Universiti Tenaga Nasional (UNITEN)

Kampus Sultan Haji Ahmad Shah

(KSHAS)

FICB 103
Principle of Finance
Semester 2 2015/2016
Group Project
Title: Tesco Malaysia PLC Sdn Bhd

Prepared for :

Miss Sahaida Laily

Prepared By :Muhammad Hazim Bin Mohd Yusof

(HR097741)
Zulhimi Syakir Bin Baharum
(HR097852)

Mohd Syazwan Bin Zulkefli Mat Yusuf

(HR099101)

Table of Contents

TITLE

PAGE

NUMBER
Table of Contents
Acknowledgement
Introduction
Background of the Company
Overview Retail Industry in Malaysia
Business Operation in Malaysia
Corporate Strategies
Financial Performance Analysis
Conclusion
Reference

Acknowledgement

This Group Assignment for subject Principle of Finance (FICB 103) has been assigned to our
group members to choose any company that has been listed by Bursa Malaysia and analyzed its
financial performance for ten (10) years in a row by referring from the course syllabus, subject to
lecturers approval. Hence, the students are required to submit brief information about their
project.

Project report must be submitted on 17th December 2015. Presentation will be held during class.
Students are advised to present their report in a simple yet knowledgeable manner. Marks will be
awarded for contents, teamwork, creativity, presentation and the quality of the report. For the
purpose of this Group Project, our team has chosen the topic: TESCO MALAYSIA STORES
SDN. BHD. This paper shall present in-depth presentation highlighted on strategies, competitor
analysis and recommendation.

We would like to extent our utmost appreciation and highest gratitude to our self as team
members of this group who had immensely contributed to the completion of this Group Project.
Special thanks also to our lecturer Miss Sahaida Laily for her kind support and guidance
throughout this project.

Introduction

Tesco History
Tesco originated in 1919 when Sir Jack Cohen used his gratuity from his Army service in the
First World War to sell groceries from a market stall in the East End of London. By the late
1920s, Tesco (or TES from TE Stockell, a tea supplier that he used, and CO from Cohen) was
selling from open-fronted shops in London high streets, the first store being at Burnt Oak,
Edgware. Cohens motto was Pile it high, sell it cheap, referring to the idea that customers
wanted inexpensive products at convenient locations and that volume would drive profitability.
Sir Jack Cohen concentrated on growing the business, vigorously pursuing expansion. Tesco
Stores (Holdings) Ltd was floated on the London Stock Exchange with a share price of 25 pence.
Until the 1970's, Tesco operated on the 'pile it high, sell it cheap' formula Cohen had imported
from the USA. However, the market was changing, leaving the company with slim margins and a
serious image problem. Under the leadership of Ian MacLaurin, who succeeded Jack Cohen in
1973, Tesco decided to try something dramatic and different which to become an inspirational
mass retailer.

Tesco decided to modernize itself, closing 500 unprofitable stores, and extensively
upgrading and enlarging others. At this time, Tesco prioritized the development of large out-oftown stores where parking was convenient, the selection of goods broad, and where a higher
volume of business could be generated at increased margins while reducing overheads. Other
innovations throughout the 1980s included introducing own-label product lines, computerizing
and centralizing distribution systems and developing shopping centre outside of the major cities.
In 1983, Tesco Stores PLC renamed itself simply Tesco PLC. In 1993, when Tesco introduced
'Value' lines, a cut-price range of own-label goods, competitors scoffed and the share price sank.
But Tesco had gauged the popular mood after years of recession, shoppers were looking for
bargains, and sales soared. A year later, Tesco started 'One in Front opening a new till whenever
a checkout line exceeded two trolleys. It cost millions in extra staff, but customers loved it. In
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1995 Tesco became the first supermarket to introduce a company loyalty card, an idea developed
by the then Deputy Managing Director, Terry Leahy. At first the other supermarkets were
skeptical, but the concept caught the public imagination leaving the others racing to catch up.
Cohen was responsible for several small revolutions in retailing which led to the rise of 'the
supermarket' we know today.

Tesco Now and Then

Sir Terry Leahy, current CEO of Tesco PLC, has overseen 13 years of dynamic expansion and
development that has taken Tesco from living in their rivals shadow to the UK's number one
retailer and not to mention third in the world after Wal-Mart and France's Carrefour. After
becoming CEO of Tesco, Leahy focused on each of the following areas: Tesco's core UK
business, its international operations, its forays into the non-food sector and retailing services,
and Tesco.com.

