Company and market overview of Tesco

Tesco is a global grocery and general merchandising retailer, operating more than 4,000 stores worldwide today. In UK alone, Tesco has such a huge business with over 2,200 stores with various formats i.e., Tesco Express, Tesco Metro, Tesco Superstores, Tesco Extra and Tesco Homeplus. Besides, Tesco also operates in the rest of the world ever since they begin to seek for new opportunities during the mid-90s. They operate 2,026 stores in 13 markets which are in Europe, Asia, North America and they had successfully entered the Indian market last year. With the flexible and multi-formats approaches, as well as a well-established and consistent unique strategy for growth, Tesco is generating total revenue of £56,910 millions in the year 2009/10.

1.1 Mission statement and values

Tesco is about creating value for customers to earn their lifetime loyalty, by understanding the customers, be responsible to the communities and also be the first to meet the customers’ needs. In fact, In addition to food, Tesco covers non-food products, personal finance, petrol retailing and even internet retailing today. They always put the customer on the first place, and if the customers like what Tesco is offering, they will come back and shop again. Besides, Tesco has also introduced the club card service where loyal customers can get special vouchers and points in order to achieve the mission statement.

1.2 Financial situation

Not only that, Tesco PLC is quoted on the London Stock Exchange and has a record of having outstanding financial performance even during the economy crisis period.

Overall, the company’s revenue is increasing year by year. Tesco recorded that the increment of total global revenue is 8.1%, 10.9%, 13.9% and 5.6% for the year 2007, 2008, 2009 and 2010 compared to the previous year respectively.

In UK alone, from year 2006-2010, the revenue increased for 28.6%. Whereas in the rest of Europe, the increment achieved an amazing rate of 70.8%. While in Asia, the revenue almost doubled in the year 2010, compared to the year 2006, reaching an increased rate of 93.1%. However, there is a disparity between the revenue generated in UK with others; Tesco is still generating most of its profits at UK today.

1.3 Market Share

Besides, Tesco market share in UK has grown steadily since the early 90s as a result of customer focused strategy. It has recorded a 30.4% of market share in the year 2010, a rose of 0.3% compared to the year before.

Tesco shares are performing great in the past few months. Share price is increasing gradually every day.

2.0 Market Overview

The competitive environment in the UK retail market experienced a drastic change in the year 2004 when Morrisons has acquired Safeway supermarket chain and becoming the fourth largest retailers in UK. This poses a threat to Tesco, Asda as well as Sainsbury who is ranked the first, second and third respectively at that time. In fact, Euromonitor International from the Retailing industry has predicted that more of these acquisition processes will continue to impact the retailing industry for the next few years. Besides, Tesco’s biggest rival Wal-Mart’s has teamed up with India’s Bharti Enterprises to seek out a new business opportunity. Tesco has then taken the chance to form a joint venture with the Tata Group to enter the India’s retail industry (Reuters, 2008).

2.1 PESTLE implication

2.1.1 Social/cultural factors

Indeed, this is proven right when these hypermarkets is likely to opening up more and more smaller stores i.e. Tesco Express, Sainsbury’s Central fascias to fight against the traditional retailers. Under the law and regulation of UK, opening of any new out-of-town hypermarkets is restricted and therefore, this opens up a new opportunity for Tesco and its competitors to develop their business. Euromonitor (as cited in Moreau, R., 2004), comments that the hypermarkets are already putting up a decent fight against mixed retailers and non-food specialists by expanding their range of products. The old trend of which hypermarkets are only selling food products is dying out.

Indeed, customers have moved towards ‘one-stop’ or ‘bulk’ shopping due to socio-cultural changes. For example, the decline in home meal preparation in the society today causes Tesco to focus more on added-value products and services. Not only that, Tesco is adapting product mix to accommodate the increased in awareness of health issues, such as more demand for organic foods.

