicated a mixed performance regarding Tesco. Onthe one hand, Tesco had established specic health-based programs at the stores, had pursued someattention to particular ingredients (e.g., salt), and hadincorporated health and nutrition into its corporatesocial responsibility mission. On the other hand,

Tesco had not addressed some key health-related issuesinvolving labeling of products with high sugar, fat andtransfat content. Tesco subsequently established labelsfor such items in its in-house product line, and statedthat it would also seek to reduce fat and salt content,among other product modications.93

The labeling issue was of particular note since

the U.K. governments Food Standards Agency (FSA)had launched a trafc lights color-coded label, wherefoods are labeled red, amber or green according totheir sugar, salt and fat content. Tesco rejected thetrafc lights approach and instead took the lead, in

collaboration with Coca Cola and Cadbury Schweppes,to enlist more than 20 food manufacturers and retailersto launch their own labelling initiative that was designedto provide more detailed nutritional information.Since other retailers, including Sainsburys and Asda,had signed on to the simpler and clearly marked trafc

lights program, the more complex Tesco-initiated label, which was used on more than 4000 Tesco products,

came under re from some health advocacy groups,who asserted that the numerical skills needed to readthe new guidelines [would] be too complicated. Astudy by the FSA found that while customers preferredtrafc lights to all other systems, Tescos system was

the least consumer-friendly.97 But Tesco has defended

its labeling system as providing important informationthat could benet shoppers seeking a more healthy

diet.98

Perhaps the most sensitive health-related issuefor Tesco and many of its competitors has been thequestion of food safety. At the 2006 Campden Daylecture, Leahy asserted that, For Tesco, food safetyis the absolute rock on which our relationship withcustomers is built. They will only shop with us if they

Box Tescos Store-Based Health Initiatives

Tesco has utilized its stores for health and nutrition initiativesthrough several programs. These have included in-store health-based programs, such as a physical activity program/exerciseprogram for employees as well as an initiative between Tesco andThe Health and Safety Executive organization to promote the bene-fits of an active lifestyle for back pain sufferers that was launchedin 2006. The back pain initiative also included exercise profes-sionals leading specially designed back-friendly exercise classes inTesco stores across the United Kingdom. Furthermore, Tesco hasestablished for Clubcard members a Healthy Living Club thatprovides a free 0 Steps to a Healthier Life booklet and Clubcardcoupons for healthy product purchases such as dairy and fruits andvegetables. However, Tesco has also been challenged when it hasencouraged what could be considered unhealthy practices, suchas a program that promised Clubcard wine coupons for customerswho were known to purchase large quantities of wine.

In one of the more unusual store-based health-relatedinitiatives, Tesco, in 200, introduced its Trim Trolley cartprogram to increase the amount of calories burned. Researchhad indicated that shoppers burned about 160 calories on anaverage 0-minute trip around a grocery store. The TrimTrolley referred to a 10-speed grocery cart that shopperswould be able to set at different levels of resistance by eithermaking it easier or harder to push the cart through the store.Shopping carts were programmed at Tesco stores for thedifferent levels that would also allow the customer to seethe number of calories burned as well as their heart rate.According to Tesco, at a more rigorous level 7, a shoppercould burn about 280 calories on an average trip through asupermarket (presumably more if one was pushing a cart inone of Tescos vast hypermarkets).6

Nutrition facts on one oTescos packaged sandwPhoto by leogomez.


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trust us to provide them with safe and wholesomefood. Yet, as Leahy also pointed out, Tescos in-houseproducts sold at its U.K. stores have come from 900

different suppliers located in 51 different countries,making monitoring a difcult and complex task.99 Atthe same time, food safety concerns have arisen withregard to the way Tesco labels and monitors productsonce they are in the store.

The issue of in-store food quality and labelingbecame particularly sensitive for Tesco when a May2007 BBC One News documentary exposed oneparticular Tesco stores practices, including re-packingold meats, re-labeling (extending) dates on expired

meat products, and mixing fresh meat with old meatin order to make it look fresher. The undercoverreporter who worked at a Tesco store for four monthsas part of her assignment stated, A lot of the time, thecounter staff treated the meat and sh we were selling

with indifference and, worryingly, there were times atTesco when they had no idea what the real sell-by date

was as they had altered it so many times.

