Subject Line: Business Inside the Homeplus

Dear Mr. Jerry,

It gives us great pleasure to welcome you to Korea! We sincerely hope you enjoy your new
adventure and achieve great success with Tesco and Homeplus.
I have prepared a consolidated report in the attachment for your information with the
following key points to provide you with an overview of the HomePlus business, its
opportunities, challenges, and strategic approach.
1. Home Plus business review: you will find key factors of success and key drivers of the
growth that contributed to our business
2. Home Plus opportunities and challenges: you will find a consolidated report of market
opportunities, as well as the major obstacles that our team is encountering that, may slow
our growth.
3. Suggested solutions for moving forward that our team has discussed based on previous
practical experiences
Please take a look at the report. I believe it will be an excellent resource for you to catch up
with our role in the Korean market. Furthermore, our team will be able to meet you at the
monthly management meeting by the end of this week. I hope you will take the time to meet
with our team, which includes myself and our direct managers, to achieve a better
understanding of the company. Likewise, if you have any questions or clarifications
clarification, please do not hesitate to contact me.
I and HomePlus hope you enjoy your new adventure and achieve great success with us.

Yours sincerely,
Lee Je-Hoon
CEO of HomePlus

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Homeplus – A Brand philosophy of HomePlus in the
Korean retail market

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Table of Contents

Sr.no Content Pg.no

1 EXECUTIVE SUMMERY 4
2 INTRODUCTION 5
3 HOMEPLUS BUSINESS REVIEW 6
4 THE CHALLENGES 9
5 THE STRATEGIC SOLUTION 9
6 CONCLUSION 10

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1. EXECUTIVE SUMMARY
Tesco's growth into Asia has been a vital recognition for the enterprise since the overdue Nineteen
Nineties. Following its acquisition of Thailand's Lotus in May 1998, the organization announced a
142-million investment in South Korea in March 1999 via partnering with Samsung to develop
hypermarkets. Through its tie-up with Samsung, Tesco made a localization effort to evolve its
Homeplus shops to the local client. The contemporary example of this localization become the
launch in 2011 of its first virtual store, positioned in a Seoul subway station, an idea based on the
observation that the everyday Seoul commuter did no longer have the time to shop at her nearest
brick-and-mortar Homeplus shop
In the late 1990s, multinational retailing giant Tesco selected a joint venture with the Samsung
Group as its market entry strategy into South Korea and created a new brand, Homeplus.
Subsequently, the management of Homeplus implemented various policies aimed at localizing the
business while also introducing business practices from Tesco's British headquarters. It invested in
growth and diversification through large discount stores offering an "all in one spot" shopping
experience, small-sized super-supermarkets, private brands, and online shopping. At the same time,
the Korean retailing industry had become much more dynamic as competition intensified between
various types of market players, including strong competitors affiliated with local business groups.
Homeplus needs to rethink its position in a highly challenging market environment.
Homeplus initially encountered a number of challenges, including cultural differences, language
barriers, communication issues, and potentially negative nationalistic sentiments among domestic
buyers. Homeplus has grown quickly and become the second-largest retailer in the Korean market
in less than a decade, with a network of 124 discount stores and 27,874 employees, exploring the
potential of the Korean retail market valued at USD196 billion in 2011.
This Homeplus – A Brand philosophy of HomePlus in the Korean retail market will provide a brief
overview of current market shares, market trends, and competition, as well as uncover sources of
future market growth for the Korean retail market. This report also assists in identifying hidden
potential in the most recent retail audit data, as well as providing comprehensive solutions that
HomePlus should consider for developing expansion and acquiring or maintaining their growth in
the Korean retail market.

OBJECTIVES OF THE REPORT

 To provide a short overview of current great achievements, with clearly defined success
factors and challenges.
 To define the strategic approaches for growth and retention of competitive strengths in the
coming years.

