CorporateResponsibility Review

03/04

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Our BusinessTesco operates stores in twelve countries – the UK, Republicof Ireland, Poland, Hungary, the Czech Republic, Slovakia,Turkey, Thailand, South Korea, Malaysia, Taiwan, and Japan.

Our core purpose is to create value for customers to earntheir lifetime loyalty. CR has an important role to play inachieving this.

Our strategy focuses on 4 areasStrong UK core business:

The UK remains our core market with 1,878 stores. Our strategy of providing customers with exceptional value and choice continues to drive our growth.

Non-Food:

Ournon-food business is becoming more popularwith customersas it grows, both in the UKand in our international operations.

Retailing Services:

As customer lifestyles change we continue to provide newproducts and services, including Tesco.com, Tesco PersonalFinance and Tesco Telecoms.

International:

We now operate 440 stores in 11 international markets.

We employ 326,000 people world-wide, working in 2,318stores, with total sales of £33.6 billion. Our sales by regionare shown below.

Report ScopeThis report covers the financial year ending 28 February2004. It focuses primarily on our UK operations, whichaccount for over 80% of Tesco’s sales and profits.

At the core of our approach to CR lie the Tesco Values (seepage 2). They are accompanied by key policies such as ourgroup Human Rights policy, Ethical Trading programme andCode of Ethics, which apply across all our businesses. Webelieve in a local rather than global approach to decision-making, and do not impose a top-down set of rigid CRpolicies. Instead we promote best practice which maintainsour Values while taking into account differences in culture,operating conditions and priorities around the world. Wehave a rolling programme to develop CR in our internationalbusinesses. All corporate responsibility performance data in this report covers our UK operations, and environmentaldata is for our stores only.

FeedbackWe take pride in listening carefully to our stakeholders and welcome feedback that can help us to improve ourperformance. If you would like to make any comments on this Review and on Tesco’s corporate responsibilityperformance, please email csr.team@uk.tesco.com, orwrite to the Corporate Responsibility Department, Tesco,Tesco House, PO Box 44, Delamare Road, Cheshunt, Herts, EN8 9SL.

A full review of our business is contained in the AnnualReview and Summary, and Financial Statement 2003/04, which are available at www.tesco.com/corporateinfo

More information on Tesco can be found atwww.tesco.com. Our website contains many case studiesof our corporate responsibility policies in practice aroundthe world, at www.tesco.com/everylittlehelps

UK Rest of Europe Asia

26.9 3.8 £33.6 billion2.8

Profile

Corporate Responsibility (CR) is good forcustomers and communities and makes good business sense.

Sales by region (£billion)

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2 6Tesco listens carefully to, and acts on, what it hears from stakeholders –including customers, staff, investors,Non-Governmental Organisations(NGOs) and suppliers.

Chief Executive Sir Terry Leahysets out Tesco’s commitment toCorporate Responsibility (CR),with an approach based on soundbusiness sense and practicalactivities that make a difference.

10Tesco brings positive economicbenefits – through employment andskills training, choice and value forcustomers, regeneration of deprivedareas, and long-term partnerships with suppliers.

18Tesco cares about people in manyways – through healthy living andeducation initiatives, support for charities,providing good working conditions,promoting inclusivity, and advancinghuman rights in the supply chain.

26Tesco is committed to resourceefficiency and takes a practicalapproach to environmentalsustainability – through energy,water, transport and recyclinginitiatives, and careful sourcing offood and other products.

4Corporate Responsibility is integratedinto Tesco’s corporate governancestructure and, principally through itsmanagement ‘Steering Wheel’, into the day-to-day running of the business.

Contents

Key Performance Indicators36

Introduction

Economic Social Environment

Listening Managing CRthroughthe business

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Introduction2We treat people how we like to be treated and askmore than tell. These ideas are at the heart of ourValues.

OurValues

Our approach to corporate responsibility (CR) is straightforward. We recognise our impacts on society, on the economy, and on the environment. We focus ourefforts on practical activities that make a difference: maximising the benefits we bring and minimising any negative impacts. We aim to take responsibilityfor these impacts, to measure and tackle their effects, to workwith stakeholderson issues and ensure that CR permeates all parts of the business. Corporateresponsibility is not an additional burden or a distraction from serving our customers;it is an essential part of sustaining ourselves as a responsible company.

This, our third report on corporate responsibility, focuses on our UK operations. This is because the UK remains the core of our business. We believe in a localrather than global approach to decision-making. Customs, conditions andpriorities differ widely between countries and our approach to CR reflects this diversity. Our focus lies in sharing and promoting best practice.

We have always said that corporate responsibility is a journey, that whatever wehave achieved there is always more to be done. As this report shows, we havecome a considerable way over the past year.

Corporate responsibility is a win-win: for Tesco and for the communities we serve. Because we have served more customers over the past year, we have grown as a business and have created 16,000 new jobs in the UK, manyin deprived areas. Our regeneration and award-winning training schemes havecreated rewarding and fulfilling careers in retail for many people including staffwho were previously long-term unemployed. We have given £7m in computerequipment to schools, and have raised £2.5m for Barnardo’s, our Charity of theYear. Other achievements are set out opposite.

Of these, I am particularly encouraged by our progress on fair trade. Modernretailing, especially in food, is international and fast-moving. We source close to home whenever practicable. But we must also satisfy tastes that areincreasingly sophisticated.

No-one tries harder for customers

• Understand customers betterthan anyone

• Be energetic, innovative and be first for customers

• Use our strengths to deliverunbeatable value to our customers

• Look after our people so they can lookafter our customers

Treat people how we like to be treated

• All retailers, there’s one team...the Tesco Team

• Trust and respect each other

• Strive to do our very best

• Give support to each other and praise more than criticise

• Ask more than tell and shareknowledge so that it can be used

• Enjoy work, celebrate success and learn from experience

“

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• creating 30,000 jobs:

• distributing £57million of free shares to staff under a new Shares in Success scheme;

• launching our own-brand Fair Trade range;

• building on our work with the EthicalTrading Initiative (ETI) by trainingmore of our buyers and suppliers inlabour standards, via the ‘Buying WithYour Eyes Open’ and ‘Supplying WithYour Eyes Open’ courses;

• working with our peers to set up aglobal database of supplier ethicalaudit results (SEDEX);

• recycling 80% of cardboard and 85% of plastic used in our operations;

• introducing degradable carrier bags;

• using brownfield sites for 96% ofnew developments;

• giving £7 million of computerequipment to schools, bringing thetotal to £84 million since 1992;

• raising £2.5 million for the TescoCharity of the Year, Barnardo’s;

• sponsoring Cancer Research UK’s Racefor Life, in which 300,000 women,including over 12,500 from Tescoparticipated, raising £17.5 million;

• conducting our first audit of corporateresponsibility processes.

CorporateResponsibilityHighlights 2003/04

Sir Terry Leahy, Tesco Chief Executive

We know that more and more of our customers want to buy products that benefit farmers and growers in developing countries. For ten years we have been supporting the Fairtrade Foundation, and we are now the biggest sellerof Fairtrade products in the UK. This year we introduced our own-brand Fair Traderange, developed in association with the Fairtrade Foundation. This guaranteesproducers a fair price and pays a premium towards projects that help localcommunities improve housing, healthcare, education and other services.

For us, this is the right way for a company to behave. We listen to what ourcustomers want. We learn from it. We apply it to what we know and do best, and set about delivering results which bring practical and commercial benefits.

This, too, is central to our approach to corporate responsibility. If we are notprofitable, we cannot do the things we – and our stakeholders – would like to do.We operate in a free market and we believe in the power of the market to deliverworthwhile change.

Being successful and extending our business in such ways brings challenges forTesco. As the UK’s leading supermarket, we face high expectations from investors,the media, the public, NGOs and the Government. We do not claim to have all theanswers, but we are committed to corporate responsibility, and are determined to remain true to ourselves and our customers.

This report details our approach to corporate responsibility, records what we havebeen doing over the past year, and sets out some of our ambitions for the future.We are proud of our business because we know it brings real value to people’s lives.We are committed to growing it profitably and responsibly – at home and abroad.”

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Managing CR through the business4

2001, CR Committee established

CORPORATE GOVERNANCEWe are committed to high standards of corporate governance. Our approachto corporate governance andmanagement of non-financial riskis explained in detail on page 10 of the 2004 Annual Review, which can be found atwww.tesco.com/corporateinfo

The Board considers corporateresponsibility an integral part of the overall corporate governanceframework, and therefore it is fullyintegrated into existing managementstructures and systems. In addition,the Board considers financial and non-financial opportunities at theannual two-day Board Conference.Accountabilities for managingoperational risks are clearly assignedto line management. Formal riskassessments are carried out routinelythrough the UK and internationalbusinesses. Procedures exist to ensure that significant risks andcontrol failures are escalated to senior management and the Board, as necessary.

This year we created the position ofdedicated Corporate GovernanceManager, who is also the main point of contact for SociallyResponsible Investors.

THE STEERING WHEELIf we are to meet our objectives, theTesco team needs to work together.Because we need to focus on everyaspect of what Tesco does, we use amanagement tool we call the SteeringWheel to bring together our work in allareas and measure our performance. Ithelps us manage Tesco in a balancedway, by covering everything we do,and allows us to plan for the future by setting targets for years to come. The Steering Wheel literally guides us through our daily running of thecompany, while allowing us to changeto meet customers’ demands.

The Steering Wheel is divided into fourparts – Customer, Operations, Peopleand Finance – each of which is divided into segments. Our CRKey Performance Indicators (KPIs)(reported on page 36 of this Review)are measured and reported within theResponsible & Safe segment of theOperations Quadrant. This meansthat, rather than having a separatebolt-on corporate responsibility system,the management of corporateresponsibility issues is embedded inthe day-to-day running of the company.

Every store also has its own individualSteering Wheel, which is linked toevery person’s objectives, relating

strategy to day-to-day work. Ourinternational businesses, whichoperate locally, also have their ownSteering Wheels.

Each segment is driven and monitoredby KPIs, which set demanding butachievable targets for the business,and are backed by a sound businesscase quantifying the benefits. WhereKPIs are not on track, the SteeringWheel Group puts in place actionplans. Performance is reportedquarterly to the Board, and a summaryreport is sent to the top 2,000 managersin the company to cascade on to staff.The remuneration of seniormanagement is shaped by the KPIs,with bonuses based on a sliding scaleaccording to the level of achievementon the Corporate Steering Wheel.

We use one or all of the followingcriteria to choose our KPIs:

• customer priorities, for example, our KPIs on recycling, local sourcing,organics and the Computers forSchools scheme reflect ourcustomers’ concerns;

• staff priorities, for example our KPIson training and charitable giving;

Corporate Responsibility is an integralpart of our overall Corporate Governance framework.

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Most of the targets we set in 2003/04 have been met or exceeded.

2001, First CR Report

• business priorities, which includefinancial and non-financial risks andopportunities. For example, our KPIson supply chain labour standards andenergy and water usage all areintended to help us manage the risks posed by internationalisationand climate change;

• compliance with legislation or publicpolicy. For example, our KPIs onrefrigerants and energy efficiencyreflect the demands of current UKGovernment environmentalinitiatives.

Over the coming year we will bereviewing the Steering Wheel KPIsthat relate to corporate responsibility,to make them even more relevant toTesco and to external audiences.

ASSURANCEDuring the last year we carried out our first internal audit of our corporateresponsibility reporting system, toensure that it was as robust as it should be, that it stands up to externalscrutiny, and that our accountabilities

and strategy are compliant with goodpractice. Findings have been reportedto the Board, and an action plan set upfor the year ahead.