100

Tescoresponded the day after the documentary aired, Tescocustomers should not be fooled into thinking that the

Whistleblowers program uncovered systemic failureor that the public is at risk. Our stores are subjected tocontinuous and rigorous scrutiny by trading standardsofcers and these checks conrm our excellent record

on health and safety.101

In sum, similar to its approach around foodaccess and workplace issues, Tesco has promoted andimplemented certain environmental and health-relatedinitiatives that have provided opportunities to markeits corporate responsibility image. At the same

time, several practices question the nature and extenof Tescos commitment to a social agenda presents adifferent picture of its efforts; a situation that causedEd Mayo, Chief Executive of the U.K.s NationaConsumer Council to comment, Tesco is now themarmite102 of British business people either love itor hate it.103

Tescos in-houseproducts sold at

its U.K. storeshave come from

00 differentsuppliers located

in 1 differentcountries.


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18A Prole of Tesco

For both its food and non-food products, Tesco has a vast supply chain thatreaches across the globe and involves thousands of suppliers and subcontractors.Supply chain abuses have been documented by government agencies, non-protgroups, and the media. Tesco has responded by arguing that it seeks to addresssuch concerns when they are raised. The company has also promoted its effortto source from local suppliers, partly in response to increasing demands bycustomers to support local producers. This section examines the issues associ-ated with the Tesco supply chain.

Like the company itself, Tescos supply chain is

huge and far-reaching. It is characterized by extendedrelationships where Tesco may not have direct controlover the production of goods, by supply chainconcentration and by Tescos close relationship withmajor suppliers and processors. Tescos in-housebrands also play an important role with regard to Tescosrelationship with other suppliers and producers.

Tesco exerts enormous inuence over its

suppliers. This pressure is reected, for example, in

supplier concerns that they could be de-listed at anypoint by the huge retailer; a fear that has led to supplierreluctance to challenge Tescos demands regarding priceor product issues, and has even made Tesco suppliers

unwilling to respond to the Competition Commissionsinquiries about supplier relationships.104 Tescos just-in-time ordering scheme allows the company to keepgrocery shelves stocked, inventory to a minimum, andconsumer prices low, but requires farm workers andsalad packers to work long and unpredictable hours, inorder to place, pack and ship uctuating orders. This

ordering practice also creates volatile and unreliablemarkets for farms supplying salad and fresh foodproducts to Tesco.105 Additionally, contracts between

Tesco and farms typically are not written, but tendto be verbal, allowing Tesco to change the prices ofproduce from week to week.106 More than half of

U.K. farmers dealing with large supermarkets haveexpressed a desire for long-term and binding contractsfor both parties.

Within this supply chain system, one key toTescos approach to sourcing has been its relationshipwith its two major suppliers Natures Way Foods andthe 2 Sisters Food Group. Natures Way Foods wascreated at the suggestion of Tesco in 1994, in order to

supply its retail outlets with ready-made salads. Withintwo years of its creation, Natures Way became thefastest growing food company in the United Kingdom,and now supplies other large companies, such as

Supply Chain IssuesFarmer and Supplier Relationships

McDonalds, with salad and lettuce mix. The company,

established by the Langmead brothers, a large land-holding family, is today the largest European grower ofbaby lettuce, farming over 6,000 acres in the South ofEngland and 1,500 acres in Spain, and insuring Tesco ayear round supply of baby leaf lettuce.107

The Natures Way relationship has been centralto Tescos increasing focus on packaged and ready-made meals, which Natures Way also oversees througha series of contractor/subcontractor relationships as

well as through its own processing facilities. Packagedfoods, particularly prepared salads, now include saladtrays, bowls, and punnets as well as the simple saladbag. Natures Way product development has continu-

ally expanded, with the company proclaiming that its vision is to be the best prepared produce supplierin Europe, a goal that will now include a marketpresence in the United States.108

Tescos relationship with 2 Sisters Food Group,predominantly a manufacturer of private label goods,has also allowed Tesco to increase pre-packaged andready made offerings of meat and poultry products. The

Tesco relationship has helped 2 Sisters to expand froma very small company to a turnover business spreadover eight U.K.-based facilities worth more than $800

million and employing as many as 10,000 employeeswithin its own supply chain, as the companys chief

executive put it.109 In its efforts to increase efciencyand update plant technologies, 2 Sisters Food Grouphas shut down two older processing facilities in theUnited Kingdom and purchased the primary poultryprocessor, Letham, further consolidating the U.K.poultry industry.110 These facilities operate similarlyto the gangmasters, drawing heavily on an immigrant

work force. In fact, one of the largest immigrationsweeps in the U.K. occurred at a 2 Sisters Food Grouppoultry processing plant this past June. 2 Sistersasserted that it had alerted immigration authorities ofsuspicious worker documentation and worked closely