The core UK business was an important part of Tesco's activities employing over 250,000
people in 1,779 stores as of February 2005. The UK business also accounted for 80% of Tesco's
total sales. It operated through four different formats of stores - Express, Metro, Superstores and
Extra, catering to the needs of different types of customers. Tesco continuously innovated and
introduced new product lines to provide customers with a wider choice. But Tesco was already
jumping ahead of its rivals throughout the 1990s with a swathe of innovations that look
commonplace now, but were bold breakthroughs at the time. Tesco, Britain's biggest and most
profitable supermarket chain is the darling of the City. Tesco PLC is a global grocery and general
merchandising retailer headquartered in Cheshunt, United Kingdom. It is the fourth-largest
retailer in the world measured by revenues after Wal-Mart, Carrefour and Metro and the secondlargest measured by profits after Wal-Mart. It has stores in 14 countries across Asia, Europe and
North America and is the grocery market leader in the UK where it has a market share of around
30%, Malaysia and Thailand.

Originally a UK-focused retailer specializing in food and drink, it has diversified both
geographically and by product, into areas such as clothing, electronics, financial services,
telecoms, home, health, car and dental insurance, retailing and renting DVDs, CDs, music
downloads, Internet services and software. Tesco's huge growth is a hard act to follow. With the
domestic market increasingly saturated, some UK supermarket chains have looked to overseas
markets to maintain their positions. This is a whole new ball game, bringing into play
competition with large firms from other countries, such as US retailing giant Wal-Mart and
French multinational Carrefour.

Tesco began expanding internationally in the 1990s and now has outlets in the Republic
of Ireland, Poland, Hungary, the Czech Republic, Slovakia, Thailand, Malaysia, South Korea and
Taiwan. It has also recently bought chains in Turkey and Japan and is in the process of
negotiating expansion into China. Each of Tesco market around the world can be categorized into
4 stages which were start-up or entry level, developing 1, developing 2 and established market.
China, Japan United states and India falls under entry level market which the market have
potential to growth and have dilutive returns for short terms. For developing market such as
Turkey, Poland, Czech Republic, Slovakia and Malaysia, each have good market positions and
improving in returns. Established market such as UK, Ireland, Thailand and Hungary, they have
substantial profit centers and strong growth potential. In our full report here, the scope will be
much on Tesco store in Malaysia, how they operate and what strategies they used to survive in
the market.

Background of the company

Tesco Stores Malaysia Sdn. Bhd.
Tesco Stores (Malaysia) Sdn. Bhd. was incepted on 29 November 2001, as a strategic alliance
between Tesco Plc UK and local conglomerate, Sime Darby Berhad of which the latter holds
30% of the total shares. Tesco opened its first store in Malaysia in February 2002 with the
opening of its first hypermarket in Puchong, Selangor. Tesco Malaysia currently operates 33
Tesco and Tesco Extra stores. Total store by state in Malaysia is Selangor with 12 store, Kuala
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Lumpur 3 store, Perak 5 store, Johor 4 store, Penang and Kedah 3 store, Melaka, Negeri
Sembilan and Kelantan 1 store. In year 2003, Tesco launched Tesco own brand, Tesco Value. In
2004, Tesco Malaysia launches its own house brand, Tesco Choice. In December 2006, Tesco
also acquired Makro Cash & Carry in Malaysia, a local wholesaler which was rebranded to
Tesco Extra and provides products for small local retailers.

In 2007, Tesco launched Club Card. This acts a way to say thank you to customers by
giving money back to them. Club card has received an overwhelming response from customers
with nearly 2 million household members signed up to date. As of January 2009, Tesco have
rewarded nearly RM10 million worth of Club card Cash Vouchers to the customers. Later in year
2008, Tesco introduce Green Club card and Green bags making Tesco Malaysia to be the first
Tesco International business to introduce the Green Club card scheme. As part of its global
commitment, Tesco Malaysia is market leading on tackling climate change in techniques of
energy saving, launching Green Club card Points to incentivize customers shopping with their
own bags, introduce degradable carrier bags, promote positive behavior among staff though
Energy League competition intra stores and a recycling centre to facilitate customers to do their
part for the environment. Apart from that, Tesco has launched new promotion campaign to the
consumers, 50 basic needs guaranteed not beaten on price.

In the year 2009 has embarked Tesco as the number 1 Hypermarket in Malaysia. TESCO
PLC has appointed Tjeerd Jegen as chief executive officer (CEO) for Malaysia from April 26
2010. Jegen replaces Chris Bush, who has taken over the helm at Tesco Thailand. As CEO of
Tesco Malaysia, Jegen will be responsible for all areas of the business, from operations to
marketing, finance and corporate affairs, involving 33 stores and over 11,000 staff. Prior to this
appointment, Jegen was chief operating officer for Thailand's Tesco Lotus. Jegen began his retail
career in 1995 when he joined Royal Ahold as management trainee.