Verification of the data used for theKPIs is carried out using independentsources where possible. These includemarket share data, independentsurveys, utilities and services bills,inventories and audits for theEmissions Trading Scheme and ClimateChange Levy Agreement, and auditsand compliance schemes for packagingwaste. Where these are not available,internal budget controls are used.

CORPORATERESPONSIBILITYCOMMITTEELeadership on corporate responsibilityis provided by a cross functionalCommittee of senior executives. ThisCR Committee meets a minimum offour times a year. It is also responsiblefor overseeing the implementation ofour raft of corporate responsibilitypolicies, including our policies on

Human Rights, Ethical Trading and the Environment. Over the past yearwe have increased the seniority of theCommittee, which now reports to theBoard after each meeting.

COMMUNICATIONThis annual Corporate ResponsibilityReview is our main method ofcommunicating our policies andperformance in this area, and isavailable on our website,www.tesco.com/everylittlehelps, as well as in hard copy. Our websitecontains further detailed informationnot included in this report, for examplethe full text of our various corporateresponsibility policies, in-depthinformation on specific topics frequentlyraised by our customers, and casestudies. It is updated every threemonths to contain the latest news. We will continue to participate in theBusiness in the Community CorporateResponsibility and Environment andFTSE4Good surveys, in order to furthercommunicate our performance on CR.

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Listening6

1993, Introduction of Customer Question Time

1994, Introduction of Clubcard

We are committed to listening toour stakeholders and acting onwhat they tell us.

CUSTOMERSOne of our Values is to understandcustomers better than anyone. We goto great lengths to ask customers whatthey think, listen to their views, and thenact on them. We look both at whatcustomers say and what they do. Thisfeedback guides the decisions we take.

Customer Question Time An important tool to help us understandour customers is Customer QuestionTime (CQT). A CQT is a forum wherestore and head office representativeslisten to customers’ views on everythingfrom product range and price to quality,service, our role in the community, andthe Tesco brand. Last year, we heldCQTs in 177 locations throughout theUK, speaking to over 9,000 customersand 2,000 members of staff. Webelieve this is the largest exercise of itskind in the UK. We use CQTs as a toolfor understanding customers in all ourstores around the world.

This research has identified five factors which are most important toour customers:

To help us meet these and othercustomer expectations, we develop anannual customer plan. This directlytargets improving performance in theareas identified by our customers, andimproving customer loyalty.

Public Attitudes to Corporate ResponsibilityIn the summer of 2003 wecommissioned an independent surveyof public attitudes to corporateresponsibility and to Tesco. Over 2,000interviews were carried out among thegeneral public, MPs, City investors andthe business press. Headline findings were that:

• 70% believed that industry andcommerce do not pay enoughattention to their social responsibilities;

• Tesco was the most frequentlynamed company when respondeeswere asked to name a particularlysocially, environmentally or ethicallyresponsible company (unprompted);

• Tesco was the fourth most frequently mentioned companywhen respondees were asked whichcompanies should take theirresponsibilities more seriously;

• the three most commonly mentionedexamples ofTesco’s responsibilitywere the Computers for Schoolsscheme, our support of education andour support for communities/charity;

• the three top responsibility issues forsupermarkets as a sector wererecycling, unemployment and re-training schemes, and help forpeople with disabilities;

• the five top ways in which Tescocould take its responsibilities moreseriously were to improve customerservice, tackle environmental issues,reduce prices, stock local produceand support the community.

We are pleased with the high level ofrecognition of some of our CR activities.But there is no room for complacency,and we will be focusing our corporateresponsibility efforts over the comingyear on areas highlighted by the survey.

Over the past year, we have tried harderthan ever to listen to our customers, staff,investors, NGOs and suppliers.

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STAFFEvery February we carry out ourViewpoint staff satisfaction survey,which we believe to be the biggest of its kind in the UK. This year over230,000 of our people were asked to give us feedback on Tesco as anemployer and 90% of our staffresponded. In addition to the annualsurvey, a smaller number of staff aresent a quarterly questionnaire so wecan monitor interim progress. TheViewpoint survey is also carried out in our international stores.

We use Viewpoint to drive our staffprogrammes in the same way thatfeedback from customers shapes ourcustomer plan. As a result, we havebeen able to develop our People Planfocused on the four things our peopletell us they are looking for at work:

Employees give further feedbackthrough our Staff Forum process.These Forums result from ourpartnership agreement with Usdaw(the Union of Shop, Distributive andAllied Workers) and take place everyfour months in all stores.

They are designed to involve staff inthe business and ensure that theirvoice is heard. Store Forums arefollowed by Store Director Forums and National Forums.

TWISTLast year we introduced the TWIST(Tesco Week in Store Together)programme, where 920 seniormanagers and directors spent five days working on the shopfloor,gaining a better understanding ofwhat goes on.

It was extremely popular among staff,and generated many new ideas for thebusiness. This year, we have enlargedthe scheme so that store managerscan work in other stores, and alsooffered the opportunity to 150 of our largest suppliers, giving them thechance to spend a week in store andsee our operations from a differentperspective. We are currently analysingthe 200 or so suggestions and ideasresulting from last year’s programme.TWIST was also held in many of ourinternational stores.

Last year, we held Customer Question Times in 177 locations throughout the UK,speaking to over 9,000 customers and 2,000 members of staff.

2002, Introduction of TWIST

case studyDisability CustomerQuestion Time

One of the findings of the surveyof public attitudes to CR supportsworkwe have been doing this year on disability.

The survey found that 27% ofrespondees thought that supermarketsshould be focusing their efforts onhelping people with disabilities. InMarch we held our first CustomerQuestion Time on disability tounderstand how we could better serveour disabled customers. Around 35customers participated in this forum,with sessions on mobility, vision, andhearing impaired customers, whichwere organised with a number of localdisability groups including The HertsHearing Advisory Service, Herts Societyfor the Blind and Herts Action onDisability. CQTs provide us withfeedback for the Customer Plan, which determines in-store activityacross the UK.

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Listening8

SUPPLIERSSupermarkets have come undercriticism for their treatment ofsuppliers. We treat our suppliers as a vital component of our business, and our aim is to work in ever closerpartnership. Alongside the thousandsof face-to-face meetings and visits tosuppliers, we hold supplier conferencesaround the world where suppliers cancome and meet Board members, andunderstand how our business

needs and customer trends aredeveloping. More information on ourrelationships with our suppliers can befound on page 14 of the Economicsection and page 24 of the Socialsection of this Review.

INVESTORSOur Investor Relations team regularlymeets analysts from the financialinstitutions which invest in us orrepresent our shareholders. In the past year we met 97 of our leadingshareholders, representing over 54%of the issued shares in the company.We also hold an annual meeting forinvestors from the SRI (sociallyresponsible investment) sector, whichhelps these analysts ask more detailedquestions and give us their opinions.This year we have rationalised oursystem, following investor requests fora single rather than multiple point ofcontact, by appointing a CorporateGovernance Manager whoseresponsibility it is to liaise with thesesocially responsible investors andrespond to their requests.

Through the SRI meeting and otherevents, socially responsible investorshave told us that we need todemonstrate better that we areproactively managing emerging issues,that our corporate responsibility is fullyintegrated across the business, that weare managing the environmental andethical aspects of our supply chain,and that we should publish our futureCR performance targets.

NGOsIn the past year we carried out our first independent review of ourrelationships with Non-GovernmentalOrganisations (NGOs) and concludedthat the hundreds of conversations wehave with different NGOs at almostevery level of the company need to bebetter structured. We are setting up amore organised contact programme,with a series of face-to-face meetings with NGOs.

To help us improve our understandingof how we are viewed by NGOs, thisyear we commissioned qualitativeresearch by an independent agency.Interviews were carried out with anumber of leading NGOs.

2002, First Socially Responsible Investment meeting

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The research found that ourstrengths included regeneration,organics, Fairtrade, customer value and recycling. Areas for furtherattention were our relationships withsuppliers, the level of CR integrationinto the business, and the need formore dialogue with NGOs. Over thecoming year, we hope to strengthenour performance in all these areas.

SURVEYSAmong the many surveys in which weparticipated we achieved an AAAABrating and came 19th out of 139 inBusiness in the Community’s 2004Corporate Responsibility Index. Wealso continue to be a member ofFTSE4Good. We took the decision notto participate in Race to the Top lastyear because of concerns overconfidentiality, complexity andduplication of effort – concerns weexpressed to the organisers.

Among the many surveys in which we participated we achieved an AAAABRating and came 19th out of 139 in Business in the Community’s 2004Corporate Responsibility Index.

2003, First Non-Governmental Organisation survey

case studyFairtrade

A good example of how listeningmakes Tesco a better company isthe recent introduction of the Tesco own brand Fair Trade range.

Harriet Lamb, the Director of theFairtrade Foundation met seniorexecutives and suggested that Tescodevelop its own Fair Trade range. Sincethe introduction of Fairtrade productsin our stores eight years ago, sales inthe sector had been growing rapidly.This growth, combined with the hugepopularity of Fairtrade bananas, andcustomer feedback showing thatcustomers wanted more Fairtradeoptions meant that we could take thisbig step to help small producers indeveloping countries. We thereforecreated 16 own brand lines, includingcookies and flowers, to add to theexisting 75 lines, which makes it thelargest range in the UK. We estimatethat we now sell around a third of allFairtrade products bought in the UK.

One line we are particularly proud of isour Kenyan roses – we expect to sell12 million stems over the next yearalone. We have been working with ourrose supplier in Kenya for the last eightyears, on projects including setting upa school for workers’ children, buildinghousing for workers and environmentalprojects to treat water through theplanting of reed beds. This supplier

has now been certified by the FairtradeLabelling Organisation – a world first.We hope that this certification will adda significant extra boost to sales – awin/win situation on an economic andsocial basis. More information on ourFairtrade efforts can be found on ourwebsite at:www.tesco.com/everylittlehelps

“The launch of the Tesco Fair Trade range is a fantasticbreak-through for this sectorof food retailing, makingquality Fairtrade productswidely available. It will help put Fairtrade firmlyon the map.”

Harriet Lamb,Director, Fairtrade Foundation

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10 Economic

Using our strengths to deliverunbeatable value.

Over the past year our team of326,000 people in 2,318 storesaround the world achieved recordsales of £33.6 billion. We are proudof this outstanding performance,which enables us to make apositive contribution to theeconomies where we operatethrough more jobs, better valuefor customers, particularlylow-income families, higher skillsand productivity, regeneration ofdeprived areas, and strong andgrowing relations with suppliers.

EMPLOYMENTWith over 326,000 employees intwelve countries, Tesco plays animportant role in creatingemployment, fostering skills, andgenerating economic development.This year alone, our UKworkforce hasgrown by 16,000 and we have created14,000 new jobs in our internationaloperations. Many of these jobs arecreated in regions often overlooked byinvestors or with high unemployment.

In addition to the economic benefitsof paying salaries and local taxes, we go further by increasing shareownership among our staff, so that

they have an active stake in thesuccess of the business. In June 2003we gave more than 147,000 of our UKstaff shares worth £89 million. A thirdof these shares came from the mostrecently matured Tesco profit sharescheme, and £57m worth of shareswere given as part of the new Sharesin Success scheme to all employeeswith more than a year’s service. Inaddition, our Buy As You Earn schemegives employees the chance to buy ourshares at a 20% discount. Theseschemes are our way of saying thankyou to our staff.

In a rapidly changing world, we have toensure that we remain a dynamic andflexible business. One step we tookthis year was the opening of a hightech IT and business support centre inBangalore, India. This enables us tosupport our operations moreeffectively and to develop new serviceswhich were previously unaffordable. Italso reflects the intense competitionwe face not only from within thegrocery sector, but increasingly fromwithin the financial services, telecomsand internet sectors. We identified 350roles to transfer to our new centre fromthe UK. We have consulted with Usdaw

and our people on the policies wehave in place to support affected staff.We have committed to offering everyaffected member of staff another jobwithin Tesco, although not necessarilyin the same role or location. We offeredthese staff re-training and relocationsupport, and 12-weekwork trials.