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2. INTRODUCTION

TESCO BUSINESS REVIEW

Tesco was founded in 1919 by Jack Cohen (Cohen), who invested his serviceman’s gratuity of £30 in
a grocery stall. The first private label product introduced by Cohen was Tesco Tea. The name Tesco
was a combination of the initials of the tea supplier TE Stockwell, and the first two letters of
Cohen’s name. Tesco opened its first store in 1929 in Edgware, London. In 1947, Tesco Stores
(Holdings) Limited was floated on the Stock Exchange with a share price of 25 pence, and the first
supermarket was opened in 1956 in Maldon, Essex, England. The first superstore was opened in
1968 in Crawley, West Sussex.
The objective for Tesco is to strengthen the structure of the organization itself by reconstructing its
current team as well as its distribution channels for them to be able to maximize the international
business trade.
Tesco, one of the largest retailers in the United Kingdom was incorporated in 1950 with the launch
of its first supermarket store in London (Tesco plc, 2019A). The company has more than 34000
stores in the UK with approximately 300000 colleagues working for them. The management of the
company is making their best efforts to strengthen their foundation each day so that they can offer
improved quality, a wider product portfolio, better services, and sharper prices to their consumers
(Tesco plc, 2019B). The core purpose of the organization is “Serving shoppers a little better every
day”, which boils down to them being a champion for their customers by assisting them in having
an easier life. On average, the stores serve 66 shoppers every second, making them adopt a
consumer-centric approach to business and marketing (Tesco plc, 2019C).
As per the annual report published by Tesco which, their group sales were £49.9 billion with
statutory revenue of £55.9 billion. Despite the frequent changes in the business environment and
stiff competition, Tesco has managed to maintain its leading position in the retail industry. One of
the key factors making the company a market leader in its workforce. The company employs
460000 people in their company and considers them as colleagues signifying equal positions for all
workers rather than using the terminology of employees. With appropriate motivation techniques
and workforce diversity measures, the human resource department of Tesco has managed to create
motivated and engaged workforces who are dedicated to attaining the company’s goals.

Tesco’s global expansion

Tesco’s global expansion began in 1979 when it entered Ireland by acquiring a 51% equity stake in
‘3 Guys stores. In 1986, Tesco divested itself of the stores after it found that it could not sustain its
operations in the country as customers were rejecting the British products that it sold. During the
late 1980s and the early 1990s, Tesco examined the options available in the US and European
countries after the British government introduced new regulations on ‘out-of-town’ stores.
In December 1992, Tesco entered France by acquiring an 85% equity holding in Catteau

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 supermarkets, which operated under the Cedico brand with 72 superstores, 7 hypermarkets, and
24 small stores. However, Tesco failed to sustain itself in the market due to competition from
French retailers like Carrefour and Promodès. In 1995, a law was passed in France which
prohibited the opening of new large retail stores

TESCO in South Korea

In the early 1990s, there was a growing demand from consumers in South Korea for a modern
shopping experience owing to rapid economic growth and increasing disposable incomes. The
government had adopted protectionist policies and the retail sector was not open to foreign direct
investment (FDI).
Tesco entered South Korea in 1999 by forming a joint venture with a well-established local retailer
— Samsung. Immediately after entering into the joint venture, Tesco went about upgrading the
store layouts. The stores were modified to resemble department stores, which were spacious and
clean. Tesco’s stores in Korea did not resemble its stores in the UK or in other European locations
like Hungary, Poland, the Czech Republic, and Ireland. The stores in South Korea stocked more
fresh food products compared to Tesco stores in other countries.
The joint venture helped Tesco acquire not only in-depth knowledge about the market but also the
best store locations. Tesco began operating in the country under the well-established 'Home Plus'
banner. It localized its stores to suit the preferences of Korean consumers and brought some of its
global best practices into the country. The company's operations grew rapidly in South Korea and it
emerged as the second largest retailer in the country. South Korea became Tesco’s largest market
outside the UK.
On September 07, 2015, Tesco PLC (Tesco), a British multinational grocery and general
merchandise retailer, announced that it had sold its South Korean business, operated under the
name Homeplus, for £4.2 billion to a consortium of companies led by MBK Partners, a South Korean
buyout firm. The consortium included Canada Pension Plan Investment Board, Public Sector
Pension Investment Board, and Temasek Holdings (Private) Limited (Refer to Exhibit 1 for more on
the consortium).
In the next few years, Tesco became the most successful international retailer in the country. Its
success was attributed to its ability to localize its products and stores to appeal to South Korean
consumers; its operation through local management; and its strong presence through different
store formats. South Korea went on to become Tesco’s most successful international business in
terms of revenue. As of 2014, it operated d 140 hypermarkets, 609 supermarkets, and 326
convenience stores.

