Tesco today is the largest retailer in the UK with over £59 billion sales in 2008. It has started from a small stall in the east end of London. In this dynamic environment, Tesco has managed to stay ahead of its competition through focus on people, both customers and employees. However, in today’s rapidly changing globalised environment, anything could happen. Companies today need to always innovate and reinvent themselves in order to maintain their competitive advantage. The macro environment that Tesco operates in provides both opportunities and threats. Therefore, for sustainable growth and development, Tesco needs to have proper strategic direction that addresses these macro environmental challenges.
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Though the company has extensive operations worldwide, Tesco’s largest market is still the UK. This report analyses the macro environment that Tesco UK operates its interconnectedness to external opportunities and threats. Competitiveness of Tesco UK is analyzed by applying Michael Porter’s five forces model, SWOT analysis, PEST. The paper is further expanded by linking both the PEST framework and the 5 forces to understand Tesco’s dynamic macro environment.
A stakeholder analysis is carried out in order to understand the expectation of Tesco’s stakeholders. Strategic capabilities of Tesco are explained through the identification of core competencies of the firm. Justification of these competencies explains how Tesco manages to stay ahead of its competitors.
COMPANY BACKGROUND
Tesco is one of the leading retailers in the United Kingdom, and one of the biggest food retailers in the world as well. The Tesco started life as a grocer but consequently extended into a very large of range of retail, which it has supplemented with an equally ample series of services. These contain economic and indemnity, telecom, travel agency, and mixed other stuffs including legal advice in the form of do-it-yourself wills and divorce kits. It also runs really significant petrol retailing business. Tesco is mainly present in supermarket and hypermarkets, but the business diversified very much over the review stage. Its operations contain ease petrol retailing using its Tesco Express fascia, small high street outlets by the use of Tesco Metro, supercenters by way of Tesco Extra and non-food specialists using Tesco Home plus. Financial services are surviving throughout Tesco Personal Finance, and its online release channel Tesco.com has 98% exposure of the UK and is the country’s top internet delivery overhaul (Thomas, 2007).
Analytical tools to examine the organisation’s external operating environment and appropriate strategic management frameworks and tools to analyse the organisation’s internal environment.
According to Johnson & Scholes,(1999) an environment is such a dominant influence that most organisations, perhaps other than those that are very large , are unable to influence their operating environments they merely buffer themselves from, or respond to changes in that environment.
Organisations need strategies in order to have guidelines of how to achieve objectives and how to pursue their missions. SWOT ANALYSIS is concern with identifying the position of the firm in respect of the business environment it operates in and how well its resource s and capabilities meets the demands of that business environment. Such analysis formed part of the background to which strategic decisions are made.
In addition to that, PEST Analysis too helps to understand the big picture of the Political, Economic, Social- Cultural and Technological environment you are operating in. PEST is used by business leaders worldwide to build their vision of the future.
The models to identify environment factors are as follows:
PEST Analysis
Each of these factors contains many small issue but we will look at a few important issues from each factor influencing the operation of Tesco. The UK business of TESCO is based on fascination of getting it right for the customers. They run to offer great value, grow market share and bring new innovations.
a. Political Factors
In the case of Tesco they have to deal with British and Columbian politics in regards to its coffee supply. Similarly, in 2006 Slovakia’s competition authorities rejected the deal between Tesco and Carrefour to swap Tesco stores in Slovakia and the Czech Republic with Carrefour stores in Taiwan. Also another political example for Tesco could be the agreement with Thailand’s government to halt expansion through the opening of few convenience stores for three months, following rows with authorities and independent shopkeepers. (Berg and Rieple, 2001)
b. Economical Factors
Tesco operates internationally, the fluctuations in stock market, tax rates, exchange rates, GNP trends, disposable income, employment levels, inflation and terms of trade in these countries will seriously affect Tesco.
The average Tesco store employs 300 people and pays £3.25 million in wages annually. While this along brings value to a local economy it also helps in employment and careers development (Palmer and Hartley, 2002).