1991, Launch of Tesco Metro stores

Wages & salaries, pensions and bonus costs

Tax on profit on ordinary activities

Dividends to shareholders

Net interest payable

Profit retained for growth

£498 million

£3,247 million

£516 million

£223 million

£584 million

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VALUEWe aim to offer unbeatable value,through outstanding prices, quality,choice and service. We continue tobenefit customers by cutting pricesand helping them spend less everyday. Over the past year, we have made long-term price reductionstwice in the UK – in August 2003 by£60 million and in January 2004 by£70 million, reaching a total of £130million in price cuts. A typical basket of our Value line products is now 35%cheaper than it was ten years ago.

For low-income households, foodremains an important cost. Lowprices mean more choice and bettervalue for these groups in particular.Suppliers benefit from volumeincreases and their own economies of scale. Food now accounts for anever-declining proportion ofhousehold expenditure in the UK,thanks in part to this deflation in realprices. We believe that this is one ofour key contributions to the UKeconomy and society.

Last year we gave more than 147,000 of our UK staff shares worth £89 million.

1992, Value lines introduced

Our commitment to cutting prices is driven by customer demand,competition within the industryand our desire to meetshareholder expectations.

Our approach is to identify savingsfrom within our own operations via ourStep Change productivity programme.

Examples of Step Change Projectsinclude:

• increasing the volume of productsgoing through our PrimaryDistribution channel to 50%, bycollecting more products fromsuppliers on the way back from stores to distribution centres, thereby reducing the numberof miles trucks drive empty;

• using hand held scanners in allstores, allowing staff to accessproduct and stock information at the shelf edge;

• introducing better labourscheduling systems;

• establishing a dedicated clothingdistribution centre handling allclothing going into UK stores, so that suppliers have the option ofdelivering to just one distributioncentre rather than several or tohundreds of stores.

The results of these productivity gainsare cost savings, which are theninvested in reducing prices.

casestudyHow We Cut Prices

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“The Tesco RegenerationProgramme is designed tooffer maximum opportunityfor people to develop theirpotential, providing the righttools to help them into newretail and service jobs andgenerating a new and positiveapproach to learning.”

John Hannett, General Secretary, Usdaw

REGENERATIONIn the UK, our growth has a particularfocus on the regeneration of deprivedcommunities and the reclamation ofderelict sites. A RegenerationPartnership is our term for apartnership with a wide range of localgroups, including the local authority,JobCentre, family learning centre,schools, colleges, resident associationand other local employers. Throughthese Partnerships, we aim to helplocal people escape the poverty trapand take a proper stake in the socialand economic well-being of their ownareas. Over the past 12 months wehave created 950 new regenerationjobs in Shettleston, Warrington andBatley and launched a further sevennew Partnerships, bringing the totalnumber of regeneration jobs to 3,200since 1999.

High long-term unemployment isoften combined with low skill levels,travel problems, caring responsibilitiesand disabilities, all of which posebarriers to getting a job. We try to workaround these obstacles by holdingopen days where staff explain what it’slike to work for Tesco, by printing localleaflets and newsletters about thestore and by offering a basic skillsassessment to identify training needed to bring the candidates up

to nationally accredited standards inreading, writing, numeracy and fluencyin English. We provide seminars beforeholding selection meetings so thatrecruits know that we are assessingaptitude rather than existingqualifications. We try to ensure thatthe aspirations of candidates, forexample on working hours, arematched as closely as possible to ourneeds. But perhaps most importantlywe guarantee that, provided a recruitfinishes their training, there will be apermanent job waiting for them.

While the job guarantee is the catalyst,it is long-term commitment andperseverance that make this approachwork. Within regeneration stores thepromotion record is very strong – for

Economic12

1995, First stores in Central Europe

Above: Warrington Store

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Over the last 12 months we have created 950 new regeneration jobs inShettleston, Warrington and Batley.

1996, Tesco Personal Finance launched

example at our first regeneration storein the Seacroft area of Leeds, 19% ofpartnership recruits are either trainingfor more specialist positions or havebeen promoted to more senior jobs.

MARKET TOWNSMarket towns make a hugecontribution to the economic, socialand cultural life of the UK. Our 100+stores in market towns form a corepart of our UK business. Peoplesometimes fear that new investmentcan threaten local business andemployment. We understand thisconcern, but believe it is misplaced.Tesco stores stimulate the localeconomy, bring new investment, andcreate jobs, which in turn help supportlocal wealth creation, greater trainingopportunities, increased services andimprovements to local infrastructure.Stores in town centres act as magnets– as shown by a study by independentplanning consultants of our new storein Beverley. Our store replaced thetown’s historic cattle market – but the study found that two thirds of our customers also visit otherstores in the town centre. Localbusiness leaders say it has boostedBeverley’s reputation as a popularshopping destination.

case studyAlloa RegenerationPartnership

Employment in the town of Alloa inScotland was traditionally based on themanufacture of textiles, brewing andglass making. In the late 20th century allof these went into serious decline,leaving the town with relatively highlevels of unemployment and a deterioratingurban fabric. The Tesco Regenerationstore is positioned on the site of an oldyarn mill, in the shadow of the recentlyrenovated historic Alloa tower. ThePartnership created over 100 new jobs forlocal long-term unemployed peoplethrough the Tesco Job Guarantee, whereeveryone who completes the trainingcourse is guaranteed employment.

When Napier University evaluated ourscheme they found that: “Thecommitment of Tesco managers wasvital. They attended evaluation andreview sessions with participants on aweekly basis. All this has producedexcellent relationships which look likehaving positive benefits in terms of long-term retention of staff.”

Above: Beverley Store

“Tesco had agenuinely supportiveculture and a caringapproach to theparticular problems of their trainees. The company assistedthem in overcomingpersonal and domesticdifficulties which mightotherwise have ledthem to abandoningthe training course.”Changing Practices report, Neighbourhood Renewal Unit,Office of the Deputy Prime Minister

Above: Alloa store

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SUPPLIERSSupermarkets are often criticised forexploiting rather than working withtheir suppliers. This is wrong because it ignores a simple truth – a successfuland sustainable food business needsto work in partnership with its suppliers.We workwith suppliers to build longterm partnerships to provide a stablesupply and increased innovation forour customers. The result is increasedvolumes for our suppliers. We workwith them to help improve processesand increase productivity, and themany businesses which grow withTesco know that this benefits them byincreasing their profitability.

We are a signatory to the UKDepartment of Trade and Industry’s(DTI) Supplier Code of Practice, andfully support its objective of ensuringsuppliers are given a fair deal. We are co-operating with the review of theCode and the audit conducted by theOffice of Fair Trading. To date we havenot had any complaints from suppliersunder the Code. Since the introductionof the Code, we have run a tailoredtraining programme for all Tescobuyers to ensure understanding of

the Code and full compliance. We have complemented this programmewith regular follow up sessions fornew starters.

Every year we hold supplier conferencesaround the world, where suppliers canmeet Board members and gain a betterunderstanding of Tesco’s businessneeds and customer trends. This year,270 suppliers attended the annual UK conference and were given theopportunity to question Board directors.To help make the discussion as openas possible, suppliers generatequestions in groups which are thenput anonymously to the Board.

A second conference was held inEdinburgh in conjunction with theInstitute for Grocery Distribution, whereover 200 Scottish suppliers were giventhe chance to meet our Scottishsourcing team, question senior Tescofigures and share our understandingof customer trends. Presentations weregiven on our growth strategy, customerneeds in today’s market place,promotional strategies employed, andcase studies of successful partnershipswith Scottish suppliers. MaggieMcGinlay, director of Scottish

14 Economic

1998, First store in Asia

case studyLonger UKGrowing Season

By extending seasons andintroducing new growingtechniques, UK farmers haveenabled us to buy more Britishproduce and reduce imports.

New glass-houses in Kent producehigh quality English strawberries threeweeks earlier than ever before. As aresult, we bought an extra 2.1 millionpunnets, helping reduce imports fromSpain and Holland.

All Cox apples sold in the past yearwere British: 80% came from Kent and20% were from Hereford. This is a prime example of extending the UKseason, when we would have had toimport to meet demand. We have seen40% like-for-like sales increases onthese lines. We are also seeking toextend the volume of sales of traditionalvarieties such as Lord Lambourn,Laxton Fortune and Chivers Delight.

We now stock British potatoes for 10months a year and have a year-roundsupply of White, Maris Piper, KingEdwards, Red Desiree and bakingpotatoes. Three years ago, we wouldhave imported some 5,000 tonnes of potatoes from Cyprus in July andAugust. Likewise, with new potatoes,the growing season has beenextended by four months.

We now have an all-year supply ofcauliflowers from Cornwall, whichmeans we no longer importcauliflowers from Spain. Our Cornishgrowers will be growing an extra 3million more cauliflowers than last year.

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Last year we sold more British apples than any other supermarket.

2000, Tesco.com launched

case studyTesco and Scottish Farmers

Enterprise’s food and drink strategygroup said: “The conference was a huge success and is just one of the ways we’re helping to buildrelationships between suppliers and retailers.”

This year, an invitation to participatein the TWIST programme has beenextended to our top 150 suppliers,giving them the chance to spend aweek in store and see our operationsfrom a different perspective. See page7 for more information on TWIST.

Tesco is currently Scottishagriculture’s biggest customer.Over 1,000 uniquely Scottishproducts are sold in Tesco storesin Scotland. All of our productsare clearly labelled with country,county and sometimes farm oforigin. The use of rosettesfeaturing the Scottish flag furtherunderlines product origin.

• 181 Scottish companies currentlysupply product lines to Tesco, with£676 million of product purchased:

• over 1,200 Scottish farmers supplyfresh quality beef and lamb to Tesco;

• more than 85,000 tonnes per annumof Scottish cheese was sold in Tescostores in 2002;

• 2.4 million pints of fresh Scottishmilk are sold each week;

• all UKTesco stores sell Scottishcaught fish.

A good example is provided by McIntoshDonald who have been supplyingTesco since 1995. They now supply allof the Scottish beef and lamb sold inour UK stores including the high-valueFinest range. Year on year growth ofthe Finest cuts has been in excess of20% with their latest product, TescoFinest Scotch Ground Beef, showingyear on year sales growth of 90%. As aresult they now employ 375 peopleand process in excess of 80,000Scottish cattle every year.

We’ve also provided technical supportto our Scottish fruit and vegetable

suppliers to develop innovative newproducts including:

• Tesco Finest Raspberries, picked andpacked on the stalk for quality andfreshness, which are supplied to 650stores by Angus Soft Fruits ofTayside;

• pre-packed Mediterranean vegetables(yellow peppers, baby tomatoes, redonions) supplied by Kettle Produce ofCupar with sales of up to 12,000 packsa week, demonstrating the ability ofScottish suppliers to source exotichigh-quality products in addition to traditional Scottish products.

Nor is size a barrier. Bridge of AllanBrewery, which brews City of Sterlingale, were winners of the last Tesco beerchallenge, designed to promoteinnovation amongst suppliers. As aresult they have won a major contractto supply 650 Tesco stores throughoutthe UK. The beer is hand brewed andas a result of the contract the brewerhas doubled his workforce from threeto six.

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Economic16

We promote local produce in all our stores, not just in the UK,and there is a huge range of in-store promotions of localproduce throughout theinternational businesses.

BUYING LOCALLY – BRITISH FARMERSDespite being an increasinglyinternational company, we recognisethe importance of being local andbuying locally. Alongside value formoney, many customers put a premiumon locally grown products. However,not everything can be local. Customersexpect to buy whatever they want,regardless of season or country of origin.