Tesco continuefind itself subjto the criticismthat its overallsupply chain aretail systemcontradicts thepromotion of isocial responsbility objective


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Box Tescos Local Sourcing Approach

with authorities to arrest and deport illegal immigrant workers. At the same time, 2 Sisters and many ofTescos contractors and subcontractors have continued

to draw on this immigrant labor pool, due in part totheir need for a cheap and exible work force (i.e.,

workers hired and let go at irregular schedules) thatallows the supply chain operators to respond to Tescodemands for rapid product delivery.111

Although a company of Tescos size has a largeappetite for global goods produced at the cheapestcost, Tesco has also promoted a niche part of itssupply chain that involves a U.K. regional sourcingmodel. (See Box 5) According to the company

website, Tesco sources over 7,000 local U.K. productsidentied in stores by country of origin labeling.112 Inone important example, Tesco, sensitive about supplychain issues and Competition Commission inquiriesinto abuses pertaining to milk suppliers, announced in2007 a new initiative regarding contracts with as manyas 850 local U.K. milk suppliers. Tesco agreed to paythe farmers above the industry average; an offer that

Peter Kendall of the National Farmers Union calledthe most signicant and encouraging development inthe dairy industry for a very long time.113 As part ofthis new initiative, Tesco launched its Localchoicemilk in 650 English and Welsh stores in May 2007

The Localchoice milk is sourced in 14 English andWelsh counties, either within or nearby the county inwhich the suppliers operate. Due to a limited numbeof processing facilities in an increasingly consolidatedindustry, more than half of the milk is shipped out ofcounty for processing, but is subsequently returned tothe local stores, where it is sold for a slightly higheprice than its standard counterpart.114

To best characterize Tescos local sourcing approach, a repre-sentative from a U.K.-based sustainable food NGO argued thatwhile Tesco, like other supermarkets, has been responding toconsumer demands for locally sourced products, it has not estab-lished a more comprehensive regional model of sourcing. Tesco,the sustainable food advocate commented, primarily investsin product development for high-end local products such assausage, chili jam or mayonnaise that fill certain market niches.Tesco can then identify and promote products that traditionallycome from a growing region that specializes in those items, andthen publicize its support of these particular local products.11

Sam Nundy, a Senior Buyer for Tescos regional sourcing team,similarly describes Tescos sourcing strategy, commenting,within the United Kingdom there are certain growing regionsfor certain products. The East of the country has very fertile soil

and we grow a lot of green vegetables. These products will bethen distributed across the country either by Tesco distributionor by the supplier to one of the distribution centers around thecountry where they will then trucked to the stores. Nundy alsostated that most of the products that we source locally will staywithin the region. However, the best products may be distrib-uted nationally as they may be the best of a particular productin the country. Tesco has also developed Tesco Road shows,where farmers and food processors can meet with regionalsourcing team members, Tesco buyers, and technical managersto showcase their own products with the hope of soon becominga local Tesco supplier. This regional or UK model has also meantthat Tesco sources a high volume of chicken, beef, pork and lambfrom local producers but also distributes those products on aregional basis.116

Another important aspect of Tescos approachto supply chain issues is the continued growth of itsown label brands. A key segment of the CompetitionCommission inquiries included its investigation ofpotentially anti-competitive effects of in-house labels

Photo by athomson.


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20A Prole of Tesco

against other branded labels, as well as the relationshipbetween producers of in-house labels and super-markets. Tesco treats relationships with producersof their in-house products differently than how itconducts business with other suppliers, since productsare being developed and sold directly under the Tesconame. Typically, the supermarket is given universalaccess to the manufacturing process. Often in-houselabel producers are asked for exclusivity contracts orare only able to supply one supermarket due to highsales volumes. In-house label foods provide Tesco theability to undercut other nationally branded foods byselling Tesco brands at the lowest possible cost. This

creates tight working margins for producers who mustwork under pressure to deliver satisfactory products.Tesco is also able to leverage the success of its in-houseproducts during negotiations with branded productproducers.117