As the largest private sector employer in the UK, Tesco has a responsibility to contribute to the capabilities of tomorrow’s workforce .Education is one of the key areas where customers believe their support is very important, and where they can make a real difference. They are committed to developing their people to fulfil their potential
c. Socio-Cultural Factors
As the largest private-sector employer in the UK, Tesco has a responsibility to contribute to the capabilities of tomorrow’s workforce. Education is one of the key areas where customers believe their support is very important, and where they can make a real difference. They are committed to develop their people to fulfil their potentiality. In 2006, over 2000 people in their stores have progressed into management positions.95% of retailers staff were trained to our bronze level of competency.
In 2002 Tesco introduced a group wide human rights policy, addressing employment conditions including wages, hours, freedom of association, health and safety, discrimination, child labour and security.(Hannagan,2002)
d. Technological Factors
Tesco has benefited from technology because of its ability to maintain the pace in its rapid change. The introduction of IT has enabled them to compete against others. More customers are buying online, saving them time. Tesco portfolio can also be found in their website where customers can access information. Tesco has systems in place where their suppliers know what quantity.
II. Porter’s Five Forces Model
This tool was created by Harvard Business School professor, Michael Porter, to analyse the attractiveness and likely- profitability of an industry. Since publication, it has become one of the most important business strategy tools 1979.
There are five forces influencing competition in an industry. They are as follows:
a. The Competitive of Rivalry
For the Tesco, the degree of rivalry is quite high as there are substitute products and existing power of other suppliers and the buyers (customers) in the market. Other rivals like Asda, Morrison, Sainsbury’s that provide similar goods and services.
b. The Threat of New Entry
Tesco along with other competitors have threat to new entry. But Tesco has a benefit of economics scale for example, benefits associated with bulk purchasing, it has good distribution channels, it has contacts and expertise and Tesco has its own brand which is difficult to imitate.
c. The Threat of Substitutes
For Tesco the of substitutes could be the price of any substitute product falls, easy for consumers to switch from one substitute product to another and also that the buyers are willing to substitute Tesco’s products for other alternative products, in term of more benefits or less price.
d. Buyer Power
For example Tesco can face the power of buyers if they are not able to differentiate their products from other competitors like Asda, Sainsbury’s, Morrison etc. because substitutes for those products can be easily found in the market. Also customers are price sensitive, which means market analysis is an essential factor for Tesco to remain competitive.
e. Supplier Power
Tesco needs to have the only suppliers them that particular raw material. Also, it is very costly for organisations to move from one supplier to another and the old supplier may know all your trade secrets which can be revealed to your competitors. There could be products that only Tesco but no other competitor sells and thus the supplier in that case has a high degree of power.
III. Porter’s Generic Strategies
According to the theory , every business needs to choose one of these in order to compete in the market place and gain sustainable competitive advantage .Each of these three strategic options represents an area that every business and many not-for profit organisations can usefully explore. The three options can be explained by considering two aspects of the competitive environment (Lynch, 2000).
The source of competitive advantage, there are fundamentally only two sources of competitive advantage. These are differentiation of products from competitors and low cost.
The competitive scope of the target customers, it was possible to target the organisation’s products as a broad target covering most of the market place or pick a narrow target and focus on a niche within the market.
To better understand the nature of competition, porter offered a series of business tools which business can use to analysis their own company and competitive environment. They are as follows:
a. Low -Cost Leadership
The low cost leadership in an industry has built and maintains plant, equipment labour costs and working practices that deliver the lowest costs in that industry.
b. Differentiation
Differentiation occurs when the products of an administration meet the needs of some customers in the market place better than others. When the organisation is able to differentiate it products, it is able to charge a price that is higher than the average price in the market place.
c. Focus Strategy (Sometimes Called Niche Strategy)
According to Porter, neither a low -cost leadership strategy nor a differentiation strategy is possible for an organisation across the broad range of the market. For example, the costs of achieving low cost leadership may require substantial funds which are not available.
Focus strategy occurs when the administration focuses on a particular place in the market place and develops its reasonable benefit by contribution stuff specially developed for that position.
Tesco falls under the cost leadership category where its drive is to be the lowest cost operator in the industry. To be a cost leader, investment is required in production technology and high quality staff. Tesco’s prices are lowest compared to Sainsbury’s, and Morrison, and very close to Asda, its main competitive.