Tesco is British agriculture’s biggestcustomer. Last year we sold moreBritish apples than any othersupermarket, 97% of our fresh beef isBritish, 90% of fresh lamb and chickenis British and 95% of fresh pork isBritish. All our fresh, UHT and organicmilk comes from British farms, as doall of our fresh eggs.

To help source local products we haveset up regional buying teams, andhave offices in Wales and Scotland tohelp us identify local suppliers. Thisyear, we aimed to increase the numberof Welsh lines, and reached a total of600. These joined the 1,500 Irish and

1,000 Scottish lines, to contribute to atotal of 7,000 regional lines sold in theUK. All products are labelled with thecountry and county of origin andwhere appropriate with national flags.

We also support a number of farmquality assurance schemes. The RedTractor symbol appears on Britishmeat and produce grown or reared in accordance with UK productionstandards. British pig meat, which hascome from assured pigs, hauled onassured vehicles and slaughtered inassured abattoirs, is labelled with theMeat and Livestock Commission’s“Quality Standard, British Meat” mark.

We have also been working on anumber of technical projects to helpincrease the amount of producesourced from within the UK. A keyinitiative has been working withgrowers to extend the UK growingseason, by using new growing andbetter storage techniques.

BUYING LOCALLY –INTERNATIONALLYOur emphasis on local sourcing is alsoevident in our international business.For example, the One Tambon OneProduct programme in Thailandpromotes local products byensuring sales space for localproducers. In Poland we have also

formed a unique partnership with theTeraz Polska (Poland Now) campaignaimed at promoting Polish produce toour Polish customers.

FAIRTRADEWe have long been a strong supporterof Fairtrade, which guarantees thatdeveloping world farmers are paid a price that covers the cost ofproduction, plus a premium to bespent on projects which helpcommunities, such as betterhealthcare, sanitation, education or housing. This is vital in bringingstability to many small suppliers indeveloping countries, as this can helpfarmers and workers achieve a betterquality of life. Our customers buy moreFairtrade products than those of anyother supermarket. Our progress overthe past year is set out on page 9.

2001, Investment in price cuts reaches £1billion

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We estimate that Tesco now sells around a third of allFairtrade products bought in the UK.

For details of our ethical tradingprogrammes see page 24 of the Social section.

INTERNATIONALSUPPLIERSThere are many ways in which weshare knowledge with and help ourinternational suppliers. For example, inthe past year we ran workshops in theCzech Republic and Slovakia to helpsuppliers prepare for EU accession,and held Vendor Open Days inThailand aimed at Small and MediumEnterprises (SMEs) focusing onmarketing, food hygiene, labelling,and quality standards. The Tesco IrelandSupplier Development programme (inpartnership with Enterprise Ireland)aims to help Irish companies competein a rapidly changing trading

environment and develop newproducts through sharing knowledge.

This year we have faced accusations ofstrong-arm tactics in our dealings withSouth African suppliers of fruit andwine – accusations that we maintainare wrong. We do not preventsuppliers from supplying otherbusinesses, and we discouragesuppliers from depending on Tesco.Most importantly, we never encouragesuppliers to sell below cost, as this isunsustainable for them and thereforebad for customers and for us.

“We have an excellent long-termpartnership with Tesco, supplyingwine and fruit from South Africa.Tesco fully supports theimportance we attach to ethicaland environmental standards, and the need to ground these in a successful businessrelationship based on trust and dialogue. For example, Tesco sponsor and support ourCapespan Foundation whichworks to promote blackempowerment, women workers’rights and capacity building.”

Louis Kriel, European ManagingDirector of Capespan

2003, Tesco Telecoms launched

For the second year running Tescoworked in co-operation with theSlovak Ministry of Trade andMinistry of Agriculture to organisea workshop in Bratislava.

The aim of the seminar was to helpSlovak suppliers understand theopportunities presented by EUenlargement and how best to preparefor accession. Speakers includedrepresentatives from the Slovakministries of Agriculture and Trade,together with Tesco experts fromCentral Europe and the UK. Subjectscovered included trading with multipleretailers at home and abroad, foodsafety, adding value and developingown brand products. Sixty supplierrepresentatives attended the all day event. Similar workshops havebeen run in Poland, Czech Republicand Hungary.

case studyEU EnlargementSeminars

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Social18

We never underestimate thepotential impact of our businesson society. We firmly believe thatwe can be a force for good. We cando this by looking after our people,promoting healthy living,supporting education, gettinginvolved in the community,advancing inclusivity andmanaging our supply chain.

LOOKING AFTEROUR PEOPLELooking after our people so that theycan look after our customers is acentral part of our Values. We arecommitted to providing market-leading working conditions for all ourstaff, and we encourage our suppliersto do the same.

Sharing SuccessOur people are our most importantasset, and a key objective across thebusiness is to ‘select and retain thebest’. We offer our staff an attractivebenefits package, including wagesthat are amongst the best for storestaff, flexible hours and leave, profitsharing, free uniform, subsidisedmeals, childcare vouchers and apension. Through our Privilege Cardscheme, all staff with over 12 months’service receive a 10% discount ontheir shopping at Tesco. They are alsoable to take advantage of discounts atTesco.com, on our financial products

and other products including holidays,gym membership, childcare vouchersand health cover. Staff also receive aBenefits Book annually to explain allthe benefits they can take advantageof and a personal Benefits Reportsummarising their total package. Inaddition, we have recently introduceda new benefits website, as anothereasy way for staff to find out full detailsof benefits available to them.

PensionsWe provide an award-winningdefined-benefit pension schemewhich now has 127,000 members.Unlike other companies who havemoved to money purchase schemes,the Tesco scheme is based on careeraverage earnings. One of the greatadvantages of the career averageapproach, compared to a final salaryscheme, is that if staff want to reducetheir hours as they approach retirement,they can do so without making a bigdifference to the final pension theyreceive. As the employer of choice forthe over-55s, this is considered one ofthe major benefits Tesco offers. Wecontribute 10.5% of pensionable pay,and 56% of our staff are covered bythe company pension scheme.

Training and DevelopmentWe are committed to developing ourpeople to bring out the best in everyone,and estimate that we spend around

£23 million each year on training. All of our staff have access to trainingprogrammes and a personaldevelopment plan, with six-monthlyreviews, to ensure that they have theright skills to do their job. Through ourTalent Spotting programme, everyemployee has a career discussion withtheir line manager to plan their careerat Tesco. Their details are then put in atalent pool to help individuals to makethe most of opportunities available to them.

In 2003 we launched the Living Servicetraining programme after researchrevealed that, although service at storeswas good, we wanted it to be evenbetter. To help improve the workplaceatmosphere, Living Service was set upin-store to train the whole Tesco teamin new skills. The main message fromthe programme is that our attitude is

1984, Healthy Living range introduced

Treating people how we like to be treated.

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In 2003, 300,000 women, including 12,500 members of our staff took part inRace for Life to help raise £17.5 million.

what makes the difference betweengood and great service. The threeLiving Service expressions – Know YourStuff, Show You Care, and Share aSmile were created by staff to showwhat Living the Values looked like.

Our commitment to training anddevelopment is also one of ourgreatest contributions to theinternational markets in which weoperate. For example, in Thailand, wehave invested more than 7.5 billionbaht in employee remuneration andtraining during the expansion of ourworkforce from 5,500 in 1998 to17,300 today. Because only 16 ofthese employees are internationalexpatriates, we are building skills primarilyin the local workforce. Our policy ofinternal promotions wherever possiblemeans that as the network of storesexpands, staff already working with thecompany are offered first option to returnto new stores in their home communitiesso they can be close to their families.

Human RightsLast year we introduced a HumanRights Policy, which addressesemployment conditions includingwages, hours, freedom of association,health & safety, discrimination, childlabour and security. Over the past yearthe policy has been rolled out acrossboth our UK and internationalbusinesses. The Chief Executive ofeach national business is responsible

for the implementation of the policy.We support the United NationsUniversal Declaration of HumanRights and the International LabourOrganisation’s Core Conventions.

A full version of our Human RightsPolicy can be found atwww.tesco.com/everylittlehelps

We support the right of all ouremployees to join a trade union;around half our UK employees arecurrently members of a union. Since1998 we have had a pioneeringpartnership agreement with Usdaw,which has become a model foremployer-union relationships in theUK. Staff Forums are held in all storesthree times a year.

This year, in addition to our establishedGrievance Procedures, we have launcheda new confidential Protector Line forour staff to call if they have concernsabout whether something at work islegal or in the public interest. Thisshould help us be more aware ofpossible problems such as theft,dishonesty and practices thatendanger our staff, customers or theenvironment, so that we can take anyappropriate action.

Health & SafetyWe are committed to providing aworking environment and a shoppingexperience which protects the healthand safety of our people, our customers

and our visitors as far as is reasonablypracticable. We meet this commitmentthrough a comprehensive riskmanagement process that ensures theongoing identification and minimisationof occupational health & safety risksacross the business. Effective controlmeasures have been developed andincorporated into our operationalprocedures including investment intraining for all staff. We constantlymonitor and review our performanceand seek feedback from our people.Every store measures health & safetyperformance and reports on this totheir employees, as well as tomanagement. Our aim is to eliminatepreventable accidents and ill healthassociated with our work and premises,and to reduce the rate of reportableaccidents as the business grows.

In 2002 we launched our Health andSafety Step change programme tofurther improve standards of healthand safety across the business. 2003/4has seen significant progress on thisprogramme including:

• the re-launch of our staff health andsafety consultation forums at all stores;

• the introduction of improved healthand safety management training forour store managers and senior team,again across all stores;

• completion of three safetycampaigns covering our commonesthazards in-store.

1988, Tesco Charity of the Year introduced

“We are committed to working together with Tesco and staff right acrossthe business and that is what the Tesco partnership enables us to do. As aresult, together with Tesco we have made great strides in helping to make iteasier for staff to combine their home lives and their working lives in wayswhich suit them and the business.”John Hannett, General Secretary, Usdaw

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Social20

HEALTHY LIVINGWe aim to be the retailer thatcustomers trust to meet all theirhealthy living needs. We believe in‘healthy living for all’, ensuring that ahealthy lifestyle is accessible, affordable,and appeals to our customers.

We are aware of the increasing problemsposed by obesity. The factors underlyingthe issue are many and complex:changing eating patterns, a decline inphysical exercise, and an increase inmeals eaten outside the home, to namebut a few. We recognise that retailershave an important part to play alongsidemanufacturers, government, caterers,and consumers. Our key strength ishow well we understand our customers,and the way we can help is by makingit easy to make informed choicesabout a healthy lifestyle.

In January 2004 we re-launched ourHealthy Living club, which providesinformation to customers on generalhealth issues, weight loss, and greenand organic products. The club nowhas 190,000 members.

As part of this re-launch, we added afurther 100 products to our existingrange of 400 Healthy Living products.Our policy is that these productscontain either half the fat of a standardequivalent, or less than 3% fat, and10% less sodium than the standardequivalent, and cost no more.

Our bi-monthly Healthy Livingmagazine, which provides practicalinformation on all aspects of leading a healthy lifestyle, was sent to allmembers, as well as being for sale in-store. Sales of Healthy Living productsare up 12% on last year. With ourHealthy Living and Kids ranges inparticular, we aim to make healthychoices more appealing to adults andchildren. To help, we do not sell sweetsat checkouts in our superstores ortarget our advertising at children.

We encourage clear labelling, are workingto support the 5-a-Day initiative on fruitand vegetables, and we continue to bethe national sponsor for CancerResearch UK’s Race for Life. This year300,000 women, including 12,500members of our staff, walked, joggedor ran 5km to raise £17.5 million.