The Competition Commission identied a

number of issues regarding Tescos relationship withbranded product suppliers. These included Tesco:

a) requiring or requesting suppliers to providemore favorable terms in return for increasing the rangeor depth of distribution of their products within astore;

b) requiring or requesting a nancial contribution

from a supplier in return for promoting its productsthroughout the year (described by some suppliers as apay to play tax);

c) de-listing a supplier or causing a supplier toreduce prices at Tescos request under threat of de-listing;

d) suggesting a supplier de-list a product butthen later withdrawing the suggestion after receiving adiscount on an unrelated product, or negotiating morefavorable terms;

e) requiring suppliers to purchase goods orservices from designated companies (haulers, packingcompanies, labeling companies) where Tesco receivescommissions from such companies;

f) requiring or requesting a supplier to make anancial contribution to the costs of bar code and

price tag changes.118

Through its supply chain inquiry, the Competi-tion Commission was able to identify several signi-

cant store costs associated with running a supermarketbusiness that had been passed on to suppliers. Suchan approach in turn creates incentives for suppliersto squeeze pay rates and institute other problematic

working conditions and production practices. While

many of these practices are endemic to a highlyconcentrated food retail industry, Tesco, as marketleader with a large supply chain spread over severalcontinents, has become a main focus regarding supplychain practices.119

In sum, supply chain issues indicate Tescosstrong desire to exert its power over its suppliers inorder to maximize cost savings, strengthen its in-house label product line, and maintain a distance fromproduction and labor concerns. At the same time, itsstrong marketing prole and sensitivity to a range of

criticisms regarding ethical trading, environmental,and health-related issues has generated programs that

support local sourcing and local producers. However,as the company continues to grow, and its internationaloperations signicantly expand, Tesco continues to

nd itself subject to the criticism that its overall supply

chain and retail system contradicts the promotion ofits social responsibility objectives.

One of Tescos in-houseproduct labels. Photo byzimpenfish.


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Since the mid 1990s, Tesco has expanded into a dozen countries to become a globalgiant in the food, and increasingly, non-food, retail area. Tescos internationaloperations are pivotal to its future growth. As such, Tesco has become adeptat employing what has been called a glocalization approach part adapting tolocal conditions, but primarily remaining global in nature, applying key standard-ization goals, such as its in-house brand, to its multiple operations. Tescos entryinto the United States is the latest and most important step regarding this globalexpansion strategy.

Tesco Goes Abroad

A key dynamic for Tescos international opera-

tions has been its business management model thatstandardizes central operational features while seekingto adjust to other local factors. In this respect, Tescogenerally seeks to localize itself within new markets,so that its standardized format can be tailored toeach individual foreign market, in terms of productofferings and cultural product adaptations, such asthe sale of live turtles in China described below, orlocal holiday promotions. In this way Tescos globalmodel of applying its standardized broad managementapproach (e.g., in-house products, readymade meals,maximizing of cost savings in its supply chain anddistribution system, etc.) is localized by also catering to

local markets via product selection or other practicesthat supplement the global model. This has resultedin what writer Victoria Grifth calls a glocalizationstrategy. Grifth argues that Tesco, among other

global retailers, has standardized and scaled manage-ment methodologies to offset the costs of localizationand achieve global economies of scale in pursuit ofsuch glocalized foreign markets.120 This approach, inturn, allows Tesco to argue that it is exible, adopting

a slightly different approach, as every market is unique,while utilizing many of its key formats and operationalstrategies.121

In its most recent 2007 Annual Review and

Summary Financial Statement, Tesco proudlyelaborated on this approach, emphasizing its rapid andcontinuing expansion outside the United Kingdom.Testifying to the signicance of the development ofits international operations, including its high prole

hypermarkets, the report indicated that over half ofTescos selling space is outside the United Kingdomand the population of the markets we operate in addsup to more than 2 billion people, representing morethan half of the worlds wealth. Among Tescos1,274 international stores are 370 stores in Thailandand another 101 stores in Hungary. These were the

rst two countries where Tesco successfully launched

its international expansion, beginning in the mid andlate 1990s. Tesco also has operations in ten othecountries. (See Box 6) Tesco created 98 new store

in 2005 and another 228 new stores in 2006, and witnessed a 19% increase in the international spac

it occupied. International sales climbed 23% during2006 and prot margins were slightly higher than theoperating prots at Tescos U.K. stores. Furthermore

Tesco has associated its future growth with new andincreasing international expansion, and has singled outits forthcoming initiatives in the United States, as welas possible future expansion in India and China, as themost important markets it wishes to penetrate.122

Tesco opened its rst store in Hungary i1994 and acquired an additional 45 supermarkets

the following year. With the economic rebound inHungary in the late 1990s, as well as the interest of the

Hungarian government in foreign investment, Tescoquickly took advantage of a favorable investmenclimate to utilize some of its key strategies. These

Country Number of Stores

Thailand 70

Poland 280

Japan 10

Hungary 101

Republic of Ireland

South Korea 1

Czech Republic 8

Slovakia 8

China 7

Turkey 0

Malaysia 1

Box 6 Tescos International Operations


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22A Prole of Tesco

included its hypermarket format, non-food servicessuch as internet operations, the development of aTesco/Hungary in-house label, and a reliance on andpromotion of local sourcing. These strategies in turnhelped Tesco become the leading retailer in Hungaryand one of the countrys major foreign rms, while

also providing a beachhead for Tescos aggressiveexpansion into Central Europe.