2.1.2 Economical

One of the most influential factors on the economy is high unemployment levels, which basically decreases the demand of everything. In year 2009, while countries like United States and UK are in heavy recession due to credit crunch, this has particularly hit the economy level badly. In fact, the unemployment rate was so high and it adversely affects the demand for goods. However, food is always the last thing that customers will cut back on. Thus, the recession gives grocery retailers like Tesco an opportunity to earn more when customers chose to spend their meal at home instead of outside.

2.1.3 Technological

In the recent years, online shopping has developed so much and provides various advantages for niche customers i.e. goods are readily available, services can be more personalized to each customer and. Subscriptions to the internet have grown more than 50% and it has been estimated that the internet is being used by 70% of the population in UK (Office for National Statistics, 2010).

Besides, loyalty program launched by Tesco a few years back through information technology discourage customers from switching brands by tracking their purchasing details. Besides, Tesco stores also utilize technologies like wireless devices, electronic shelf labeling and self checkout machine to make shopping more enjoyable for customers.

2.1.4 Environmental

In the recent years, there has been increased pressure on many big companies to acknowledge their responsibility to the society, and act in a way which benefits the society overall. In another word, corporate social responsibility has become an important matter for Tesco. According to Office for National Statistic (2010), percentage of consumers using reusable bags has risen and the total number of plastic bags used has decline.

Besides, Tesco has taken a step further by adding carbon footprint data on dairy products, potatoes, and aiming to expand it to non-food items. This would definitely increase the consumers’ awareness towards the need to preserve and protect the earth.

2.1.5 Legislative and political

Politically, there is a growing concern that Tesco is getting out of control and driving out the competition. As Tesco grows even bigger in some countries, inevitably it will face some criticism from political parties or consumer activists. For instance, the entry into Indian market has been opposed by the political party as new store developments are often seen as destroying other jobs in retail sector. In the developing countries like India, traditional stores play an important role in the daily life and will be forced to end the business up when they have no power to fight against retailer giants like Tesco. Reuters (2008) mentioned that even large local groups such as Reliance Retail, one of the most valuable firms has protest about the job losses.

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Nevertheless, China has welcome Tesco’s entry into the country when an agreement was signed to set up a premeditated series of joint ventures for development of shopping malls in Anshan, Fushan and Qinhuangdao. Besides, 18 new hypermarkets are expected to open in China by the end of this year. On top of that, the promotion of free trading blocs by governments to benefit from globalization has further pushing the Tesco expansion to more countries. Addition of another ten countries into the European Union (EU) which took palce in 2004 has provided Tesco a platform to expand its retail network.

3.0 SWOT analysis

3.1 Tesco

Weakness

• Brand value
• Strong financial performance
• Increasing market share
• Lack of geographic diversification
• Reliance on UK market

Opportunities

Threats

• International expansion and growth
• Non-food retail
• Online shopping
• Overseas return might not be expected
• Highly competitive market

Being the largest grocery retailer at UK, Tesco has a brand value that most of the competitors are feared of. According to a research done by Intangible Business (2008), Tesco has the most valuable brand value in the grocery field. The company is always associated with fine quality and trustworthy goods that represent excellent value for the customers. Similarly, the innovative ways of improving on customer shopping experience has capitalized on this.

As mentioned above, the strong financial performance of Tesco has made the company globalizing expanding its businesses around the continents. Tesco could enter a market easier compared to smaller competitors due to the large backup of financial resources. On top of that, the ever increasing market is undoubtedly one of the greatest strength of Tesco. The revenue of Tesco shows no sign of abating and it is predicted that Tesco’s international business segment will grow even more in the future.

However, the main weakness of Tesco today is the lack of geographic diversification. From the table above, it can be seen that most of the revenues generated are from UK itself. The reliance on UK market is very high and while this isn’t a major problem in the short term, any changes in the UK market could alter the balance of UK hypermarket power and affecting share. This happened on the 2004, when Morrisons had successfully acquired the Safeway chain and became the fourth largest retailer on UK.