We also try to make healthy food moreaccessible. Our data shows that price andvalue-for-money are key drivers of foodchoice, particularly for the less well-off.In 2002, an independent study1 by theUniversity of Southampton concludedthat, by opening a new regenerationstore in the Seacroft area of Leeds,Tesco had helped bring about animmediate improvement in the diet oflow-income families. People classifiedas having poor diets before we openedour store increased their fruit andvegetable consumption by one-thirdafter our store opened. Overall wehave grown sales of fruit andvegetables by 8% over the past year.

We have further expanded our FreeFrom range for customers sufferingfrom food allergies and intolerances togluten, wheat and milk, to a total of120 products, including soft breadrolls, enriched with calcium and fibre,and mixed-berry muffins. We also offera range of complementary medicineand nutritional supplements – ourNutricentre range.

Nor is our promotion of healthy livinglimited to UK. Our stores in Polandhave a 5-a-Day Healthy LivingCampaign and ‘Health Shelf’ rangesof complementary medicines. InSlovakia we held an ‘Apple Week’ aspart of an anti-cancer campaign, andour stores in Hungary and Ireland sellthe Healthy Living range.

Our commitment to reducing price hasincreased access to healthy diets tocommunities across Europe and Asia.1Deprivation, Diet and Food Retail Access: Findings from theLeeds ‘Food Deserts’ Study, Wrigley et al, 2002, Universityof Southampton

1992, Computers for Schools launched

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We gave away £7 million worth of computer equipment in 2003,bringing the overall total since 1992 to £84 million.

EDUCATION

Computers for SchoolsAs the largest private employer in theUK, we recognise our responsibility tocontribute to workforce educationalskills. Education is one of the key areaswhere customers believe our support isvery important, and where we canmake a real difference. Our Computersfor Schools scheme is now in its 13thyear, and is the largest of its kind inthe UK – 86% of primary andsecondary schools in the UK nowactively participate. In the last year,2,700 computers were ordered byschools, along with over 75,000 itemsof related equipment, the mostpopular of which were digital cameras,digital movie creators, microscopesand interactive encyclopaedias. Wegave away £7 million worth ofequipment in 2003, bringing theoverall total since 1992 to £84 million.Next year, we aim to increase this totalto £92 million.

As in other areas, we are extendingbest practice in the promotion ofeducational skills throughout ourinternational business. In Poland, for example, a Tesco for Schoolsprogramme has been developedbased on the UKmodel. The programmehas provided 35 schools in Poland withcomputer equipment worth £100,000.We have also run book collectionprogrammes for children’s homes inSlovakia and the Czech Republic.

In Thailand, we run the Tesco Lotusscholarship programme in conjunctionwith the Ministry of University Affairsand the Sukhothai Thammatirat OpenUniversity, to provide vocationaltraining to undergraduate andpostgraduate students.

DebutThis year we introduced Debut, aprogramme to encourage studentsworking at Tesco in the UK to stay onafter completing their studies, as wellas to attract other graduates andyoung people. The programme aimsto help the 16-24 age range throughthe transition from full-time educationto full-time career. It offers on-linetraining and development, financialguidance, discounts (for example, ondriving lessons), and career adviceincluding information on opportunitiesin the retail sector. Many of the 30,000students working at Tesco said theywanted a scheme more specific to them,and so we asked them to design one.www.tesco.com/debut is the result.

COMMUNITY

Charitable GivingEach year, we select a national charitywith a strong community network tobecome our Charity of the Year. Thisbecomes the main focus for staff fundraising and receives a 20% ‘top up’from the Tesco CharityTrust.

This year we managed to raise £2.5million for Barnardo’s, the UK’s largest childcare charity.

In addition to this, the Tesco CharityTrust made cash grants of almost£650,000 to local and national charities.Furthermore, the Trust CommunityAward Scheme ensures that grantstotalling £380,000 were awarded tolocal projects. All provide practicalbenefits in the local community forthree vulnerable groups: children, theelderly and those with disabilities.

The Charity of the Year framework forgiving has also been adopted inPoland, Ireland, Hungary and Slovakia.Often these are ground-breakingprojects and have won many awards.

In Thailand, we have set up the Tescofor Thais Foundation- a non-profitcharitable foundation which providessupport to carefully selected projects in the areas of education and health.Since February 2003, the Foundationhas contributed nearly 6 million bahtto projects including scholarships atprimary schools and universities, andthe launch of the Tesco for Thais BloodDonation Campaign at all stores inBangkok and upcountry.

In Ireland, Tesco was the majorsponsor of the 2003 Special Olympicsfor people with learning difficulties.

2002, Introduction of Group Human Rights Policy

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Social22

INCLUSIVITY

CustomersOur desire to appeal to all types ofcustomer with differing needs anddemands drives much of what we do.We do this in three ways. Firstly,through our range – from Finest forthose wanting something special, toValue for those on a budget. We offerthe widest range of organic andFairtrade products in the UK, and over500 Healthy Living products. We havealso widened our range of kosher andAsian food over the past year. Secondly,through our focus on price, we are ableto bring value to customers no matterhow much they want to spend.

Thirdly, the range of store formats wenow have has brought a huge benefitto customers – in different places, atdifferent times, doing different typesof shopping. Our Metro and Expressformats target convenience shoppers,including those in urban and deprivedareas, previously lacking shops offeringvalue and quality. Our Superstore and Extras formats target customerswanting to do their weekly shop. These formats, supported by ouronline Tesco.com operation, aredesigned to meet the ever-changingneeds of our customers.

Disabled CustomersServing 12 million customers eachweek means we have to makeshopping easier for a wide range ofcustomers. Tesco has always tried toinclude disabled customers in ouroffer, providing many services longbefore the Disability Discrimination Act (DDA) came into force, because weknow it makes good business sense.We have consulted disabled customersto make sure the sort of things we aredoing meet their needs. From Octoberthis year the DDA requires us to makephysical adjustments to make ourbusiness more accessible to disabledcustomers. Tesco already makes storesaccessible to disabled customers butdue to acquisitions and our move backto the High Street accessibility mayvary across our range of stores.

We surveyed all our stores last yearand now have a programme of work inplace to make sure our stores are evenmore accessible.

StaffDiversity benefits a business in manyways, including greater customer andstaff loyalty. To review our progress,identify best practice and set nextsteps, we held an away-day in Januaryfor all those responsible for diversityissues across the business. The meetingwas facilitated by the Work Foundation.A key follow-on from the away-daywas the appointment of an Inclusivity

Champion on the Board, and theestablishment of our InclusivityGovernance Board to identify new andexciting initiatives for staff and customers.

We are committed to ensuring that at all times and in every aspect ofemployment, including recruitment,training and development, everybodyreceives the same treatment. Both

65+ years

50-64 years

35-49 years

25-34 years

15-24 years

1%16%

30%

20%33%

Employee age diversity

11-15 years

6-10 years 16+ years

3-5 years

1-2 years

Under 1year

9%

6%

26%

25%

16%

18%

Length of service

2003, Free From range launched

7626_Astound 12/6/04 12:16 pm Page 25

internal and external applicants areconsidered on individual ability,regardless of factors such as gender,age, colour, creed, race, ethnic origin,disability, marital status, religion orbelief, trade union membership orsexual preference and orientation.

A copy of our Equal OpportunitiesPolicy can be found atwww.tesco.com/everylittlehelps

One of the many ways in which we areable to be a more inclusive employer isby offering our people opportunities towork flexible hours. Where practicable,our staff are able to job-share, workflexitime or compressed hours, shiftswap, work from home, or workpart-time. We were chosen bytheDepartment of Trade and Industry’sWork-life Balance Challenge Fund toconduct further research into flexibleworking opportunities and to developnew ideas. Employees can also takeholiday for a wide range of reasons,including Grandparent Leave, CarersLeave, Study Leave, Religious FestivalLeave and Yellow Ribbon Leave – apaid day’s leave to staff with relativesreturning from military service in Iraq.Not only do flexible hours mean wecan attract a wider range of employees,but it also means that staff are morecommitted to their jobs, which reducesabsenteeism and improves morale and retention.

We have been supporting the UKGovernment’s Age Positive campaignand have long recognised the benefitsof a mixed age workforce. We are oneof the first companies that positivelyencourages the recruitment of the 50+age group, and have a Working BeyondRetirement Policy. This enablesemployees to work as long as theyfeel fit. We are proud that 17% of ouremployees are over the age of 50.

Tesco has become the first business toset targets for the recruitment of disabledpeople. We are working in partnershipwith Remploy, the UK Governmentagency, and the Shaw Trust, who actas ‘job brokers’ for disabled jobseekers.We are looking to recruit 200 disabled

people over the next year, to add to the almost 500 disabled employeeswe have in supported placements. Wehave also reviewed our Selection Toolkitthis year to include suggestions to makereasonable adjustments for disabled staff.

17% of our employees are over the age of 50.

2003, Debut launched

At Tesco, we try our best to providea welcoming and fulfilling workingenvironment for everybody.

Les Rowe, aged 78, can be foundfilling shelves with fresh fruit at his localTesco store in Goldenhill, Bristol. Eagerto keep busy, he has chosen to worklong past the traditional retirement age.Up until a year ago he worked as a Tescotrolley man. Appreciative of the job’sresponsibility he notes: “As a trolleyman you are the first and the last thinga customer sees when going into thestore, a good impression is vital.” Beforeapplying for his job with Tesco he wasapprehensive that his age may be afactor that counted against him whenapplying, but was delighted to be told“if you can do the job, it doesn’tmatter what age you are”.

Robert Artiss is a grocery assistant atour Worksop store in Nottinghamshire.Despite two National VocationalQualifications (NVQs) and many jobapplications, he had only been able tofind temporary work until Remployarranged for him to join the New Dealfor Disabled People programme. Badly

injured in a road traffic accident whenhe was eight years old, Robert sufferedbrain damage that affected his leftside, but he fought back, regaining theability to walk and carry out every dayactivities. During a six week workplacement at Tesco, Robert’senthusiasm shone through, and hewas eventually offered a permanentjob. Delighted with his job, Robertfeels that the best aspect of working atTesco is the companionship: “Thepeople at Tesco are brilliant.” he says.“My disability means nothing to them– they see the person I am inside.”

Inclusivity in the Workplace

case study

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Social24

2003, SEDEX launched

MANAGING OURSUPPLY CHAINTesco is a founder member of theEthical Trading Initiative (ETI), and ourethical trading policy, which appliesacross all our businesses, is based onthe ETI Base Code. We aim to actresponsibly in our commercial andtrading activities. We cannot claim tohave all the answers to complexethical or social issues. However, wewill do what we can to ensure that thelabour standards of people working forour suppliers meet relevantinternational standards.

Tesco uses the ETI Base Code as itsstandard for suppliers:

• employment is freely chosen;

• freedom of association and the rightto collective bargaining are respected;

• working conditions are safe and hygienic;

• child labour shall not be used;

• living wages are paid;

• working hours are not excessive;

• no discrimination is practiced;

• regular employment is provided;

• no harsh or inhumane treatment is allowed.

This year we have started a two tothree year programme to extend our

ethical trading policy to cover allsuppliers of all our businesses, ratherthan just suppliers to the UK business,which was the case until last year. Afurther significant step forward hasbeen our involvement with thecreation of SEDEX, a web-basedsystem that allows suppliers tomaintain data on labour standards atproduction sites and make informationavailable to companies they supply.Previously, suppliers often had to payfor multiple assessments of the samesite, which could be costly and resultedin different data held on the same site by different retailers. It also meantconflicting corrective actions wherepoor standards were found. When fullyfunctional, the new shared system willreduce the need for multipleassessments, so that attention can be focused on driving improvements.