Among those strategies, the hypermarket formathas been perhaps most notable. First introduced in1996 in Budapest, Tescos hypermarket stores often

dominate the retail landscape in the regions in whichthey are established, often at the outskirts of a town,

and now constitute about half of all of TescosHungarian stores.123 In the eastern Hungarian city ofEger, for example, the Tesco hypermarket receives over40,000 shoppers every week, equaling the citys entirepopulation. In relation to product mix, Tesco, similarto many of its U.K. and other international operations,aggressively pursued the development of in-houselabels. Tesco rst introduced its own brands in 1998

and now has more than 1000 in-house products.Tescos annual report also emphasized the importanceof local sourcing for many of its products in Hungaryand elsewhere, including its in-house labels, althoughsuch local sourcing has been developed in part due to

government limitations on importing fresh or frozenproducts from outside Hungary.124

Tescos rapid expansion in Hungary, includingits emphasis on large store size and in-house labels,has also led to criticism that its operations haveundermined Hungarys small independent stores,similar to the criticisms the company has experiencedin the United Kingdom. For example, EuromonitorInternational (an organization that provides businessinformation and strategic market analysis) has pointedout that the growth of the Hungarian hypermarkets ledby Tesco were primarily at the expense of independentfood stores, with the market share of the independentsdropping from 25.3% in 1998 to 10.9% in 2002. In

addition, community-based groups have linked up with environmental organizations to oppose Tescooperations where resource use or land use issues havecome into play.125

While Tescos expansion in Hungary laid thegroundwork for its Central European market penetra-tion, Tescos entry into Thailand served to establish itsfoothold in an expanding Asian market. Tesco openedits rst store in Thailand one year after the 1997 Asian

economic crisis, when the government opened theeconomy to multinational players. Through a joint

venture with CP Group of Thailand (a large Asianconglomerate) Tesco-Lotus was established-- an entitythat became the largest and most powerful of themultinational food retailers operating in the country.

Tesco also expanded its supply chain operations inThailand, accessing, for example, the chicken marketthrough various battery farms126 including the largestchicken farm, in which Tesco maintains majorityinterest.127

As the number of stores developed bymultinationals such as Tesco, Carrefour and theDutch-based Royal Ahold chain expanded, they rapidlytransformed the retail landscape in Thailand. Similarto the situation in Hungary, Tesco-Lotus hypermar-kets, as well as its smaller store formats that competeddirectly with Thailands traditional fresh food markets,undermined the small independent stores and shophouses in both Bangkok and several of Thailandsother cities. As criticism of this retail restructuringgrew, CP Group ultimately decided to sell its share of

Tesco-Lotus to Tesco, concerned that it had become atarget of community opposition.128

By 2005, the tension between the large multi-

national retailers and the small independent stores inThailand became part of an intense political campaignby community organizations and the local marketsto place restrictions on the multinationals. Theopposition to the retail multinationals fed into theprotests against the Thai government and its strongpromotion of foreign investment that culminated ina military coup. The protests also led to the develop-ment of policies that sought to place limits on foreigninvestment in order to protect the small independentmarkets and block further expansion of companies like

Tesco. Before the rules were established, both Tescoand Carrefour were asked to halt voluntarily expansion

Soy Sauce isle in a Tescoin Bangkok, Thailand. Pby Ben and Katherine STravel Photos 2007.


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plans until such rules were in place, but both refused

to do so. After the military coup occurred in late 2006,the new government established by the military drewup a weaker, less stringent set of rules on foreigninvestment that also exempted the food retail multi-nationals.129 By the time Tescos 2006 annual report

was released several months later, the company couldhappily report that expansion plans in Thailand wereproceeding, thanks in part to the development of a10,000 square foot store format, designed to carry largenumbers of product lines and mimic the idea of shop-ping in local markets. Tesco called the market, Talad, a

Thai word meaning, market. The Tesco-Lotus web sitealso announced it was introducing the Ready Meal, anew product line of chilled foods that utilized a long-standing Tesco approach from the United Kingdom.