On the other hand, the globalization process happens in almost every corner of the world today. Similarly, Tesco is making effort to expand its international business around the world. In fact, Tesco has entered the China market and it is expected that more stores will be open up in the giant country soon. Besides, Tesco has overtaken Argos and Homebase in the non-food retail industry (BBC News, 2006). Cloths, electrical goods and seasonal items can be found on the shelf and these was accounted 22% of Tesco’s sales in 2008. On top of that, the advance technology has makes life easier for people who want to stay home and shops. Tesco.com is growing rapidly and has provided an opportunity to attract more potential customer and reduce the overall cost since internet is basically free today.

Threats wise, the return on oversea investment might not be expected as international growth is expensive. Entering the new market with a new brand requires heavy investment, marketing as well as operation costs. Besides, economic condition and competitors’ action might affect Tesco operation. In Malaysia, Tesco has to compete with few large competitors like Giant and Carrefour and thus, the company would have to pay attention to what the competitors are doing all the time. A research was done earlier and it is found that Tesco is having 30% on the market share in Malaysia, followed by Giant (24%), Jusco (22%), Carrefour (15%) and others (9%) (Jayaseelan, 2010). Moreover, Tesco has to put on some strategy against those traditional small shop retailers which emphasize more on customer relationship; Tesco could use the Club Card to access more on the consumers’ buying behaviour.

Competitors SWOT analysis

Wal-Mart

Strength

• Largest company in term of revenues (Fortune, 2010).
• Largest employee base, with variety of products in their stores
• High customer satisfaction promoting customer goodwill
• Powerful retail brand, has great reputation
• Core competence – use of advanced IT to supports its international logistic and becoming more efficient

Weakness

• Despite the IT advantages, could leave it weak in some smaller areas due to huge span of control
• Market share is very low outside the US market
• Lack of geography diversification

Opportunity

• Tremendous opportunities for international market
• Has not enter Asian market, unlike Tesco
• Can form joint ventures to increase market share

Threats

• Variety of competition nationally, regionally and locally
• Competitors are ahead in the international market
• Being the number one meaning that Wal-Mart is the target of competiton
• Criticized by community groups for expanding too much

Wal-Mart, the undoubtedly largest competitor of Tesco is about eight times larger than Tesco. In fact, these two companies are now taking the battles on the international platform.

3.1.2 UK competitors

In the UK market, Tesco faces fierce challenges Asda (owned by Wal-Mart) as well as Sainsbury’s.

Strength

• Asda is owned by the famous Wal-Mart, powerful retail brand reputation
• Growing market share in UK competitive market
• Very developed strategies, low-cost prices

Weakness

• Not as huge as the main competitor, Tesco in the UK market
• Increased productivity leads to declining in product quality

Opportunities

• Tax-reduction and support from government
• Both has the potential to widen the product and services range i.e. non food products

Threats

• Being in the top 3 means that the companies are the target of competition
• Potential environmental threats
• Rising labor costs

4.0 Objectives

Setting objectives are vital because it focuses the company on specific aims over a period of time. Similarly, it also motivate the workers to work together to achieve the objectives set. Besides, the company would be clear on whether they are heading to the right direction or not. In fact, the simplest method used to set objectives is via the SMART which stands for specific, measureable, achievable, relevant and time-based.

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Tesco main corporate objectives are by offering customer the best value of money and services. The company need to understand the customers, always be first to meet their needs and act responsibly for the communities. This is why Tesco has launched the Clubcard on 1995, so that the company could serve them better. It aims to keep customers happy in order to achieve a higher profit margin.

In fact, the objectives set should be measureable as well as achievable. One should not set the objectives way in extreme, or else the company would takes forever to achieve it. The objectives should be relevant to what the company is doing, and thus, the workers could feel that they are working as a team to achieve something realistic.

Specific means that Tesco should make some specific objectives that the business wants to achieve. For instance, by increasing the total revenue by 36% more in the next 3 years, by entering 5 more new international markets in 3 years time, remain on the number one in UK market and some other countries, retain the old customers, utilize the technologies to develop the Tesco.com. to attract 40% more online customers and improve the usability and accessibility of the website.

Some assumptions should be made when setting the objectives i.e. the currency rate will remain stable and do not fluctuate too much for the next few years. Besides, management of the company and the countries Tesco is operating in would not change drastically until it affects the business operation.