3. HOMEPLUS BUSINESS REVIEW

Tesco Homeplus supermarket in South Korea bought the future of grocery shopping to life when
they opened a virtual grocery store in a subway station, encouraging the customer to shop using
their smartphones.

Some of Homeplus’s achievements in the Korean retail market can be briefly named as the
followings:

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  Ranking the second-largest retailer in Korea with 124 discount stores and 27,841
employees
 Being a key driver in the development of the Korean retail market: switching the retail
format from department stores to discount stores after the 1990s, and innovating the
online shopping experiences of consumers with advanced technology thanks to the mixed
"Glocal" power of investment on both financial, operation, and management, product
selection wisdom from Tesco, and local advantages from Samsung.
 Homeplus stores were successfully established as "value stores," not only offering low-
priced and diverse products.
 Having the highest Personal brand ratio of 28 percent, Homeplus gained a competitive
advantage over local chaebol-affiliated manufacturers, giving Homeplus greater control
over price, margin, and product selection.
 With a total of 258 SSM outlets in 2010, it successfully led the market segmentation of
the super-super market (SSM) among the big three retailers, exploring the potential of
the lower-income market previously owned by convenience stores of other retailers.

The Virtual Store

The virtual stores are set up in public spaces, most often in subways and bus stops with high foot
traffic and frequented daily by tech-savvy commuters. This is how such stores work:

- Interested customers download the Homeplus app into their smartphones.

- They then use their smartphones to scan the QR codes of the products they want to purchase. The
posters in the virtual stores are designed to resemble the actual aisles and shelves of a regular
Tesco store, making the experience very user-friendly.

- Customers schedule a time for home delivery. Same-day delivery is the norm so that customers
can get their products by the time they get back home from work.

The virtual store has been a huge success with commuters and drove over 900,000 app downloads
in less than one year, making the Homeplus app the most popular shopping app in South Korea.
Online sales increased 130 percent since the introduction of virtual stores and registered app users
increased by 76 percent. In February 2012, Tesco Homeplus announced it was extending the virtual
store concept to 20 new locations across the country. Today, there are 22 Homeplus virtual stores
in South Korea, and the brand is the country's No. 1 online retailer.

Understanding the Consumer

South Korea, a country of around 50 million people, is the fourth-largest economy in Asia and the
12th largest in the world. Compared to other Asian countries, South Koreans generally have higher
levels of education, higher average household income, and better living standards. Over the past
few decades, the country has built itself up with its largest resource - people - and has achieved
rapid economic growth through exports of manufactured goods. It is now a major producer of
automobiles, electronics, steel and high-technology products such as digital monitors, mobile
phones, and semiconductors.

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Image-value-experience Triangle
In addition to the virtual store's strong value proposition, Homeplus has also developed a strong
image and experience that mutually reinforce this value proposition. The Homeplus virtual stores
attract their customers through their quick, tech-savvy, and cool image. They sell to their customer
by offering the value of extreme convenience that the customer requires. And they are able to keep
their customers by offering them the satisfying experience of easy-to-use technology, on-time
delivery, and quality products.

Given that the South Korean on-the-go customer places much greater value on convenience than on
low prices, Tesco Homeplus may have been enticed to increase product prices through their virtual
store channel. However, we believe that Homeplus decided not to increase prices in order to
maintain its overall Homeplus value proposition, which hinges on providing desired products at
low prices.

Homeplus has entered the Korean retailing industry with a widespread product line as well as it also
emphasizes customer relations, which acted as a competitive edge for Homeplus. The company has
focused on the local retailing markets of Korea and made various strategies to dominate the entire
market efficiently and effectively.
Homeplus has performed exceptionally in the entire Korean market by facilitating its customers with
excellent quality products at low prices as well as facilitating its customers with exceptional customer
care services. This has allowed the company to earn the loyalty of customers and had allowed the
company to enhance its customer base robustly, which further acted as a competitive edge for
Homeplus.
Lately, in 2003, the company faced a decline in the growth rate of discount stores, which has made
the top management of the company concerned about diversifying its business structure into various
types and structures of retailing formats.
The company diversified its retailing format from discount retail stores to Super-Supermarkets
(SSM). SSMs were small retail outlets that were situated in many residential neighborhoods, as well
as, it offers daily necessities and households to their customers. In addition to this, the SSMs were
relatively small in size than large discount retail stores but, on the other hand, they were larger than
conventional retail stores.
Furthermore, since SSM was a new idea and they were more customers oriented, therefore, the SSM
industry grew robustly over a period of time as well as many discount stores converted into SSM by
looking at the massive potential present in the entire industry. This has increased the overall
competition in the SSM market as well SSM market has also negatively affected the mom-and-pop
stores (Traditional Korean small grocers). SSM caused an approximately 49.9% decline in the sales
of mom-and-pop stores, as their customers were shifted towards SSM. Therefore, mom-and-pop
stores created a serious protest against SSMs in order to regain their market.