The Talad became Tescos answer to the protests andthe plight of the small independents.130

While Tesco withstood the political protestsin Thailand, it was less successful in Taiwan, whereit bailed out of the country after a 2005 swap withCarrefour, divesting six of its Taiwan stores andtwo of its sites for 11 Carrefour stores in the CzechRepublic and four others in Slovakia.131 However,

Tesco also had its eye on the two biggest prizes in Asia the huge markets in India and China, where it joined

Wal-Mart and Carrefour in the rush for foreign invest-ment into food retail. In India, Tesco sought to gaina foothold through a joint venture arrangement withBharti Enterprises, a large Indian holding company,to establish a new retail entity that would seek to sellfresh foods, staples, groceries, and other conveniencefoods in a number of cities and towns throughoutthe country. Tesco was already engaged with Bhartithrough Bhartis agri-business unit, FieldFresh, whichused the slogan, Linking Indian elds to the world,

and which was one of Tescos suppliers for its U.K.stores. Indias rules placed certain restrictions onforeign ownership of multi-brand retail operations, but

similar to the situation in Thailand, Tesco hoped thatby establishing a joint venture and gaining a footholdin the Indian market, it could ride out any nationalistconcerns. Initial indications suggested that Tesco,

which was in competition with Wal-Mart and Carre-four among others, was the favorite to strike a deal.However, Bharti ultimately decided in late November2006 to sign a memorandum of understanding with

Wal-Mart to develop its joint venture.132

While Tesco was forced to wait to enter theIndian market, it eagerly began to pursue the vastChinese market that was more open to foreign invest-ment in the retail sector in comparison to other indus-

trial and commercial sectors. Tesco initiated its rs

move in China in 2004 when it joined forces with TingHsin (which controlled the Hymall chain of 25 upscalehypermarkets primarily based in the Shanghai region)

with plans to rapidly colonize the Chinese east coaswith large, modern shops, not unlike the ones you nd

at home, as a BBC News report put it. At rst we

will sell what is in stores at present... then look to bringin our own brand, Tescos corporate affairs directorLucy Neville-Rolfe told the BBC.133

Tescos effort to expand in China, similar tsome of its other international operations, representeda desire to utilize core strategies that had been developed in the United Kingdom, combined with specic

local market considerations. In China, one example offocusing on local market needs was Tescos successfuforay into selling live toads and turtles, where theturtles were slaughtered at the supermarket at therequest of customers. However, animal rights groupin the United Kingdom seized on the turtle issue asan example of the pitfalls of Tescos globalizationstrategy, and produced an internet video depictinggraphic footage of the turtle kills, to turn off TescosU.K. customer base. As a result of a number ofcustomer complaints, Tesco decided in 2007 to begina review of our current standards and procedures on

turtle farming, transportation, sale and slaughter, asits Corporate Responsibility Review publication puit.134

Despite the turtle controversy, protests inThailand, problems in Taiwan, and even with its Indiasetback, among other problems, Tesco remained fullycommitted if not enthusiastic about its long terminternational investments and globalization strategy

While Tesco continued to expand in Central Europeit was India, China and most signicantly, the United

States that represented the heart of the future expan-sion strategy. In an interview with the Sunday Timein December 2006, Tesco CEO Leahy laid out the

importance of those three crucial markets. If you arelooking at the 21st century, these are the places to puyour chips, Leahy told the Times. Clearly, China andIndia are the growing markets, but actually you haveto remember that the United States still accounts foa third of the worlds GDP. Everyone knows abouChina and India, but you also have to remember theUnited States.135 And it was to the United Statesthat Tesco now turned, armed with cash, warily eyeingand jockeying for position with Wal-Mart, its biggesglobal competitor, and ready to link the future of thecompany to its most ambitious foray into the globafood market.


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2Coming to America

Section 2:Coming to America

Photo by Ben Nyberg.


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Tesco has arrived in the United States with initial plans to roll out 100 smallersized, full-service stores within a year in Los Angeles and other parts of SouthernCalifornia, Phoenix and Las Vegas, with the possibility of expanding to as manyas 500 sites in these regions. The small store formats provide a low cost, entryinto the U.S. market and do not preclude Tesco from shifting to other formats as

well, including its huge hypermarket stores as it explores additional locationsthroughout the United States. This global retail giant has the capacity to inu-ence such issues as lack of fresh food access in low-income communities, thedecline of living wage jobs among grocery workers, environm

tesco report

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