The aim of this write up is to evaluate and analyse the strategic perspective of Tesco. This will include checking through all the activities of Tesco both in the U.K and globally.
OBJECTIVES:
The aim and objective of this write up is to examine the general operating strategies of Tesco, the challenges they are facing, what motivates them, their strategic directions, what strategy they are pursing presently. Also, what challenges lies ahead of Tesco and also to know where they will be maybe in the next five years.
METHODOLOGY:
Materials were consulted and sorted for in order to get fundamental information about Tesco and its operations. These materials will link from books, journal and online sources.
ACHIEVEMENTS:
During the course of this research, we have been able to analyse Tesco strategic options, directions, aspirations and operations. The position Tesco is at the moment has been established and their future directions. However, the present achievement and success of Tesco cannot be over emphasised in recent times.
CHAPTER ONE
INTRODUCTION
This research is basically to explore the strategies Tesco Plc is pursuing, their core competencies and their challenges. It is also to evaluate those competencies to know if they are sustainable and also if they provide customer value.
Further research will be done as the research progresses.
BRIEF HISTORY OF TESCO
Tesco is a British international grocery and general merchandising retail chain. It is the largest British retailer by both global sales and domestic market share, with profits exceeding E3 billion and the third largest global retailer based on revenue behind WAL-MART of U.S,A and CARREFOUR of France. (http://www.evri.com)
Further online source stated that the company started as a one man business in London East and was funded by JACK COHEN son of a polish Jewish tailor. He sold groceries in the markets of East end in 1919 but the brand first appeared in 1924. The name derived after Jack Cohen bought a large shipment of tea from T. E stock well( Formally messrs Torring and stock well of Mincing Lane ), he made new labels by using the first three letters of the suppliers name and the first two letters of his surname to form the word TESCO. The first store was opened in 1929 in Burnt Oak, EDGWARD- LONDON. On the part of food retailing, Tesco is one of the largest food retailers in the World, operating around 2,318 stores and employing over 326,000 people. It provides online services through its subsidiaries. The UK is the company’s largest market where it operates in the following areas Extra, Superstores, Metro and Express.
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The company sells almost 40,000 food items, including clothing and other non-food items. The company’s own-label products (50% of sales) are at three levels, value, normal and finest as well as convenience produce. Many stores have gas stations becoming one of British largest independent petrol retailers in 1991. Other retailing services offered by Tesco include Tesco personal Finance, Tesco.com and Tesco Direct launched in 2006.
Tesco is a supermarket giant. Research and retail analyst have identified some reason like :
Tesco’s are everywhere
Tesco’s sell to everyone
Tesco sells everything
Tesco has branded itself in such a way that its success is inevitable. They always take into account various implications for customers, their employees, shareholders and other concerned bodies. Tesco places importance on its mission statement.
Tesco have developed various international marketing strategies in various countries like China, Sweden, Malaysia, Poland, e.t.c
TESCO COMPANY PROFILE
According to information cited from on an online source, universitydissertations.com, Tesco runs more than 2,300 supermarket, hypermarkets and convenience stores in the United Kingdom, Ireland, central Europe and Asia. Tesco is the market leader in food retail in the United Kingdom where it has its highest market share existence compared to other countries where they operate.
Tesco operates in various categories of shop sizes, from hypermarkets (Tesco extra) to small urban stores (Tesco metro) and convenience and gasoline retailing (Tesco express) including Tesco financial services.
Also according to this same source, Tesco is a global leader in online grocery sales as it owns about 35 % stake in United States grocery chain called Safeway’s Grocery works.
Tesco is a leading online grocery store at the moment; they are now evening moving into expanding their business by diversifying into other areas.
TESCO SWOT ANALYSIS
STRENGTHS
Tesco has diverse ranges of products
They have a strong cash flow position
They increase sale and trade profits
They have a Strong balance sheet
They focus on brand awareness
They have human resources
Strong Online shopping facility
Tesco open 24 hours a day
They have a leading supermarket chain
They have capabilities of converting resources into finished goods.
WEAKNESSESS
Perception of low quality (Tesco value brands)
Lack of local knowledge of customers (international markets)
Lack of foreign culture knowledge (International markets)
OPPORTUNITIES
Tesco develop brand awareness globally
Constant New Market opportunity
Market shift to globalisation
Innovation and Alliances
Low cost brand growth
Diversification
Non-Food offers Tesco untapped new markets with higher margins.
THREATS
New and existing competition
Increase in the price of raw materials
Economic recession
Far-east low cost brands
High competition for customers and resources
CHAPTER TWO
ELICITING AND EVALUATING STRATEGY
Tesco is pursuing hybrid strategy in all their markets.
Tesco strategies can therefore be analysed with the Bowman’s strategy clock below.
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Tesco Position on clock
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According to strategyexplorer.com online resource, a hybrid strategy seeks simultaneously to achieve differentiation and low price relative to competitors.