A further area of progress this year isthe continuation of ‘Buying With YourEyes Open’ (BWYEO) and ‘SupplyingWith Your Eyes Open’ (SWYEO)courses, which are labour standardtraining programmes for our buyersand suppliers respectively. The BWYEOcourse is half a day training for buyingteams, which teaches them how torecognise potential issues, and what to do when confronted with them. In 2003, 261 buyers across 11commercial categories took part in

BWYEO, which represents just overthree quarters of the UK buyers. Inaddition, all technical managerscomplete the SA8000 socialaccountability audit training.

The SWYEO course and EthicalTraining Workshops are aimed at commercial and technicalrepresentatives from our suppliers, and aims to explain our approach,raise awareness, and encourage themto take responsibility for improvingstandards in their supply chains. A full-day programme, this year it hasbeen held in the UK and also in HongKong, Shanghai, Bangalore, Dhaka,Cape Town, Sao Paulo and Dublin.Some 450 suppliers have attended,roughly three quarters of whom werefrom the overseas supply chain.

Risk Assessment and AuditingWe take a risk-based approach tomanaging labour standards in oursupply chain, in addition to the duediligence workwe do, which includeslegal compliance, product quality andcapability for product development.We assess ethical riskusing three criteria:

• the risk inherent in the country wherethe supplier is located, using acountry risk matrix provided by anindependent ethical consultancy.The country risk matrix is reviewedtwice a year;

7626_Astound 12/6/04 12:16 pm Page 27

• the risk inherent to the industry andemployment types, e.g. use ofseasonal workers, home workers,subcontractors;

• Tesco’s own knowledge of the risksposed by the site and supplier, thetypes of raw materials, the role ofsecondary sites, and any previousrecord, for example publicity issues.

Using these criteria, we rank suppliersinto high, medium and low ethical risk categories:

• high risk suppliers complete a self-assessment form in SEDEX, and have a two- or three-dayethical assessment by a third party every year;

• medium risk suppliers are reviewedannually, through self-assessmentvia SEDEX, and will undertake a one-or two-day ethical assessment by athird party assessor at least everytwo years;

• low risk suppliers are reviewedannually, through theirself-assessment via SEDEX.

Third party assessors conduct the ethical assessments, raise non-compliances and manage theverification of corrective actions toensure implementation.

If a non-compliance has not beenverified as resolved by the third partycompany six months after theassessment date, the Tesco TechnicalManager will assess the suitability ofthe site to continue supply. We willalways try to persuade the supplier toimprove their performance rather thanterminate the contract, as we believethat this persuasion is more likelyto result in improvements to labour conditions.

In 2003, 261 buyers across 11 commercial categories took part in ourBuying With Your Eyes Open scheme.

2003, Inclusivity Governance Board introduced

The Tesco horticulture team has beeninvolved in and has contributedfinancially to both environmental andsocial projects in our Kenyan flowersupply base, resulting in:

• classrooms being built for children of the workers;

• mapping of Lake Naivasha, an importantwater source to the communities thatlive and farm in this area;

• new equipment for the workers’medical centre;

• fund raising in the UK by selling offsample stock twice yearly to Tescohead office workers and using themoney to buy equipment and toys for the workers’ nursery;

• the flower supplier becoming Fairtrade accredited.

case studyKenyan Roses

Examples of other projects where wehave supported small-scale producerscan be found on our website atwww.tesco.com/everylittlehelps

7626_Astound 12/6/04 12:16 pm Page 28

Environment26

1990, Introduction of green trays

Because we live here too.

A responsible society should not satisfy today’s needs at theexpense of being able to meettomorrow’s. We take a verypractical approach to environmentalsustainability. We know thatneglecting our responsibilitiesmay jeopardise our sources ofsupply in the future. We also knowthat optimising our environmentalperformance often goes hand inhand with reducing our businesscosts and maximising ourproductivity.

Some environmental goals arerelatively straightforward – reducingenergy consumption and minimisingwater use, for example. But others arecomplex, where the balance of‘sustainability’ between competinggoals is more difficult to achieve. Forexample: are the environmental costsof importing fresh vegetables fromAfrica outweighed by the social benefitsof trading with under-developedeconomies? How far can we reducepackaging if food safety and consumertrends are demanding the opposite?How can we enhance biodiversitywithout unnecessarily increasingbureaucracy and cost for suppliers? We do not claim to have all thesolutions. But we apply our awareness ofthese competing demands to ourdecisions; we listen to an ever widerrange of stakeholders; and we takepractical steps to move forward inwhat we believe is the right direction.

ENVIRONMENTALPOLICYTesco endorses and aims to apply theprinciple of sustainable development,which means meeting the needs ofthe present without compromisingfuture generations.

The full text of our environment policycan be found atwww.tesco.com/everylittlehelps

RESOURCES

Energy Efficiencyand EmissionsWe are committed to reducing ourenergy consumption and emissions ofgreenhouse gases. We have made aneight-year commitment to reduceenergy consumption per square footby 35% by 2006. Over the past year,we spent £6 million on energy savingschemes, and this investmentcontributed to our reduction in energyconsumption. We achieved a 2%reduction of energy used per squarefoot, against a background ofunexpectedly high sales growth (6.7%).We would have achieved our target of4.2% had sales growth been in linewith our projections.

We support the UK Government’sposition on climate change and theKyoto Protocol. We participate in theUK’s Emissions Trading Scheme, andare committed to making an absolutereduction of 74,000 tonnes ofgreenhouse gases over five years at a

control group of 118 stores. We receivea financial incentive for each tonnesaved, and this money is re-investedinto more energy saving initiatives.

One example is the installation of the‘Intellihood’ system at 274 in-storebakeries and staff restaurants. Thisextraction system roughly halves theamount of energy consumed by theextractor fans. At our Feltham store, for example, the bakery oven extractsystem and the doughnut fryer extractorpreviously consumed a constant 4.6kWper hour. This has now been reducedto an average of 1.5kW and the investmentwas recouped in less than 18 months.We plan to install this system in all storeswhere it can make such a difference.

A second example is the introduction of ‘Total Energy Controls’ systems at270 of our sites, which are intelligentboiler/burner control systems. Software

03/04 117.3

02/03 122.4

01/02 133.8

00/01 146.5

99/00 152.5

Energy consumptionKwh per ft2 sales space

1

1Energy usage has been measured on a like-for-like basis, stripping out any additional usage dueto higher than expected sales volume.

7626_Astound 12/6/04 12:16 pm Page 29

Over the last year, we spent £6 million on energy saving schemes.

1990, Bag for Life introduced

is used to reduce any unnecessary firingof burners within heating boiler systems,and we estimate that gas consumptionis reduced by an average of 30%.

Our drive for energy efficiency appliesthroughout the Tesco group. In CentralEurope we have dedicated EnergyManagers with energy saving objectives.There are similar programmes in allour international businesses.

Renewable TrialsOver the past year we have beeninvestigating the potential of renewableenergy. In January 2004, in partnershipwith SolarCentury and partly aided bya Government grant, we installed asolar powered roof at our new petrolstation in Hucknall, which generates20% of the energy used by the petrolstation and prevents five tonnes of C02

being generated each year. Acomparison of the installation cost ofthe photovoltaic (PV) panels with theannual savings on electricity billsshows that the panels will take aroundthirty years to pay for themselves.Tesco is therefore currently evaluatingthe role that PVs can play, for exampleusing PVs to generate the equivalentelectricity as lighting used at one ofour average-sized stores.

We have also been carrying out a pilotof a gas turbine Combined Heat andPower (CHP) unit at our Horsham storesince August 2003. CHP captures and

uses the heat that is usually lost whengas is burned to create electricity. Wehave calculated the payback period tobe six years, so following this success,we are evaluating the feasibility ofinstalling CHP units in six other stores.

We are also researching the financialviability of wind turbines at a numberof suitable sites and exploring thecosts and benefits of hydro-power.

RefrigerationWe have phased out the use of all CFCsfrom our stores and are in the processof phasing out HCFCs. This forms partof an extensive programme that willbe completed in advance of the ECRegulation 2037/2000, and theserefrigerants are currently beingreplaced by HFCs. As part of ourcommitment to the UK EmissionsTrading Scheme, we are reducing ouryear on year refrigerant usage by 3,500tonnes of CO2 equivalent.

The efficiency of all new refrigerationsystems is assessed across theirpredicted working life, using TotalEquivalent Warming Impact as a majordeciding factor, as well as capital cost,maintenance and energy consumption.

Water ConsumptionBy the end of 2003/4, we had reachedour target of a reduction in waterconsumption of 4.2% per square footfrom the previous year. We did this bycontinuing our programme ofinstalling percussion taps, water

reclaim systems, water dams in cisterns,and by putting similar sized stores intogroups to benchmark their water usage,to identify and spread best practice.

To reduce our water consumptionfurther, we have identified a numberof stores suitable for installing rainwatercollection systems, and our evaluationof the potential benefits continues.

HFC

HCFC

99/00 70 30

00/01 75 25

01/02 80 20

02/03 83 17

03/04 88 12

99/00 1.8

1.700/01

1.601/02

1.502/03

1.403/04

Water consumptionm3 per m2 sales space

% Refrigerants used

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Environment28

The bulk of our emissions to air come from our transportdistribution fleet.

VEHICLE EMISSIONS

Vehicle EfficiencyThis year we have met our target toincrease the number of cases of productsdelivered per litre of fuel consumed,from 18.4 last year to 19.1 this year,which represents an increase of 3.8%in efficiency. This means that we haveincreased the number of products wedeliver to stores per vehicle, which hasresulted in a more efficient use of ourdistribution fleet. This is a new KPI asof last year, so there is no historic data.

New initiatives include a programmeto formalise the work we are doing toreduce emissions, and we have fittedContinuously Regenerating Traps (CRTs)to 30% of our 1,615 vehicles to reduceexhaust emissions. We have alsolaunched a new training scheme fordistribution drivers to help them becomesafer and more efficient. The DriverOperating Skills scheme offers driversBronze, Silver and Gold awards fortheir understanding of safety, vehiclechecks, environmental issues and newEU Directives.

We have also been working on projectsto minimise the empty space in Tescolorries returning from stores to thedistribution centres. We make sure thatreturn loads include both cardboard andplastic for recycling at our distribution

centres, and goods picked up fromsuppliers local to our stores. This reducesthe number of vehicles travelling emptyon one leg of their journey. We havealso increased the number of doubledeck trailers to maximise the amountof product delivered to a store. The resultis a highlyefficient use of our distributionfleet which minimises the number ofvehicles on the road servicing our stores.

RailWe operate 26 distribution centresaround the UK that deliver to storesseven days a week. In the past, thishaulage has been completely road-based, with no use of rail. This year,thanks to the increased economicviability of rail freight, we haveexperimented with transportingclothing goods by rail from theSouthampton docks to our DaventryDistribution Centre. A shift to increaseduse of rail has the potential to reduceemissions and congestion on the roads.

Unfortunately, to date the trial hasshown the rail deliveries to be toounreliable. However, we will keep thisoption under review.

Green Travel PlansSince the beginning of 2003, greentravel plans have become an integralpart of all our new store and storeextension development proposals.Travel plans are required for newlarge-scale developments by national

planning policy guidance. We alsoprovide them for smaller developments(excluding our smallest formats –Express and Metro).

These green travel plans outline themeasures that we take to reduce thenumber of store employees coming toworkby car, including staff travel surveys,car sharing and walking buddies.Where employees participate in carsharing or walking buddy schemes, weoffer them a guaranteed ride home inthe event of emergencies. To date, wehave produced travel plans for 29 newstores and store extensions.

