Tesco gives Microsoft food for thought
Herts headquartered groceries giant, Tesco has made a bold move into the multi-billion pound home computing software market through a tie-up with ‘alternative software vendor,’ Formjet, formerly of Cambridge.Tesco, the largest listed company in the region by a considerable margin, has already encroached on the traditional territory of large swathes of the High Street, through its ‘non-food’ strategy, selling insurance, clothing, electronic goods and even telecoms in its stores.
It now plans to go toe-to-toe with Microsoft, through a range of Tesco-branded utility software, one of which is a cut-price alternative to Bill Gates’ company’s £200-plus Office package.
The UK computer software market currently stands at a massive £8.8bn, 84.7 per cent of which is business software.
Formjet will initially provide Tesco with six software titles – two security/antivirus products; a personal finance tool; a complete office suite; a CD/DVD burning tool; and a photo editing tool.
The software will also be sold in conjunction with computer hardware, following Tesco’s entry into this market earlier this year, and via tesco.com, the company’s hugely successful online shopping portal.
The cut-price product suite, most of which will priced at under a tenth of MS Office at under £10, will be launched into over 100 stores this month and the plan is to roll this out to more departments and UK stores over the next 12 months.
Tesco buyer Daniel Cook said: “With more people working from home and schools encouraging greater use of IT, the demand for home computing equipment is bigger than ever.
“Customers can now access a wide range of good quality computer hardware at amazing prices but when it comes to software there is little choice and prices are high.
“Our new range of software changes this, bringing choice and value to the market that has offered little of either for too long.
“Whether running a home office or helping the kids with homework, Tesco Software can help.”
Formjet, which has experienced a rough ride on the markets following a drastic reorganisation, saw its shares almost double to over 4.125p after the deal was announced.
The merit of Tesco’s strategy to grow be as strong in non-food as food was self-evident in its interim results, published, which showed profits for the six months up 10.3 per cent to £1.09bn.
This stellar performance was driven at least in part by a 12.6 per cent increase in non-food sales to £3.5bn. The company is also trialing the viability of stores that sell pretty much everything except food – Homeplus – with plans to open two more units shortly.
The retailer also said it planned to create upwards of 20,000 new jobs worldwide over the coming year.
As well as providing the Tesco branded software, Formjet will also manage the Tesco Software online facility, providing technology and customer support – by designing, running and maintaining the TescoSoftware.com website.
This means that Formjet will effectively provide a one stop shop for Tesco’s entry into the utility software market.
Formjet CEO Lyndon Chapman said “Tesco has the power to reach an entirely different environment and customer to traditional computer stores; we intend to work hand in hand to offer market leading quality software, at a Tesco price point.
“This is one of a number of deals in the pipeline referred to in our interim announcement however it is unlikely to have a material effect on 2006 earnings.
“The investment towards the end of last year in support facilities and the closure of our Cambridge branch has significantly improved res-ponse times and our “alternative” software brands are an ideal base for creating own label software.”