We cannot call Tesco a cost leader only as it has differentiated itself form other competitors, in terms of product range, delivery, online sales, clubcard schemes and many more. It can be rightly said that Tesco is adopting both of these strategies of cost leadership and differentiation.
IV. SWOT Analysis
Strengths:
TESCO have secured commercial standing within the worldwide bazaar place winning Retailer of the Year 2008 at the “World Retail Awards”. This can be used for promotion campaigns to make benefit towards the demographic base for future enlargement and sustainability.
Moreover, in an environment where international retail sales are viewing refuse or level performance on a like for like basis TESCO Group have published sales grow of 13% for UK markets and 26% growth in global markets.
Furthermore, as a business looking for sustained growth TESCO have keep funds of credit coupled with revenue derived from property assortment development finances.
Weaknesses:
Firstly, TESCO Finance revenue levels were impacted from side to side bad debt, credit card amount overdue and household insurance claims.
Secondly, TESCO’s position as a price boss in UK markets can lead to cheap profit margins in order to keep hold of the key price points on must have commercial stuffs.
Thirdly, Grocer outlets are not set up to work as specialist retailers in specific areas of product which can be capitalized on by other smaller adapted retailers.
Finally, whilst current financial circumstances advise TESCO’s key worth message will be successful there is a weakness in non-essential, mid to high ticket price objects which will suffer from the rising price of living and lower non-refundable incomes.
Opportunities:
First point is that Statistics propose TESCO is the third major international grocer which indicates a stage of buying muscle to ensure typical economies of level.
Second important point is that the gaining of however provides the chance to expand the brand through Asia, specially South Korea and further develop international markets for the group.
The growth of Tesco Direct throughout online and catalogue shopping will raise the use of technology, providing the initiate pad for better non food based products with moderate to high edge income and less focus on sales and border per foot return to hole.
TESCO mobile have grown-up ¼ million clients in 2008 and stimulated into money-making status suggesting further enlargement and development within this technological area can be developed.
Threats:
Initially, UK and American markets have been precious by financial concerns through the “credit crunch”. Lower available profits will impact and strategic focus may require changing to inferior priced basic products with less focus on superior priced brands suggestive of a control in price structural design.
Furthermore, increasing raw fabric costs from both foodstuff and non foodstuff will bang revenue limits in general.
In addition to, Sourcing changes to Far East locations with regards exporting limitations on some non foodstuff invention areas will decrease margin charge on goods with already low limits.
Changes to purchaser trade behaviors need further psychoanalysis – as technology develops customer trade patterns alter which wills consequence in produce areas requiring assessment.
For TESCO there is a determined risk of conquest from the market boss Wal-Mart who has both means and purpose to hunt such action.
The Vision/ Mission of Tesco and Briefly Explained Tesco’s Environmental and Social Current Standpoints.
Vision
Vision is an important element for a company. It is also aligned with the success of the company. Tesco has a vision as well. Its vision to endeavour and gain the uppermost standards, to make sure long-term admission to quality produce and maintain their status as the number one (No. 1) in the UK supermarket. Their main principle is to generate value for patrons to gather life time loyalty of customers.
Mission
Tesco’s mission statement is to Retain Loyal People. To ensure Tesco gains their mission statement, they require recognizing who their reliable consumers are. That is why Tesco has got a ‘Clubcard’ facility, though which they can reward people by giving them exceptional vouchers and additional points.
This mission statement is at the centre of all, which Tesco does.
“Creating value for customers, to earn their lifetime loyalty”
Tesco has values with the way to do business, which are:
Formats
Tesco developed the basic model of stores into four different formats: Tesco express, which brings great food at low prices to local neighborhoods; Tesco metro, which offers convenience to customers who live or work in city centre; in our Tesco superstores customers can find everything they need for their weekly shop; and in our Tesco extra stores customers can find our full range of food and also a comprehensive range of general merchandise including clothing, electrical and telecoms.
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Every Little Helps
Every Little Helps represents everything Tesco stand for; it’s not just a catchphrase or marketing slogan. As Tesco have grown, so has the importance of Every Little Helps; over time, the different products and services Tesco have diversified into has been so great, Tesco ran the risk of losing it way. Tesco relied on Every Little Helps more and more over the years, to act as a common philosophy to bind them all together. Every operational decision make in Tesco is judged against what it calls the ‘shopping lists’.