BiofuelsFollowing our purchase of a 25% stake in the renewable fuel companyGreenergy in 2002, Tesco started sellingGreenergy GlobalDiesel at our Hatfieldpetrol station in early 2003. Independenttests show that this diesel, which includes5% diesel made from rapeseed oil,reduces carbon dioxide emissions by5%, particulate emissions by 20% andimproves fuel efficiency by 1%. To datewe have found that this fuel is popularwith customers, and we are planningto extend the trial in the coming monthsto a further 21 stores.

WASTE & RECYCLING

Operational RecyclingWe are committed to minimising theamount of waste produced and to arobust recycling programme. We haveour own recycling programme that

1991, Nature’s Choice launched

7626_Astound 12/6/04 12:16 pm Page 31

To date, we have collected 203,657 mobile phones and 8,356 inkjet cartridges forrecycling over the last year, thereby raising £436,124 for the Royal NationalInstitute of the Blind, the Multiple Sclerosis Society and Barnardo’s.

recycles paper, cardboard and plasticOver the last year, we exceeded ourtarget and recycled 79.8% ofcardboard waste (185,599 tonnes).However, due to difficulties at ourplastic recycling contractors, we justmissed our target to recycle 87% ofplastic waste – we managed to recycle85.4%, or 15,033 tonnes. Total amountsrecycled are up from last year, reflectingthe growth of our business.

Over the past year we sent 131,052tonnes of waste to landfill. This meanswe recycled 60% of total store waste,an increase of 4.8% over the previousyear. We are now sending 27% lesswaste, or 48,948 tonnes, to landfillthan 5 years ago. This is particularlygood performance given the strongsales growth we have experienced. Thebulk of the waste we send to landfill isfood waste, and we are exploring waysof reducing this form of waste.

Minimising waste applies throughoutTesco operations. For example, inThailand, cardboard secondarypackaging is recycled, and all ourstores have separate waste watertreatment facilities.

Green TraysIn 2000, our pioneering use ofreusable plastic crates – green trays –to replace cardboard boxes and otherpackaging to transport and displayproducts won the Queen’s Award forEnterprise. Since then, these reusablecrates have been adopted all over theworld, as they not only cut the amountof packaging waste, but also protectthe goods in the crates, therebyminimising the amount of damagedproduce thrown away.

Over the last year we have exceededour target of a 10% increase in thenumber of green tray trips, achieving

an increase of 11.2% to 192 milliontrips. While this increase is mainly dueto growth in the volume of goods beingtransported due to increased sales, itstill represents a saving of 57,000tonnes of cardboard packaging whichwould otherwise have been used.

1992, Organic range launched

00/01 156

01/02 162

02/03 173

03/04 192

99/00 140

Green tray tripsmillion trips

y

143,164 180,000

9,65

2

99/00

165,168 153,000

11,7

7700/01

173,889 118,648

12,3

14

01/02

178,811 139,473

12,6

10

02/03

185,599 131,052

15,0

33

03/04

Paper/cardrecycled

Plasticrecycled Landfill

Waste Tonnes

7626_Astound 12/6/04 12:16 pm Page 32

Environment30

Recycling for CustomersOne of our customers’ most pressingenvironmental concerns is recycling.Our research showed that customerswere sometimes reluctant to recyclebecause recycling centres were oftennot well maintained or full. During theyear we piloted an innovative newrecycling unit at three stores inHertfordshire. These recycling unitshave been designed to ensure ease ofuse for the public and easy access forcollectors. They are situated in thestores car parks, undercover, and haveeasily removable collection bins.Customers can recycle plastic bottlesand jars, tins, glass bottles and jars,cardboard, textiles and CDs. Tescoalready accounts for about 13% of allmaterial collected for recycling by localauthorities, and we hope that projectslike this will make recycling easier forour customers. We are evaluating thesetrials to help identify ways to improve.

In response to customer feedback, wehave adjusted our pioneering mobilephone and inkjet recycling schemes sothat customers can pick up Clubcardpoints as well as opting for Tescomaking a donation to charity for eachitem recycled. To date, we havecollected 203,657 mobile phones and

8,356 inkjet cartridges for recyclingover the last year, thereby raising£436,124 for the Royal NationalInstitute of the Blind, the MultipleSclerosis Society and Barnardo’s.

After Christmas, we collected 457 tonnesof Christmas cards for recycling, inconjunction with the Woodland Trustand Rethink Rubbish, an increase of29% from last year. This customerrecycling raises funds for the WoodlandTrust to continue its work in protectingand creating new native woodland. Wehave recycled over 600,000 disposablecameras in the past year bringing ourtotal to over a million.

This coming year sees theimplementation across the EuropeanUnion of the Waste Electrical andElectronic Equipment (WEEE)Directive. Tesco fully supports theprinciple of recovery, recycling and re-use, and to this end, we are workingwith the British Retail Consortium toprovide a fully workable and effectivemarket-based retail compliancescheme. Like most members, wefavour a market-based third partycollection system, as it is our opinionthat in-store take-back of wasteproducts would prove too impracticaland bureaucratic.

2002, Christmas card recycling scheme launched

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Tesco accounts for about 13% of all material collectedfor recycling by local authorities.

Degradable Plastic BagsThis year Tesco will become the firstsupermarket to introduce degradablecarrier bags to all UK stores. The use ofa new additive (TDPA) developed byEPI Environmental Products Inc.,means that the plastic bags, which areas strong as regular bags, start tobreak down in as little as 60 days intobiomass, carbon dioxide, water and asmall amount of mineral matter, withno harmful residues. Many people useour carrier bags as bin liners, and thiswas recognised in developing thedegradation timescale.

Last year we also introduced carrierbag recycling units in hundreds ofstores, encouraging customers toreturn their bags to us for recycling.Meanwhile, we will continue to replaceour customers’ hard-wearing Bags forLife for free.

Over the past year we have scaledback our trials of biodegradable anddegradable packaging on organicproduce. Our research showed thatcustomers were not willing to pay extrafor the more costly biodegradablepackaging. Customers who do not buyorganic also told us that price was amajor factor deterring them from

doing so. As a result, we have taken the difficult decision to providebiodegradable packaging on a smallerrange of organic produce, and to keepthe situation under review.

Environment AgencyIn July 2003 we were identified bythe Environment Agency as a ‘repeat offender’ following ourprosecution for a petrol leak at one of our petrol stations in 2002 and a prosecution the previous yearregarding the accumulation of trolleysfrom a store in a local river. We weresurprised to be highlighted in this way, for what were two unrelated andrelatively small pollution incidents. Inrelation to the petrol incident, we hadbeen working with the EnvironmentAgency on a risk assessment andrefurbishment programme of our petrol stations. We take ourenvironmental responsibilities veryseriously and continue to work hard to prevent any such repeats.

2001, Mobile phone recycling scheme launched

“Tesco’s support has been central to the success of the Christmas card recycling scheme. It provides The Woodland Trust with the opportunity to educate customers across the UKabout the importance of keeping native woodland alive, and how – through recycling theircards, they can do their bit.”

Penny Purley, Senior Account Manager, The Woodland Trust

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Environment32

SOURCING

Sourcing food of the highest safetyand quality is our utmost priority. Our customers also expect food to be competitively priced and have beenproduced to high environmental andwelfare standards.

Nature’s Choice For the past eleven years, we haverequired our suppliers of fruit, vegetableand salad in the UK to comply with ourNature’s Choice scheme, which setsout safety, quality and environmentalstandards of production. This year thescheme was strengthened in order tomake it more rigorous. It now coversall suppliers of produce to the UK, fromall countries of origin – a significantextension from its previous UK focus.In the past year we have also moved toindependent certification of the schemewhich will allow us to roll out thescheme more effectively and quickly.

In strengthening the scheme, the sevenpillars of Nature’s Choice remain thesame but extra controls have beenadded to ensure best agriculturalpractice in our supplier base.

The seven pillars of Nature’s Choice are:

• rational use of plant protectionproducts;

• rational use of fertilisers and manures;

• pollution prevention;

• protection of human health;

• use of energy, water and othernatural resources;

• recycling and re-use of material;

• wildlife and landscape conservationand enhancement.

We are working with our primaryproduce suppliers and independentagricultural experts to review the useof plant protection products in oursupply base. All products will be riskassessed for compliance with bestagricultural practice and a controlledlist of products developed to furtherstrengthen controls on pesticides.

As part of the scheme, farms musthave a plan for the management ofthe environment, detailing the actionsto be taken to protect and encouragewildlife diversity including plantinghedgerows and creating a wildlife

corridor. Pollution control and energyuse are also a fundamental part of thescheme with specific controls ondischarges to local watercourses andenergy use reviews by independentthird parties.

The Nature’s Choice scheme isgoverned by a committee made up ofsuppliers, an independent academicand auditor and Tesco managers.

We are aiming for 80% of the supplybase to complywith the scheme by theend of 2004 and 100% of suppliers in55 countries worldwide by 2006.Currently all of our 2,500 UKgrowersnow grow their crops to the Nature’sChoice standard.

2002, Inkjet recycling schemes launched

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Wildlife ChoiceWe have introduced a new code to runin tandem with Nature’s Choice, tofocus more specifically on biodiversity,called Wildlife Choice. This code,developed with seven of our largestsuppliers and growers, establishesmanagement plans to monitor andpromote wildlife by establishing habitatsand measuring the change in numbersof birds and other wildlife. The codehas been trialled at seven UK farms,with the objective of identifyingtransferable best practice which will berolled out to farms in 2004/2005.

Animal WelfareWe aim to achieve high standards ofanimal welfare and best industrypractice in our supply base. We havehad an Animal Welfare policy in placefor the past six years and have TescoLivestock Codes of Practice for allspecies, which cover all aspects ofhusbandry from breeding farmsthrough to slaughter. We are committedto achieving an integrated supply baseto allow, wherever possible, whole-lifetraceability. We employ a team ofagricultural experts to ensure that ourstandards are both comprehensive andadhered to. We employ a consultant

vet with a certificate in animal welfareto ensure that we are abreast of currentissues. We also employ an independentauditing company to confirm that ourstandards are fully met.

We sponsor various research projectson animal welfare issues including theFood and Animal Initiative (FAI) inOxford. The FAI was set up in 2001 toresearch sustainable farming systemsand animal welfare standards, and todemonstrate practical benefits to UK farmers. This project is looking at all species and aims to provideanimals with environments whichmeet their welfare needs, within a commercial framework.

Animal TestingTesco brand non-food products arenot tested on animals by us, by oursuppliers, nor on our behalf. Tesco is afinancial contributor to the Fund forthe Replacement of Animals inMedical Experimentation (FRAME),seeking ways to end animal testing.

All of our 2,500 UK growers now grow their crops to theNature’s Choice standard.

2002, Launch of Tescofarming.com

case study

One of this year’s projects at the FAIsponsored byTesco has been toidentify new ways of improving thetaste of our Finest porkproducts.

This has examined options on the breedof pig reared, the pig’s diet, the type of bedding material used, and themaintenance of stable family groups.For example, much higher fibre contenthas been introduced to the pigs’ diets.This is beneficial to the intestinal healthof the animals and consequently theiroverall well-being. One unexpected butvalued extra benefit has been that theodour from the pig unit has been significantly reduced!

Food and Animal Initiative

7626_Astound 12/6/04 12:16 pm Page 36

Environment34

OrganicsWe are committed to organic farmingand Tesco aims to sell more organicfood than any other retailer in the UK,a target we hit this year, with a 27.4%market share. Our customers tell usthey want to buy more organic food,and this is shown by the increase inorganic sales of 9% over the last year.Customers also tell us that the key isprice, and we are trying to address thisby making our organic operations more efficient.