5.0 Strategies

The success of a campaign is determined by the elements of marketing communications chosen for it. Failure to communicate can arise from several different causes and can be categorized as implication, distortion, disruption, confusion and misunderstanding (Blythe, 2003).

5.1 Ansoff’s market matrix

Tesco is using strong stable core to keep the business developing well while it forges new riskier areas of growth, for instance expanding the business to a completely new market in other countries. Due to the size of Tesco, every little decision counts and an in depth analysis of the markets is needed to satisfy the customers. Thus, Ansoff’s market matrix theory which includes market penetration, market development, product development and diversification can be applied in the strategies involved.

Firstly, market penetration is vital as it focuses on selling existing products into existing markets. In order to maintain or even increase the market share, secure the dominance of Tesco, the company could combine the competitive pricing strategies, advertising and also sales promotion. Investments ought to be carried out to obtain good information on competitors as well as the customer needs. Being the largest retailer at UK, Tesco could simply abuse the power to utilize a more aggressive promotional campaign.

Besides, by achieving excelling in market development, new geographical markets should be applied by expanding the business to as many corner of the world as possible. In fact, in the world of globalization today, it is vital to do this if one wants to remain competitive. In the recent years, Tesco has been on the right track and has moved into countries like China and India. In addition, different pricing policies is needed to attract different customers or create new market segments since every country is differ from one another.

Product development wise, Tesco already has its own brand products over the years in countries it is operating. Thus, product development of new competencies should emphasize more on the non-food products and products that has reduced carbon footprint where it will be more appealing to the markets. However, diversification is the most risky one among the four mentioned above. The market and product development will be outside of the core competency of Tesco and therefore, they should have a clear idea about what it expects to gain from the strategy, and vice versa.

A successful diversification will undoubtedly pushes Tesco to a completely new stage. In fact, Tesco will gain a foothold in an attractive industry and reduce the overall business portfolio risk. Often referred as ‘suicide strategy’, the risky diversification is compensated by the higher chance of getting high return rate. Therefore, to minimize the risk of diversification, Tesco could start off by moving into related markets instead of moving into a completely new market.

5.2 4Ps

Whereas in the 4Ps marketing mix, Tesco could develop their product strategies by marketing the products in different states or suburbs on the country. Besides, Tesco should develop their store’s own brand products in other countries to be marketed strategically. As for the price, Tesco could acquire the cost advantage by enhancing process efficiencies, and expanding to large supplier of getting low cost raw materials. Being the giant of the retailing industry, Tesco do not fear the bargaining power of suppliers and could search alternatives who offer lower price. Thus, Tesco will sustain a competitive advantage anchored cost leadership.

In fact, for Tesco to be more successful, it is vital that the products and services are offered at the right place and time. The company ought to target more areas so that the company will gain goodwill of customer and also favor from the local government by providing employment development to the locals.

Apart from that, promotion plays an important role too; quality products will not be sold if no one’s know about them. Promotion will keep the name of the company at the forefront of customers’ mind. Therefore, it will certainly create an image for the company and it will help to keep ahead of the competitors.

In addition, Tesco could abuse the power of internet via Tesco.com to reach its customer. The World Wide Web is designed to be viewed by the whole world, but only at a little cost. Compared to other forms of advertising, Internet can reach a far larger number of audiences where television and radio advertisement are no on par with it. Internet advertising may helps in attracting prospective customers who are already looking for the products and service that Tesco is offering a therefore, enables them to reel in those prospects who are ready to make a commitment.

6.0 Forecast

Budgets and forecasts can help in developing a business model, reviewing the key assumptions and identify the available resources and capital needs. Besides, forecast can be used to find funding as it provides a feasibility analysis which allows the stakeholders to have an in-depth view of how the business operation is going on. Moreover, budgets and forecasts can also be used as a management tool as forecast can establish measurements to guide management, to facilitate action planning, and also to facilitate in a clearer goal-setting. Table below shows a 3 years forecast income statement for Tesco.