These lists determine what Tesco strive to achieve every day:
No-one tries harder for customers
Treat people how we like to be treated
Are better for customers, simpler for staff and cheaper for Tesco.
Deceptively simple, but the key to understanding Tesco is to see that our obsession with delivering these promises is what Tesco is all about.
Clubcard
Tesco Clubcard enables them to thank their customers for shopping with them and is a world-leading loyalty programmed which allows them to better understand what it customers want. It is an integral part of how Tesco run their business as it helps them to listen to their customers and try and respond to their changing needs.
Last year nearly one million new customers signed up to Tesco Clubcard, and Tesco gave away over £340 million in Clubcard vouchers, in order to thank their customers for shopping with them.
Customers can also make the most of their vouchers by exchanging them for Clubcard deals which are worth four times the value.
In February 2007, Tesco launched a partnership with the Open University so customers can now use their Clubcard vouchers to fund their learning, from a beginner’s course in writing family history to a humanities degree.
This year Tesco started to reward their customers for shopping in an environmentally friendly way with our Green Clubcard points. Customers receive points when they reuse carrier bags, and also when they recycle old mobile phone and inkjet printer cartridges. (Tesco. 2010)
The Future and Strategies for Tesco
Competitors such as Asda, Morison and Sainsbury’s are attempting to follow. Tesco’s everyday low price strategies diversify their ranges by introducing non food items. However, their lower purchasing capacity does not allow them to match Tesco’s range or prices. Both competitors at 11% of grocery retailing are no immediate threat to the retailing giant. But there is a very competitive environment out there ready for Tesco if they lag behind in any area .Tesco should continue to develop its multi-format and multi- channel approach to retailing. This is a strategy that I believe that by combining physical stores, online presence and catalogues. Tesco will be able to maximize its sales by exploiting it scale and reach.
Diversification of the foreign businesses is a solid strategy to pursue, as it helps provide a greater degree of stability should one of the parts of the business hit difficulties. And of course, Tesco must continue to listen to its customers, to ensure that it maintains it ability to remain relevant and attuned to their needs.
As long as Tesco stick to Porter’s generic strategies and do not move toward a ‘stuck in the middle” position of trying to be all things to all customers.
At present, Tesco is competing in a global platform where key players are ruthlessly standing against one another. By taking into account the mentioned strategies Tesco can become a market leader, both locally and globally.
Recommendations for Tesco in competitive UK food retail market and how it can sustain in the top 10.
The UK business of TESCO is based on fascination of getting it right for the customers. They run to offer great value, grow market share and bring new innovations.
In this report, it can be recommended that if Tesco follows these following core competences, then Tesco may protect its present status or it may sustain in first 10 retailers in the UK.
Tesco’s core competences are:
1. Online Operations
The four leading UK supermarket operators are Tesco, Sainsbury, ASDA and Morrisons. Tesco has proved to be the most successful in implementing its internet online strategy, with Tesco.com achieving million online sales and profits.
Tesco’s online success is especially significant because it was able to anticipate the future. Stores like ASDA and Sainsbury made the mistake of investing in warehouse infrastructure based on sales volume forecast that significantly overestimated the level of demand where as Tesco concentrated more on using a store based operating model as opposed to the warehouse based model which is expensive and time consuming.
2. Competitive pricing
Tesco has an advantage to economies of scale. When it produces in bulk it can easily cut down prices and sell it for cheap. It provides a competitive pricing strategy which other supermarkets are facing difficulty to provide.
3. Supply Chains
Supply chain management is a primary area in which Tesco have been prominent innovators. The development and redevelopment of sourcing and distribution has enabled Tesco to improve availability and reduce cost of supply. Innovation, however, goes beyond meeting existing needs or wants. An appropriate retail strategy will endeavour to anticipate customer needs beforehand.
4. Quality
Consumers expect more from their retailers as their standard of living and lifestyle improve. Tesco has introduced new range of lines like Finest and Value considering the fact that customers have become quality conscious.
Many innovations in quality have led to more and better choices of locally sourced meats and produce, organics, high quality ready meals, specialist bakery products, products such as Halal meats.
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