Tesco’s Hybrid Strategy is pre-dominant in the UK market. Rival organisation like Asda seek to pursue low cost strategy and another rival, Sainsbury’s tend to pursue differentiation (broad) Strategy.
Hybrid strategy can give an organisation advantage especially when larger volumes of sales can be achieved. This is a plus to Tesco competitive advantage considering their market share in the U.K market. Tesco’s aspirations in the near future are to pursue full differentiation strategy which they may want to achieve in phases.
In additional to this Strategy, Tesco also utilises Market development strategy which has increased their balance sheet strength and global presence. According to online information from Tescoplc.com, Tesco Diversifying into areas like Non-food, Financial services and Telecoms and also new markets abroad in Asia, Central Europe and recently into the United
Tesco’s strategy towards market Development has broadened their scope of business over the years into new markets outside the U.K. Tesco has an established and sustainable. Their Strategic decision to diversify in 1997 has contributed to their success in recent years. (www.Tescoplc.com)
TESCO STRATEGY OBJECTIVES:
According to Tesco online source, the objectives of their strategy are:
To be a successful international retailer
To grow the core UK business
To be as strong in non-food as in food.
To develop retailing services – such as Tesco Personal Finance, Telecoms and Tesco.com
To put community at the heart of what they do.
TESCO TWO AREAS OF CORE COMPETENCIES
Core and distinctive competencies are very important to any organisation who wants to lead in its industry and also provide customer value.
According to Hunger J.D and Wheelan, T.L (2001) P.56, Resources are the organisation’s assets. Core competence capabilities, in this context mean the ability of such organisation to exploit and use these resources.
These resources can be analysed by Barney’s VRIO framework below.
TESCO VRIO FRAMEWORK
RESOURCES
V
R
I
O
H.R
Yes
Yes
Yes
Yes
Online shopping
Yes
Yes
Yes
Yes
24hr stores
Yes
Yes
Yes
Yes
Cash Flow position
Strong
Yes
Yes
Yes
Yes
Balance sheet
Yes
Yes
Yes
Yes
Tesco is very strong considering the resources they have at their disposal. They also utilise all these resources to the fullest. They are in a very strong position both in the U.K and around the globe where they are operating.
According to tutor2u.net (online) (n.d), core competencies are those capabilities that are critical to an organisation achieving a competitive advantage.
Two areas of Tesco core competencies are:
The Tesco.com experience
Non-food strategy strength
The Tesco.com will;
Effectively supply good customer interface that personalises online shopping which make it more efficient thereby giving customers’ value.
The non-food strategy is one of the strongest tools Tesco has at the moment. It is giving them advantage to tap into new markets with very high margins.
CHAPTER THREE
IS TESCO CORE COMPETENCES AND STRATEGY SUSTAINABLE?
If we want to analyse whether these resources and competencies are sustainable, I would say yes. I arrived at this conclusion because looking at the strategy they are pursuing and their core competencies couple with their market penetration and development around the globe, they should be able to sustain these core competencies and strategy. It can also be noted according to the speech of Tesco director that they are market leaders in most of their international markets.
TESCO’S PESTEL ANALYSIS
POLITICAL FACTORS
Tesco is a globalised company as they operate in many countries. Political conditions and legislations in these countries have highly influenced Tesco’s success.
ECONOMIC FACTORS
Tesco does not have any power over economic factors. Economic factors can affect cost, prices, demand and profits.
SOCIOLOGICAL FACTORS
According to Ivory research (Online) (2010), current trends have indicated that British customers have moved towards ‘one stop’ and ‘bulk’ shopping, which is due to various sociological changes. Aging population now eat ready meals which reduces cooking at home.
TECHNOLOGICAL FACTORS
Ivory research (online 2010), stated that new technologies benefit both customers and Tesco. Food chains have been more accurate and equipments like self checkout, electronic fund transfer facilities have really increased the success of Tesco globally.
ENVIRONMENTAL FACTORS
There have been increased demands from organisations for responsibility of the environment. Tesco has commitment on corporate responsibility to the environment they operate in.
LEGAL FACTORS
Various legislations from different government have influence on Tesco, For example, legislations about suppliers and so on.
STRATEGIC COMMENTARY
Tesco’s core competencies can really help them to achieve an increased competitive advantage. This is obvious because of their focus on new markets outside the U.K. Tesco needs to focus on their key strategies like the Non-food and the tesco.com.
Tesco’s customer loyalty can be sustained by continuous customer value provision. Tapping into new international market is a good turn for Tesco has this will increase their global market share and turnover. Tesco’s “fresh and easy” brand in the United States would develop and increase their global profit turnover if they focus on that market.
CONCLUSION
Tesco’s strategic direction for the future is very important and crucial to their global strength. I can see Tesco competing closely with Grocery giant, Wal-Mart in the nearest future. Their success in the last 12 years has proved that they can really move into the global market and become like coca-cola in the nearest future.
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