We currently source 100% of organicmilk, eggs and other dairy products,chicken, lamb and mushrooms fromthe UK. We are sponsoring the TescoCentre for Organic Agriculture atNewcastle University, which willdevelop an advisory centre for organicbeef, lamb and pork farmers over thenext two years. Our sponsorshippackage is worth £450,000 over fiveyears, and research areas includefinding new natural ways to combatweeds, pests and diseases, improvingproduce shelf life, and organicfertilisation. Through the Centre, weare ensuring that Tesco and ourorganic suppliers are at the cuttingedge of development and technology.

Genetically Modified FoodsOur policy on Genetically Modified(GM) foods is driven by the view of our customers. They continue to tell usthat they are not yet convinced of thebenefits of GM. We do not thereforehave any own-brand GM foods on ourshelves. We also offer the widest rangeof organic products in the UK, furtherextending the choice for customers onthis issue.

We moved to non-GM feed for freshpoultry, eggs and fish two years ago.In addition, the use of GM feed isprohibited in organic products, whichmeans that all of our organic meatsare fed on non-GM feed. For othercategories, we are working closely withthe farming community who tell usthat to extend the range of meat wesell from animals fed on non-GM atthis time would put immense pressureon them. We will keep an open mindas the technology develops, listeningand responding to our customers.

We remain committed to clearlabelling to enable customers to makean informed choice. All brandedproducts containing GM ingredientsare labelled as such.

FishWe support the Marine StewardshipCouncil (MSC), which was set up by

the World Wildlife Fund in 1996 toinvestigate ways to conserve fishstocks effectively throughout theoceans of the world. It has developeda labelling scheme for sustainable

2004, Solar energy trials begun

Above: Organic supplier William Rose ofCulblair Farm, Inverness.

7626_Astound 12/6/04 12:17 pm Page 37

Tesco has a 27.4% market share of all organic food sold in the UK.

seafood products, which provides areal incentive for fisheries large andsmall to be managed responsibly andin a sustainable fashion.

We are committed to supporting theMSC-accredited fisheries, and havelaunched a number of MSC-certifiedproducts. These include fresh wildAlaskan salmon and Thames herring,when in season. This range willcontinue to grow as more fisheriesbecome accredited. Of the twenty‘at risk’ species identified by the MSC, we have stopped selling nine, and weensure that for the remaining species,our suppliers source from low-riskareas and that lines are used inpreference to nets wherever possible.

Following research this year whichhighlighted concerns aroundenvironmental and labour conditionsin the warm-water prawn farmingindustry, we have reviewed andstrengthened our sourcing policy.We do not currently sell wild caughttropical prawns on our counters,pre-packed or within our frozen range.We require all prawns to be farmedin accordance with our LivestockCode of Practice, which coversenvironmental management, foodsafety and animal welfare. Tropicalprawn farms are also audited againstthe ETI base code in line with ourethical trading policy.

Palm OilWe are aware of concerns about thelink between palm oil plantations andtropical deforestation. This is an industryissue as palm oil is an ingredient in a wide range of food and non-foodproducts including soap, cosmetics,confectionery, ice cream, snackproductsand margarine. We are currentlyassessing the risk for our own brandand evaluating how we can contributeto the debate and on-going research,with our suppliers.

TimberLast year Tesco left the WWF 95+Group in response to a disagreementabout the sourcing of our hardwoodgarden furniture. Tesco was one of thefounding members of the WWF 95+Group and continues to support itsobjectives wholeheartedly. We nowemploy independent experts to reviewour supply chains and carry out regularaudits and progress checks on ourperformance against our own timberpolicy and codes of practice.

We are committed to purchasingtimber products only from legal,sustainable sources. We will neverknowingly purchase products usingtimber from illegal sources for Tescobrand products. We will workwith oursuppliers to support initiativesdesigned to promote responsible

forest management and increase theavailability of certified wood. Wesupport the use of sustainable woodalternatives; recycled wood and productsderived from waste wood.

We will offer our customers choice bylabelling timber products that are madefrom wood from certified sources inline with the UK Governmental GreenClaims Code and our Honesty inLabelling Policy. We will also labeltimber products that have been clearlyidentified as coming from GM sources.

STORE DEVELOPMENTThis year we have exceeded our targetto develop over 90% of new stores onbrownfield sites. In fact 96% of our 48new stores opened this year were onland that had previously used fordevelopment. This emphasis onbrownfield development is good forlocal communities, particularly those in need of regeneration, and good forthe environment, where contaminatedsites are cleaned up.

Before construction starts at new sitesacross Europe, we carry out surveys ofenvironmental impacts, taking intoconsideration emissions, waste, water,noise and energy consumption.

2004, Introduction of degradable carrier bags

7626_Astound 12/6/04 12:17 pm Page 38

Key Performance Indicators (KPIs)36All the Corporate Responsibility KPIs in the table below are included in our Steering Wheelmanagement process (see page 5 for further details). We measure and report internally onperformance against each KPI every quarter, and performance is reviewed by the CRCommittee. As a result, KPIs contribute to the way we monitor and assess overall company performance.

2003/04 TargetKPI How we performed Below target On target Target for 2004/05 Page

12

16

26

27

28

28

28

32

28

Exceededexpectations

Economic:Regeneration

We achieved our targets tocomplete 3 partnership storesand initiate 7 new partnerships.

We just missed our job creationtarget by 50 jobs, creating 950overall.

To open 3 partnership stores,bringing the total completed to 12.

1,000 jobs and trainingpositions with Tesco for thelong-term unemployed inregeneration stores.

Initiate 6 new partnerships.

To open 3 partnerships, andinitiate 7 new partnerships.

To create 1,000 jobs in newregeneration partnerships.

Offer 7,000 regional linesincluding 1,000 Welsh lines by the end of 2005.

To reduce our energyconsumption per square foot of sales space by 4.2%.

Over 7,000 regional and local lines.We remain on track to achieve ourtarget. This includes 600 Welshproducts, 1,000 Scottish productsand 1,500 Irish products.

To maintain at least 7,000regional and local lines in storesand to increase the number ofWelsh lines to 1,000 by the endof 2005.

An annual reduction target of4.44Kwh/ft2, which equates to a3.6% reduction.

Economic:Local Sourcing

Environment:Energy Efficiency

To reduce our waterconsumption per square metreof sales space by 4.2%.

To reduce our waterconsumption from 1.42m3/m2

to 1.32m3/m2, which equates toa 7% reduction and saves119,905m3 of water p.a.

We achieved our target to reducewater consumption to 1.42m3 persquare metre (4.2%).

Environment:WaterConsumption

To increase the number of casesof products delivered per litre offuel used by 2.5%.

To achieve a further 2.5%increase in volumes of products delivered per litre of fuel consumed.

We exceeded our target – actualperformance saw a 3.7% increasefrom 19.1 to 19.8 cases of productdelivered per litre of fuel.

Environment:Vehicle Efficiency

To recycle 74.5% of allcardboard used in ouroperations.

We are reviewing our RecyclingKPIs to help us monitor landfillavoidance. Our target for2004/05 will be for 65% of allwaste to be recycled, up from60% this year.

We exceeded our target – 79.8%or 185,599 tonnes of cardboardwas recycled.

Environment:RecyclingCardboard

To recycle 87% of plastic usedin our operations.

We are reviewing our RecyclingKPIs to help us monitor landfillavoidance. Our target for2004/05 will be for 65% of allwaste to be recycled, up from60% this year.

We missed our target by 1.6%. Thiswas due to difficulties at our plasticrecycling contractors. We havechanged the company we use for plastic recycling.

Environment:Recycling Plastic

To increase the number of re-usable Green Tray tripswithin our business by 10%.

To increase the number ofreusable green tray trips withinour business by a further 10%.

We exceeded our target, with anincrease of 11.2%. Green trays wereused 191,957 million times this year,which avoided the use of 57,000tonnes of cardboard or plasticsecondary packaging.

Environment:Waste Avoidance

To register all primary suppliersof fresh fruit, vegetables andsalad internationally, and tohold training sessions forsuppliers on Nature’s Choice.

All growers to be registered toNature’s Choice.

80% of supplybase compliant withNature’s Choice standards by2005.

To review all pesticides used bygrowers audited in year 1 by theend of 2004/2005.

We achieved our target. We havealso completed our trial on plantprotection product lists.

Environment:Nature’s Choice

We achieved a 2% reduction ofenergy used per ft2, against abackground of unexpectedly highsales growth (6.7%). We wouldhave achieved our target of 4.2%had sales growth been in line withour projections.

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To implement Wildlife ChoiceAction Plans on biodiversity atseven specified sites.

Wildlife Choice website to belaunched. Full review of projectto be undertaken in October2004.

We achieved our target, all sevenfarms are working to the plans, andthere is some progress at all sites.

Environment:Wildlife Choice

2003/04 TargetKPI How we performed Below target On target Target for 2004/05Exceededexpectations

Environment:New StoreDevelopment

We exceeded our target, with96% of all new developmentson brownfield sites.

At least 90% of all newdevelopments to be onbrownfield sites.

To develop 90% of newstores on brownfield sites.

Social:CharitableGiving

We are on track to maintain ourmembership of the Business inthe Community Per Cent Club.

To donate a value equal to 1% of our pre-tax profits tocharities and good causesthrough donations, time and gifts in kind.

To donate 1% of pre-taxprofits to charity throughdonations, employee timeand gifts in kind.

Social:EmployeeRetention

We have exceeded our target.82% of our experienced staffstayed with us throughout2003/04.

To exceed 80% retention ofexperienced staff.

To retain loyal and experiencedstaff in the business andachieve a loyalty level of 80%i.e staff who have been withTesco for more than 1 year.

Social:EmployeeTraining

96% of retail staff achievedBronze level.

95% of retail staff to be trainedto Bronze level.

95% of retail staff to be trainedto Bronze level.

Social:Supply ChainLabour Standards

We achieved our target forassessment of high priority ownbrand suppliers, carrying outaudits at 83 high-risk sites.

We exceeded our target,providing training to 450suppliers to date in the SupplyWith Your Eyes Open (SWYEO)programme which represents23% of suppliers.

We also achieved our target totrain all high priority commercialteams via our Buying with yourEyes Open (BWYEO) trainingcourse. All technical managershave now also completedSA8000 training programme.

To carry out ethicalassessments of 100% of ourhigh-risk own brand suppliers.

To train 100% of our ethicalhigh-risk own brand suppliers.

To ensure all Tesco Commercialteams have received training onsupply chain labour standards.

To assess 10% of high-riskown brand suppliers on labourstandards.

To train 10% of high-riskownbrand suppliers on labourstandard issues.

To train all Tesco high prioritycommercial buying teams onlabour standard issues.

Social:Race for Life

We largely met our targets, with300,000 women taking part inRace for Life, and we helped raise£17.5m for Cancer Research UK.However, we were below ourtarget for staff participation,although more than 12,500members of staff ran.

To help recruit 325,000 womento participate in Race for Life.

To encourage 15,000 Tescostaff to run.

To help raise £20m ofsponsorship for CancerResearch UK.

To help recruit 300,000women to participate.

To encourage 20,000 Tescostaff to participate.

To help raise sponsorship to £17.5 million.

Social: Computers forSchools

We met our target, and reached a total of £84m of computerequipment supplied to schoolssince the start of the scheme.

We exceeded our targets fornumber of registered schools andnumber of participating schools.1,500 schools joined the schemethis year.

To increase the cumulativevalue of computer equipmentsupplied to schools to £92m.

To increase number of schoolsparticipating to 24,500.

To provide a further £7 millionof equipment to schools.

To increase the number ofschools registered andparticipating.

Environment:Organics

We achieved our 2003/2004target, with a 27.4% market share.

To remain the leadingsupermarket for volume oforganic products sold asmeasured byTNS data.

To be the number one UKsupermarket for organics, asmeasured byTaylor NelsonSoffres (TNS) data.

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For further information or to download this Review, please visit www.tesco.com/everylittlehelps

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