Overview of Retail Industry in Malaysia

Major retail outlets have seen tremendous growth since 1980s. There are around 400 such
outlets in Malaysia. After making their debut in 1990s, foreign-owned hypermarkets are fast
gaining popularity in Malaysia, attracting customers with their one-stop and all-under-one roof
concepts. Since their arrival, foreign retailers have been expanding rapidly. The Malaysian
economy has demonstrated resilience in the face of external uncertainties. It is expected to
remain strong despite the slowing of the global economy. The wholesale and retail sector falls
under the supervision of the Ministry of Domestic Trade and Consumer Affairs (MDTCA)
through the Committee on Wholesale and Retail Trade.

According to Retail Group Malaysia, retail sales growth for the year 2010 is projected to
grow by 5.5%. The group also expects a total sales turnover of RM74.9bil this year. Based on
interviews of its Malaysia Retail Association (MRA) members, the industry recorded a positive
growth rate of 7.9% in sales during the first quarter of 2010 (Q1), albeit from a low base. Sales in
the same quarter last year were down 3.3% due to a decline in consumer demand. However,
positive sales growth in Q1 2010 was still below the industry expectation of 10% at current
prices, while the Malaysian national economy continued to expand at a faster pace in comparison
during the same period by 10.1% at constant prices. Profit margins in the retail industry were
only up 2.4% during Q1, although the difficult economic situation during the same period last
year had caused a negative growth of 13.7%. In the retail sub-sector, MRA members stated that
positive growths were recorded in retail sales during Q1. Specialty retail stores for instance those
selling optical products, toys, bedding items and sportswear recorded the highest growth rate at
10.5% and department store cum supermarkets recorded the lowest at 3.9%.

It was a similar story for profit margins in the sub-sector as specialty stores were the
biggest growers, improving their figures by 11.2% whilst department store cum supermarkets

suffered the most with a decline of 0.3%. Members of the MRA expect their businesses to
improve at a slightly slower pace during Q2 with a growth rate of 5.6%. This was because sales
have started to slow down unexpectedly during Q2. Q3 sales are also expected to expand by 6%
due to the Mega Sales Carnival before maintaining at 3.5% during Q4. The report showed there
were positive growth rate of 9.8% in sales in Q3. The report also stated several factors that would
impact the growth of the industry for the second half of the year. These include the economic
conditions, cost of living as well as the cost of borrowing. For the Q410 BMI Malaysia Retail
Report reported that total retail sales has grow MYR153.76bn (US$43.65bn) in 2010 which only
6.10% growth rate in sales. Malaysia is classified as an upper-middle income country by the
World Bank. A low unemployment rate, rising disposable incomes and a strong tourism industry
are key factors behind the forecast growth for the year 2010.

Business Operation in Malaysia

Tesco Malaysia employs nearly 13,000 employees and operates 36 stores and in two formats
following the acquisition of the Makro Cash and Carry business in Malaysia in December 2006.
Tesco Stores Malaysia Sdn Bhd has been separated into 2 formats which are Tesco Hypermarket
and Tesco Extra Hypermarket.

Tesco Hypermarkets
The hypermarket format offers customers a complete one stop shopping for their needs from
fresh food to groceries, from household needs to apparel. It carries more than 60,000 lines of
products including nearly 3,000 own brand of products ranging from food to non-food items.

Tesco Extra Hypermarkets

The Tesco Extra format serves the needs of small businesses, families and individuals all under
one roof by providing a comprehensive range of products and services focused for small
businesses including bigger pack sizes, special trolleys and checkouts as well as a dedicated
business development team to support small business owners with their orders. Tesco Extra, the
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newest business format in Malaysia opens its first store on 30th April in Seremban, with the
conversion and refurbishment of what was once Makro Cash & Carry Seremban.Now, 7 other
Extra stores are in operation. There are 3 Extra stores located in Klang Valley which is Extra
Cheras, Extra Shah Alam and Extra Selayang. The remaining Extra Stores are located in Ipoh,
Plentong Johor Bharu and Extra Sungai Dua in Penang. The new concept store will combine the
best practices of both Tesco and Makro businesses. The Tesco Extra store will also cater to all the
needs of individual customers and families through its services and extra range of food and nonfood products as well as the unbeatable prices that have become the hallmark of Tesco in
Malaysia. Tesco Extra also has enhanced facilities in the store including disabled parking and
toilets, parent and baby parking, all credit cards accepted, customer loading facilities, and
different types of trolleys and checkouts to cater to the varying segment of customers.

