Tesco Business Model

Tesco’s business model revolves around providing a wide range of products and services to customers through physical stores and online platforms. They focus on value propositions such as affordable prices, quality products, and convenient shopping experiences. Tesco serves a mass market, families, and online shoppers, generating revenue through sales, memberships, and financial services. Key activities include product sourcing, store management, and digital transformation. Key resources include product inventory, physical stores, and online shopping platforms. Tesco forms partnerships with suppliers and delivery/logistics companies. Their cost structure comprises product procurement, store operations, technology investments, and marketing expenses.

Revenue Generation:

  • Product Sales: The primary revenue source is sales of a wide range of products, including groceries, household items, electronics, clothing, and more.
  • Memberships: Revenue is generated through membership programs like loyalty cards, which offer discounts and rewards to customers.
  • Financial Services: Tesco’s financial services, such as banking, insurance, and credit cards, contribute to additional revenue.

Key Activities:

  • Product Sourcing: Tesco sources products from various suppliers, negotiating deals to ensure competitive pricing and product availability.
  • Store Management: Efficiently operating physical stores involves inventory management, staffing, and ensuring a pleasant shopping environment.
  • Digital Transformation: Developing and maintaining online platforms for e-commerce and digital services to cater to online shoppers.
  • Customer Service: Providing excellent customer service to enhance the shopping experience and foster customer loyalty.
  • Partnerships: Collaborating with suppliers and delivery/logistics companies to ensure smooth supply chains and product distribution.

Key Resources:

  • Product Inventory: A wide variety of products from diverse categories is a fundamental resource.
  • Physical Stores: A network of physical retail outlets, including supermarkets and hypermarkets.
  • Online Shopping Platforms: E-commerce websites and apps serve as a digital retail space.
  • Supplier Relationships: Collaborations with suppliers ensure a steady supply of products.
  • Customer Base: A broad customer base ranging from families to individuals and online shoppers.

Cost Structure:

  • Product Procurement: Costs associated with sourcing products from suppliers, including negotiations and bulk purchases.
  • Store Operations: Expenses related to running physical stores, such as rent, utilities, staffing, and maintenance.
  • Technology Investments: Costs for developing and maintaining online platforms and digital services.
  • Marketing: Expenditures on advertising campaigns, promotions, and loyalty programs to attract and retain customers.
  • Logistics and Delivery: Costs associated with the transportation and distribution of products to stores and customers.
  • Financial Services: Operational costs for providing banking, insurance, and credit card services.

Distribution Model:

  • Physical Stores: Tesco operates a network of physical retail outlets, including supermarkets and hypermarkets, strategically located in various regions. These stores serve as the primary distribution points for customers who prefer in-person shopping experiences.
  • Online Shopping Platforms: Tesco has developed and maintains e-commerce websites and mobile apps to cater to online shoppers. Customers can browse products, place orders, and choose delivery or pickup options through these digital platforms.
  • Click and Collect: Tesco offers a “Click and Collect” service, allowing customers to place orders online and pick up their groceries and other products from designated store locations. This service combines the convenience of online shopping with the flexibility of in-store pickup.
  • Home Delivery: Tesco provides home delivery services, enabling customers to have their orders delivered to their doorstep. This option is particularly popular among busy families and individuals who prefer the convenience of not visiting physical stores.

Organizational Structure:

  • Board of Directors: The highest level of leadership, responsible for overseeing the company’s strategic direction and major decisions. The board includes executive and non-executive directors.
  • Executive Leadership Team: Comprising senior executives who oversee specific areas of the business, such as CEO, CFO, Chief Operating Officer, Chief Commercial Officer, and others.
  • Divisions and Departments: Tesco is organized into various divisions and departments based on functions, including retail operations, finance, marketing, supply chain, human resources, and more. Each division is typically led by an executive or director.
  • Retail Store Hierarchy: At the store level, there is a hierarchical structure that includes store managers, department managers, and frontline employees responsible for daily operations and customer service.

Leadership Style:

  • Customer Focus: Tesco places a strong emphasis on understanding and meeting customer needs. Decision-making and strategies are often guided by insights into customer preferences and behaviors.
  • Innovation: Tesco encourages innovation and the exploration of new technologies and business models to enhance the customer experience and drive operational efficiency.
  • Sustainability: Tesco is committed to sustainability and responsible business practices. The leadership promotes environmentally friendly initiatives, ethical sourcing, and community engagement.
  • Employee Development: Tesco values employee development and provides opportunities for career growth and training. The leadership recognizes the importance of a motivated and skilled workforce.

Marketing Strategy:

  • Brand Awareness: Tesco has built a strong brand image over the years, known for quality, affordability, and reliability. Marketing efforts aim to maintain and strengthen this brand reputation.
  • Value Proposition: Tesco’s value proposition emphasizes offering quality products at competitive prices. Marketing campaigns often highlight promotions, discounts, and loyalty programs to attract and retain customers.
  • Multichannel Marketing: Tesco leverages both traditional advertising channels and digital marketing to reach a broad audience. This includes TV and radio commercials, print media, online advertising, and social media presence.
  • Customer Engagement: Tesco engages with customers through personalized marketing communications, loyalty schemes (e.g., Clubcard), and customer feedback mechanisms to enhance the shopping experience.
  • Community and CSR: Tesco’s marketing also reflects its commitment to corporate social responsibility (CSR) initiatives and community involvement. This fosters a positive public image and customer loyalty.

