Tesco UK Food Department: Risk, Regulation & Quality

Legislative and Regulatory Requirements

The decision to provide healthier food by labeling ingredient information on packages — including calories, sugar, fat, sodium, and saturated fat content — must also comply with UK food and labeling law. According to the Department of Food and Nutritional Sciences, "In most cases, ingredients have to be listed in weight descending order determined as at the time of their use in the preparation of the food. This is commonly referred to as the 'mixing bowl stage'. The following exemptions are however permitted" (Food Labels: A Guide to UK Regulations, 2011):

Water and volatile products used as ingredients must be listed in order of their weight in the finished product. The weight of water is calculated by subtracting from the weight of the finished product the total weight of the other ingredients used.

If an ingredient is reconstituted from a concentrated or dehydrated form during preparation of the food, it may be positioned according to its weight before concentration or dehydration.

Where a food consists of, or contains, mixed spices or herbs and no particular spice or herb predominates significantly by weight, those ingredients may be listed other than in descending order of weight. In the case of a food consisting entirely of such a mixture, the heading of the ingredients list must include the words "in variable proportion" or other words indicating the nature of the ordering.

The difference between legislation and regulation is often a difference between compliance and oversight. A business must comply with the legislation that regulatory agencies use as the basis for their oversight of business activity. Therefore, the regulatory requirement for Tesco is to comply with these rules given its move toward healthier and more desirable foods. Foods sold that are heavier in composition than others must be listed before lighter foods, even if the heavier foods are not as nutritionally desirable as the lighter ones.

Tesco must also comply with the current regulatory framework overseeing food and drug operations in the UK. According to CSPI Reports: International (1998), "Although specific legislation addressing functional foods does not exist in the United Kingdom, medicinal claims on foods are specifically prohibited. The UK, like the US, draws a dichotomy between foods and medicines. Medicines must be licensed and must fulfill pre-market approval requirements to obtain such licenses (a narrow exception is made for herbal products that are minimally processed and do not make health claims). It is important to note that the term 'health claims' has different meanings in the US and the UK. In the UK, the term 'health claims' refers to claims that a food has a 'specific health benefit.' In the UK, the Ministry of Agriculture, Fisheries and Food (MAFF) has authority to draft regulations for foods, with enforcement responsibilities delegated to local trading standards officers (TSO) or environmental health departments of local authorities; drug regulation and enforcement, including labeling and advertising violations, is carried out by the Medicines Control Agency (MCA)." (CSPI Reports, 1998)

With respect to the needs of shareholders, one element of the marketing plan — specifically, the idea to offer 150 products in a "Free From" range — is inherently risky because it immediately segments the market into a demand constraint that includes only customers who would purchase non-allergenic food items. The decision to respond with such a large, exclusive food section must be informed by surveys of the population and expected demographic data on the number of allergy sufferers in the region.

Risk Assessment

The higher rate of inventory turnover resulting from more stringent in-store inspections by staff will likely cost the store revenue. Many stores continue to sell items with small dents in cans or sticky labels on bottles. Such items would be removed from Tesco's shelves and replaced with fresh stock from inventory — inventory that must then be replenished without offsetting sales revenue to cover the cost of the next order.

Oversight of staff training is mission-critical to achieving the plan's goals. There is an inherent risk that the human resources team may be unable to operate within the plan's guidelines. Ensuring that systems remain online is equally critical. Downtime represents the key test of the human resources team's ability to minimize disruption and rectify problems immediately.

Risks to the supply chain can cause inventory delays and increase the Cost of Goods Sold. The budget can be negatively affected if expenditures are closely tied to expected revenues. An increase in indirect costs can have detrimental effects on the budget, potentially requiring the business to take out a bank loan or sell notes to local banks or corporations.

The use of the Ten Steps to Quality Improvement is a reasonable starting point; however, the plan's activities may not be dynamic enough to react quickly and effectively to operational demands. The plan is comprehensive, but a methodology is needed to catalogue activity outside of the system in real time.

Minor improvements to the plan include explicitly stating that the new health foods initiative is consumer-centric — aimed at improving dietary habits and cardiovascular health — while being fully compliant with UK legislative requirements and capable of meeting all national regulatory inspections. Additionally, stakeholder engagement is strengthened when a national rollout is first gauged through survey studies and demographic analysis of the target consumer population and their dietary habits.

To improve the bottom line associated with product turnover, Tesco can sell unfit goods on the secondary market to other stores. The UK has retail outlets where food is not the primary sales driver. Stores such as discount and small general goods retailers carry canned items and other packaged food products, often catering to the secondary food market and generating additional revenue streams.

Proposed Improvements to the Plan

Training of human resources staff is important given the nature of system interaction. Meetings should be held to discuss how to react more quickly and assess situations efficiently. Chokepoints in the system should be identified on a flow chart, with individuals assigned to specific tasks associated with system operations. Additionally, an individual should be designated to address specific categories of system problems.

Supply chain risks can be mitigated by researching additional vendors in different geographic regions. For example, if a supply shock is anticipated for Florida oranges in April, causing demand to spike, a forward contract can be entered into with regional growers in unaffected areas — where demand for those oranges is not elevated — to take delivery of that stock in April at a price below the projected market rate.

The Ten Steps to Quality Improvement can be enhanced by using quality charts and scorecards to gauge the effectiveness of operations in real time. These results could be displayed on an LED screen in the store so shoppers can see how well the store is performing in servicing their needs.

According to Research and Markets (2011), "Ensuring a process is in control is critical to any Six Sigma project, but how do you determine with certainty if a process is on track or requires improvement? Where do you find the 'proof' or the solid facts that a process is out of control and requires intervention? By applying statistical process control (SPC) methods, a Six Sigma team can identify and control variation in a process. This course covers the basic concepts in statistical process control methodology, including the selection of variables and rational subgrouping." (Research and Markets, 2011)

Research and Markets (2011) further notes that "one of the most important tools used in SPC methodology is the control chart," which enables practitioners to select the right chart for the variables being measured and to interpret specific patterns they reveal. This methodology also covers the selection of variables and rational subgrouping as foundational concepts. (Research and Markets, 2011)

The wider implications of the proposed changes extend to how other businesses operate for their clients — not only in food services but across other sectors as well. The labeling changes are likely to become part of the operational framework for other food services organizations, as the trend toward ingredient labeling on packaging continues to grow.

The movement toward healthier product offerings is also gaining popularity. Consumers who traditionally did not purchase health foods are increasingly turning to these items. Although the non-allergenic food range carries commercial risk, the broader healthy foods offering should increase footfall and improve the consumer experience, encouraging future patronage.