Corporate Strategies
Adoption of strategies Tesco Stores Malaysia Sdn. Bhd.
Tesco has a well-established and consistent strategy for growth, which allowed Tesco Stores
Malaysia Sdn Bhd to strengthen core UK business and drive expansion into new markets. The
rationale for the strategy is to broaden the scope of the business to enable it to deliver strong
sustainable long-term growth by following the customer into large expanding markets at home
such as financial services, non-food and telecoms and new markets abroad, initially in Asia.

Low Price Strategy

Everyday Low Price
An Every Day Low Pricing (EDLP) strategy of Tesco is more popular with shoppers than one
driven purely by promotions, according to a recent survey in the UK. But a combination of the
two is the best means of keeping shoppers happy. Pricing was a key strategy and selling point for
Tesco. Low prices were adopted to maximize sales. Tesco's value-added products at low prices
attracted many customers. After the launch of 'unbeatable value' campaign in 1996, Tesco went
in for massive price reductions. The company adopted the strategy of 'Everyday Low Pricing'
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(EDLP), while continuing its other promotional activities. The EDLP program aimed to
regularize low prices for Tesco customers. Low prices were not merely a strategy used for the
occasional sale, but on a regular, daily basis. Adopting the EDLP strategy demonstrated Tesco's
commitment to its customers, putting customer interests first.

Customer-focused Strategy
Create value for customer to earn their lifetime loyalty
The core purpose is to create value for customers to earn their lifetime loyalty. Everything
TESCO did, every innovation they bring to the market, every business decision they take, is
driven by the customers. The underlying aim is of course to make higher profits, but there is a
clear focus on customer service at the top level of the company. It remains to be seen whether
Tesco will be able to maintain this focus now that it is widely perceived as a great corporate
success story and the dominant company in the United Kingdom retail market or if it will
succumb to corporate arrogance as sometimes happens to dominant companies. They believe that
by living by the values, they will encourage and demonstrate behavior that will help them
achieve in core purpose and set them apart from their competitors. Values enable them to build a
common way of working. They want people in the business feel comfortable with these values
and feel they can genuinely demonstrate them. They aren't about being soft and lovely, but about
being rigorous and single minded about how they achieve their goals. Imagine how they translate
in the context of a multi-billion pound company focusing on people both staff and customers.

Growth Strategy
Club Card scheme
Club card is Tescos membership scheme which allows customers to save money on shopping by
providing them price-off vouchers. Customers get a point on every pound they spend shopping at
any stores of Tesco group of companies as well as at stores of their partner companies. Once a
customer accumulates 150 points, these are then converted into Club card vouchers which enable
the customer to save money on shopping. One can argue that other retailers also have similar
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loyalty programs. However it is interesting to note that while most loyalty schemes and
relationship marketing strategies similar to Club card have often failed for other retailers, Tescos
Club card has worked well and managed to succeed. It can be said that what has made Club card
work so wonderfully for Tesco is the fact that with this simple single loyalty scheme, Tesco has
been able to address to the customer segments of different age groups. Thus the main reason
behind the success of Tescos relationship marketing strategy and loyalty program has been the
way it has managed to establish Club card not as a marketing tool but as a product of relevance
and value for the customers.

Green Club Card

Green Clubcard points are earned when customers re-use bags when shopping in store one point
per bag, or opt out of receiving bagged products when shopping online one point per ten items
delivered. They can also be earned by recycling a limited number of products, currently mobile
phones and ink cartridges, through Tesco-branded recycling services. Once earned, Green
Clubcard points are equal in value to normal points, but are listed separately on receipts and
Clubcard statements. As part of its global commitment, Tesco Malaysia is market leading on
tackling climate change agenda around energy saving initiatives, degradable carrier bags and
Green Club card Points scheme to incentivize customers shopping with their own bags, Tesco
also introduced its Green Club card League and Green Club card Champions to promote
positive behavior among staff through inter-stores Energy League competitions and opened 6
recycling centers to facilitate customers to do their part for the environment.

Own brand value

Own brand value portrayed the strong brand image of TESCO based on effective strategy. Tesco
is very good at using design across their own label, especially strategically. Tesco is often used as
one of the best examples of own brand label in the retail industry. Majority of consumers buy the
basic Tesco brand as it is cheap and good value for money. The use of Tesco logo is consistent in
each of the products design. Brand values of Tesco are successfully throughout Tesco own brand
ranges demonstrated through experience and way finding system. Tesco uses design to give
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something back to customers for shopping at Tesco. As competition is so intense retailers such as
Tesco use design to differentiate from the competitors.
Differentiation Strategy
The strategy to diversify the business was laid down in 1997 and has been the foundation of
Tescos success in recent years. The new businesses which have been created and developed over
the last decade as part of this strategy now have scale, they are competitive and profitable in fact,
the International business alone makes about the same profit as the entire Group did a decade
ago.

