Tesco is widely recognized as a very successful brand. In 2012, it was estimated by Verdict Research that Tesco accounted for £1 in every £8 of all consumers’ retail spending in the UK, derived not just from its core supermarkets, but also through sales of insurance, personal finance, telephone and energy services. Having achieved success in the UK, it had turned its attention to world markets, with retail operations stretching from Eastern Europe to the Far East and the USA. Part of the explanation for the company’s continued successful growth has been the development of a strong trusted brand, and an ability to apply this to emerging service sectors. But its brand has not worked in all markets it has entered, most notably the United States where in 2013 it was forced to write off £1.3 billion in its failed ‘Fresh and Easy’ convenience store development. 

Like most large and successful service-based organizations, Tesco started small, being founded shortly after the First World War when Jack Cohen left the Flying Corps with just £30 of capital available to him. He invested most of this in the bulk purchase of tins of surplus war rations, which he then sold from a barrow in the street markets of London. At first, he was selling a generic commodity product and branding had no significant role to play. Over time, Cohen appreciated the need to differentiate his tea from that of his competitors and adopted the name Tesco - derived by taking the first two letters of his own surname and prefixing it with the initials of the owner of the tea-importing business from which he bought his tea — T E Stockwell.

The Tesco brand name became particularly important to Cohen when he expanded beyond his single market barrow. He initially acted as a wholesaler to other traders, then opened his first shop in Tooting, London, before going on to open further shops. In 1947, Tesco became a public company and the money provided by the sale of shares was used to develop larger stores, in particular the new style of self-service store that was modelled on the American example, and which proved increasingly successful for Tesco. The company had developed its own brand in a number of product areas, such as tea and dairy products, but still relied on selling other manufacturers’ products. In the 1950s, the power of a retailer to influence the decision of customers was being reduced with the development of mass media aimed at the final consumer, particularly following the introduction of commercial television. Retailers increasingly became dispensers of manufacturers’ branded goods, which buyers specifically sought out, rather than relying on the persuasion of the retailer.

In this environment, Tesco aimed to make manufacturers’ branded goods available to consumers at the lowest possible price and its brand message became ‘pile it high and sell it cheap’. The main constraint on offering lower prices was the existence of Resale Price Maintenance, which allowed manufacturers to control the price at which their products were sold to the public by retailers. The abolition of Resale Price Maintenance in 1964 was to be extremely beneficial to Tesco’s business strategy, in which low prices were a key element of its marketing. It was only from the 1980s that the power of UK retailer brands really came to match the power of manufacturers, with the emergence of five very large retailers in the grocery sector. It then became more important to manufacturers that they should have access to Tesco’s shelf space than for Tesco to have access to a particular manufacturer's branded products. Throughout the 1990s, Tesco carefully nurtured its brand, increasingly identifying with a number of good causes, for example lead-free petrol and educational charities. The company also had a comprehensive corporate social responsibility agenda, and went out of its way to present itself as a good citizen......

Case study review questions 

1 Critically assess the factors that explain the successful development of the Tesco brand. 

2 If large dominant companies such as Tesco really are seen as bullying, manipulative operators, how do you explain their continuing popularity with customers in a fiercely competitive market environment? Is it in the public interest that successful companies should be able to grow to a point where they dominate a market? 

3. Discuss the different challenges and opportunities for brand building that Tesco is likely to face as it enters new overseas markets.