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Fast Moving Consumer Good Tesco

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By Elizabeth Onuoha

Fast Moving Consumer Goods – (FMCG) Supermarket

Executive Summary

Businesses within the FMCG sector are considered essential businesses in every town and city. This is because people largely depend on these businesses such as supermarkets and departmental stores for consumable and non-consumable goods. There are processes involved in the establishment of supermarkets such as ensuring they meet standard requirements – obtaining licenses necessary to sell certain products before sales commences location i.e. nearest to raw material and stakeholders etc.

The success of every business is dependent on its internal controls and innovative strategy which is centered on good governance and stakeholder satisfaction spanning across all aspects of the business’s supply chain management. This paper seeks to provide a better understanding of the business operations of the supermarket brand – Tesco, highlighting its successes and understanding its excesses.

Introduction

Tesco is Britain’s biggest supermarket, Europe’s largest private employer and the world’s second largest retailer second only to Wal-Mart; it was birthed in the year 1919 when Mr. Jack Cohen started the sales of surplus groceries from a kiosk in the East End of London. However, the brand itself appeared five years later when Mr. Cohen bought a shipment of tea from Mr. T. E Stockwell. The initials and letters from the names were combined to form the brand name TES-CO.

The supermarket showed its expansionary zeal, buying up rivalry stores in the 60s, rapidly expanding and selling products in larger stores, giving rise to its prominence as the store made its way to the Guinness Book of Records as the largest store in Europe.

The store continued to tighten its grip on the UK grounds with a lot more store openings and marketing campaign- introducing a 24- hour store while also expanding overseas – Poland, Czech Republic and Slovenia in the 90s. As far back as 2006, the store was recorded to have ongoing operation in 13 different countries with increasing sales and pre-tax profit.

The Tesco Case – A supermarket in decline

The twenty first century marked the supermarkets all-time peak and sudden decline in glory as lack of good governance began to take a toll on the business market status. In 2014, Tesco was alleged to have overstated their accounts by #263 million which was latter affirmed by the accountancy giant Deloitte who confirmed the income statement. This led to the suspension of seven executives and ousting of the Chairman Sir Richard Broadbent.

Subsequent to the 2014 accounting scandal, a contributory part to the stores’ decrease in revenue was the horse-meat scandal sales which led to withdrawal of tens of millions of burgers and beef products across Europe as well as prosecution of stores involved or found mislabeling products- under the European regulation, as it is an offense to mislabel food. 

 Seven leading supermarkets including Tesco has to clear their shelves of frozen beef burgers after a supplier sold to Tesco, products which were 29 percent horse meat. The supermarkets were made to publicly apologize to stakeholders via the media.

The Food Safety Authority of Ireland blew the lid off the controversy on the horse meat scandal.  Findings from the Irish authority show that the Food Standard Agency in the United Kingdom has for a long time been taking a “light touch”- the fact that food agencies haven’t conducted tests in the past prior to this case, identifying a loop hole on the Food supply chain policy.

In the year 2013, Tesco lost its shares to rivals after the ruling by the Advertising Standards Authority (ASA) which attracted a fine of #300, 000 levied by a British court for misleading consumers over the pricing of strawberries which prompted a wave of negative publicity.

Business Health

The horsemeat scandal (June 2013) led to Tesco, the world’s No.3 retailer, drop in quarterly sales in its main British market. This drop in sales according to the Business Newsletter became a trend recorded over time due to the impact of the horsemeat crisis which rose doubts on the stores plan of a 1 billion pounds recovery drive- store upgrade, staff recruitment and better pricing and value. 

Regardless of the foregoing, the store insisted on its ability to emerge from the backlash promising a re-launch of its non-food ranges starting in small stores and expanding.

Sales across the group’s international business also suffered falling stock prices – Asia and Europe. In April 2013 Tesco reported a fall in its sales performance analyst tagged – disappointing causing the store to scrap plans for 100 major new stores, leading to #804 million properties write down.

The group has since been recovering from falling market share and intense competition stimulated by the entire crisis.

Resignation

July 2014: the store announced Mr. Philip Clarke’s (Chief Executive Officer – CEO) resignation from the Board on October 1 to be replaced by the Unilever executive Dave Lewis.

Adjudicator

Following the horse meat incident, the Food Standards Agency sought to institutionalize into taking a more critical approach to ensuring stringent policies on the entire food supply chain that take into account assumptions that things could go wrong.

January 2015, the Groceries Code Adjudicator joined the Serious Fraud Office and the Financial Reporting Council in investigating the supermarkets supply chain.

The Grocery Code Adjudicator, Christine Tacon, believed with reasonable conviction that Tesco might have bridged most of the codes, however they could not be penalized because the offences would have been committed long before the power to penalize organizations was given to the adjudicator.

In the month of January 2015, the world’s 3rd Biggest retail outlet announces that it was shutting down its head office as well as 43 unprofitable stores as part of a wave of new measures as new boss Dave Lewis pledged to turn-around the groups fortune – ITC Report 8 Jan. 2015.

Conclusion and Recommendation

Companies are at the risk of facing financial setbacks as a result of their inability to strategize for contingency plans, thus most of the penalties imposed on the companies are paid out of the company’s investment portfolio and this could crunch into the company’s profit and reserves.

It is also important that regulations and regulatory bodies governing the affairs of organizations are constantly reviewed to ensure effective and efficient internal and external controls. These regulatory bodies are advised to strategically identify the various aspects of control needed in the sectors in which they regulate, creating strategic units and administering roles and responsibilities to enable citizens who would then drive the success of the department.

Regular auditing and investigations must be carried out on departmental stores to ensure continued compliance.

Nigeria should begin a piloting stage that first creates a platform for grocery stores to be registered and subsequently audited and cleared for operation before commencing sales.

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