Core UK business
The UK is the biggest market and the core of TESCO business. The aim is to provide all of the
customers with excellent value and choice. It has been innovative and energetic in finding ways
to expand, such as making a large-scale move into the convenience-store sector, which the major
supermarket chains have traditionally shunned. Tesco has 702 stores and is the largest food
retailer in the United Kingdom. Tesco continue to increase market share through their policy of
cheaper prices, offering better value and providing more choice and convenience for customers.
Market share of the UK has grown steadily since the early nineties as a result of our customer
focused strategy

Non-food business
The aim is to be as strong in non-food as in food. This means offering the same great quality,
range, price and service for our customers as in the food business. Many supermarket chains
have attempted to diversify into other areas, but Tesco has been exceptionally successful. By late
2004 it was widely regarded as a major competitive threat to traditional high street chains in
many sectors, from clothing to consumer electronics to health and beauty to media products.
Tesco sells an expanding range of own-brand non-food products, including non-food Value and
Finest ranges. It also has done quite well in non-food sales in Malaysia.
Community
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Making Corporate Responsibility integral to our business is essential in applying our values as a
responsible business. We believe it is also an opportunity for growth. Tesco Malaysia is
committed to stay close to the heart of the communities Tesco Malaysia is part of. We responded
and worked with many local communities including NGOs such as the National Cancer Council
(MAKNA) to raise RM450, 000 through fundraising and Walk for Life series to raise cancer
awareness. Tesco has also raised funds for the Malaysian Nature Society through the sales of its
designer green bag and carrier bag sales and Walk for Schools donation to local primary schools.
Tesco Malaysias Charity partner of the Year 2010 is Nur Salam, and we aim to help improve the
quality of life for these children through customer and staff fundraising activities at all its stores
nationwide.

Personal Finance
Tesco has followed its customers into the growing world of retailing services, aiming to bring
simplicity and value to complex markets. Tesco Stores (Malaysia) Sdn Bhd is making it easier
for customers at 22 of its stores nationwide to do hassle-free banking within 10 minutes through
Easy by RHB at Tesco stores, collaboration with the RHB Banking Group. Following the
successful launch of its first two financial products in January 2009, the co-brand Tesco-RHB
Credit and Debit Cards, there are now five new, instant banking products being offered to
existing and new customers expanding the range of products that customers can access quickly
and conveniently while shopping at Tesco.

Whether it's opening a savings account, applying for a credit or debit card, buying life
and personal accident insurance, arranging Amanah Saham Bumiputera financing or applying for
personal loans up to RM50, 000, everything is quick and convenient at Tesco. Background
checks and approvals are completed on the spot at conveniently located kiosks in Tesco stores.
This signifies another important milestone for Tesco in expanding its financial services in
Malaysia. This is Tesco's way of showing that TESCO are looking into the needs of their
customers by bringing them a more convenient way to get financial services and this new
concept of banking allows our customers to get banking services during weekends and after
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office hours. They will consider any move to make shopping at Tesco an enjoyable and
beneficial experience for our customers. Customers are of utmost importance and Tesco want to
be able to give them as much benefit as they can. This may include entering into collaborations
with other companies so that Tesco can offer the best in the market for their customers. It is a
matter of keeping the interests of customers at heart. Easy by RHB @ Tesco is a revolutionary
banking concept that offers simple, fast and convenient banking. Customers just need to bring
their MyKad for on-the-spot approval and instant cash or loans up to RM50, 000, all without the
need to fill-up any forms as details are captured electronically and a unique biometric
verification system is used. This concept of being the first and only hypermarket in Malaysia to
provide banking to their customers is exclusive to Tesco. The Easy by RHB @ Tesco kiosks are
now available at 22 of Tesco's 33 stores nationwide daily, open from 10am to 10pm.

The RHB Banking Group is appreciative to Tesco in bringing Easy into their stores, and
concern that this step will further strengthen our partnership and cooperation. There are 33
existing Easy outlets in operation, 26 standalone, 5 Easy by RHB @ Pos Malaysia, and 2 kiosks
at LRT stations and now with Tesco as the distribution channel, which will make the total
number of Easy by RHB outlets 55 hope to reach out to more customers and give them value-add
services that they do not get from other financial providers. In addition to that, this easy banking
concept, touted to be the first-of-its-kind, also empowers the people to take control of their
finances in a simple, convenient and affordable manner.

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Financial Performance Analysis

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