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4. THE CHALLENGES
There are a few problems and challenges that Homeplus needs to resolve if they want to grow the
market in the long term:
 Firstly, it is the hash competition of Lottle and Shinsegae group against Homeplus when
both have their own manufacturing and distribution units in the local areas that could
support the retail business faster by providing synergy effects, shorter decision-making
processes, more flexible approval with insightful knowledge of the Korean business
environment for more effective store format. They could expand their business domains
through their chaebol affiliates because they have the advantage of a local sourcing network
and strong cash flow from their chaebols.
 Secondly, it’s the intensive relationship between Homeplus’ SSM and the mom-and-pop
stores (the traditional Korean small grocers). Since the SSM sells the same variety of
products at lower prices, the mom-and-pop store’s sales outtake decreased by 42.2% of
revenue as per the government statistic report. As a result, many people protested the new
SSM location in the area, and 18 petitions were signed against Homeplus and the other
retailers. Last but not least, in an effort to protect local grocers, lawmakers introduced two
bills in the National Assembly:
o One bill requires local government permission to open an SSM within 500 meters of
a traditional outdoor market.
o The second bill gives small business owners the right to demand the temporary
closure of SSMs if they can demonstrate that they have harmed their operations.
Furthermore, a new law enacted in March 2012 required large retailers to close
their doors on the second and fourth Sundays of every month.
 Thirdly, It is the change in consumer behaviors, particularly among the young, from
traditional to online and smartphone purchases. When purchasing products, they need
some more "convenience" and "instant or quick delivery" to their door. As a result, the
demand for convenience stores and SSMs is increasing for the following reasons: located
close to consumer households, have smaller quantities, and have very reasonable pricing.

5. THE STRATEGIC SOLUTIONS

Here are the possible solutions to resolve the current challenges and problems:
Expand their online sales: Homeplus may widen its online sales by developing more virtual stores
rather than spending a lot of money opening new shops. This concept may bring the goods
customers want to use the online site. They can choose the goods that they want to buy on the
website using their smartphones. The products they ordered can be delivered to their homes.

The long procedure of approval: Set up a team solely dedicated to seeking permissions for SSMs
in case the first bill gets passed until they find a long-term solution.

Out-sighted stores with slow delivery of stock: Plan the store locations in such a way that they
are accessible to multiple localities and support them with delivery.
Home Plus improved its online service by making it available on mobile and decreasing distraction
by using a virtual store for both its online and offline shoppers. In other words, a combination of

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 Virtual stores, QR Codes, and online sites is accounted on an improved product since it offers a
better solution to the old market.

KEY FACTORS TO DRIVE SUCCESS

There are three main factors affecting consumers’ behavior and marketing strategy in Korea. First,
Korean consumers as well as many other countries become convenience-concern in shopping
decision-making. Second, there is a considerable change in Korean household size. Park, Kim & Ko
2002 project that the average size of households in Korea will drop from 3.12 persons in 2000 to
2.73 persons in 2020. Result people prefer to shop daily and small size packages since limit on
storage and fridge space (Kim 2008). Finally, mobile retailing becomes the main trend since a retail
outlet is decreased in popularity and a typical online service is not competitive and differentiates
anymore.

6. Conclusion
As a result, we conclude that businesses must innovate and develop new marketing strategies in
order to gain, maintain, or regain market share. Time has an impact on the consumer's interests.
However, when applying management principles to marketing strategies, environmental effects
and consumer preferences must be taken into account.
Offering online transactions will be less expensive than expanding their business or supermarket
through physical assets like buildings, plants, and land. There are greater opportunities and
openings on social networking sites and it is the most convenient way of buying and spending what
people demand and prefer. Having a good online service will also help in advertising because of
good feedback from the buyers and loyal customers.

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