Key Takeaways

  • Tesco’s business model centers on delivering value to a wide customer base through affordable prices, quality products, and convenient shopping experiences.
  • Their revenue comes from product sales, memberships, and financial services. The company’s key activities encompass sourcing, store management, digital transformation, and partnerships.
  • Key resources include product inventory, physical and online stores, and supplier relationships.
  • The cost structure includes procurement, store operations, technology investments, and marketing efforts to maintain its position as a prominent retailer.
Value PropositionTesco offers a compelling value proposition for its customers, including: – Variety and Convenience: Providing a wide range of products in one location. – Affordable Prices: Offering competitive pricing and discounts. – Quality and Freshness: Ensuring the quality and freshness of products. – Customer Loyalty Programs: Rewarding loyal customers with discounts and offers. – Online Shopping: Convenience through online shopping and home delivery. – Private Label Brands: Offering a range of high-quality private-label brands. – Community Engagement: Supporting local communities and sustainability. – Innovation: Embracing technology for a better shopping experience.
Core Products/ServicesTesco’s core products and services encompass: – Groceries: A wide selection of food and grocery items. – Non-food Items: Including clothing, electronics, and household goods. – Pharmacy Services: Prescription medications and healthcare products. – Financial Services: Banking, insurance, and credit card services. – Online Shopping: E-commerce platform for convenient shopping. – Tesco Mobile: Mobile phone and network services. – Tesco Clubcard: Customer loyalty program offering rewards. – Community Initiatives: Engaging in sustainability and community projects.
Customer SegmentsTesco serves a broad range of customer segments, including: – Families: Offering groceries and household essentials for families. – Budget Shoppers: Attracting price-conscious consumers with affordable options. – Busy Professionals: Providing convenience through online shopping and delivery. – Health-Conscious Consumers: Offering fresh and healthy food options. – Tech Enthusiasts: Providing electronics and gadgets. – Financial Services Users: Customers utilizing banking and insurance services. – Community-Oriented Shoppers: Supporting local communities through sustainability efforts. – Diverse Shopper Base: Appealing to a wide demographic of shoppers.
Revenue StreamsTesco generates revenue through various revenue streams: – Retail Sales: Earnings from the sale of groceries and non-food items. – Online Shopping: Income from online sales and delivery services. – Financial Services: Revenue from banking, insurance, and credit card services. – Tesco Clubcard: Revenue from customer loyalty program memberships. – Pharmacy Sales: Earnings from prescription medications and healthcare products. – Tesco Mobile: Income from mobile phone and network services. – Community Initiatives: Funding and income from sustainability projects. – Wholesale and Distribution: Providing products to other businesses through wholesale operations.
Distribution StrategyTesco employs a comprehensive distribution strategy to reach customers: – Supermarket Stores: Operating a network of supermarkets and hypermarkets. – Online Shopping: Offering e-commerce with home delivery and click-and-collect services. – Tesco Express: Smaller convenience stores in urban areas. – Tesco Bank: Providing financial services through Tesco Bank branches and online. – Community Engagement: Engaging in sustainability projects and supporting local communities. – Private Label Brands: Selling private-label products alongside branded items. – Global Expansion: Expanding internationally with stores in multiple countries. – Technology Integration: Utilizing technology for efficient supply chain management and customer experience.

Related Visual Stories

Costco Business Model

Costco’s strategy can be summarized as a selection of high-quality items sold in bulk sized in warehouses around the US and Canada primarily and with a substantial part of its business focused on selling merchandise at a low-profit margin. Costco also uses a single-step distribution strategy to sell its inventory before it gets paid to suppliers. Costco generated almost $227 billion in revenue in 2022, of which $5.84B came from 65 million paid members.

Costco SWOT Analysis

Costco is a large American multinational corporation with a focus on low-cost, membership-only retail warehouse clubs. Costco is the 4th largest retail operator in the world, operating 785 warehouses in 10 different countries. Indeed, it has enjoyed rapid success growing from zero to $3 billion in sales within six years.

Who Owns Costco

Costco runs a high-quality, low-priced business model powered by its memberships that draw customers’ loyalty and repeat purchases. Top institutional investors comprise The Vanguard Group, 8.79%, and BlackRock, 6.77%. Top individual shareholders include Craig Jelinek, Chief Executive Officer of Costco, and Charles T. Munger (Warren Buffet partner and co-owner of Berkshire Hathaway).

Wholesale Business Model

The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Costco Financials

Costco generated almost $227 billion in revenue in 2022, compared to nearly $196 billion in revenue in 2021, and over $166 billion in revenue, in 2020. Costco also generated $5.84 billion in net income in 2022, compared to $5 billion in 2021 and $5 billion in 2020.

Costco Employees

Costcohad 304,000 employees in 2022, compared to 288,000 in 2021 and 273,000 in 2020.

Costco Members

Costco Memberships
Costo had 65.8 million paid members in 2022, compared to 61.7 million in 2021 and 58.1 million in 2020.

Costco Membership Revenue

Costco generated $4.2 billion in membership revenue in 2022, compared to $3.87 billion in 2021 and $3.54 in 2020.

About The Author

Scroll to Top