Strategic Management of Tesco Plc - Case Study Example

STRATEGIC MANAGEMENT Introduction Tesco PLC is a leading grocery and general merchandising retailer that has succeeded in today's uncertain business environment. It is now a successful, high performing organization with high international business standard and it operates by both global and domestic market share with 32% market share and it has more than 2000 stores in the UK. Tesco has expanded its operations from traditional UK based supermarket in to new products and services that include consumer electronics, personal finance, telecoms, internet shopping and health insurance. It has more than 300 stores in twelve worldwide markets and it now has developed in to a renowned international retailer standard. 1. PESTEL analysis of Tesco PESTEL analysis of Tesco gives an analysis of external environment that comprises of political, economic, social, technological, environmental and legal factors. Political The political environment of Tesco includes factors relating laws, government agencies and any other pressure groups that can influence Tesco. Fair trading is becoming increasingly important in UK's business environment. For instance, 15000 African slaves working in African cocoa fields is a big concern of chocolate consumers in UK; likewise there are fair-trade factors that influence Tesco as well. Hence it comes under the scrutiny and keen observation of the Office of Fair Trading for applying monophony in agricultural markets. Community organizations in the UK have put in efforts to boycott supermarkets and large confectionary manufactures and supports small scale retailers in order to avoid their use of dominant power by dictating favourable terms and regulations on suppliers. Economic Increased availability of credit is an important economic factor in the UK business environment of Tesco because the availability of credit itself provides financial confidence to the consumer and as a result it leads to the growth of premium foods and less demand on economy products. Large grocery retailers in UK moved in to non food retailing so as to improve margins in the highly competitive market. The UK market is largely affected by negative inflation which is driven by 'Wal-Mart effect'; that is every day law price strategy. Social People like shopping well if they get everything under a single roof. So, the convenient shopping especially 'everything under one roof strategy' is very important in Tesco's business environment. As large scale retailers cut labours by providing self service facilities it consequently local communities are haemorrhaging quantities of meaningful skilled jobs. Confectionary market is largely being affected by 'small treat' trend which in fact leads consumers to select small chocolates and small food products instead of large meals (JESS HALLIDAY -2008). Consumers always seem to be 'time poor' and hence they tend towards choosing small treat and small food items that they can have on the go. These factors as well largely affect Tesco's market. Technological The growing use of electronic data interchange, barcode readers, credit or debit card reader equipments, laser and self scanning and other points of sale tools has become a feature of recent innovation by retailers. The sophisticated technology used in store card system also becomes significant in the UK market. Online shopping and other new trends in retailing like home delivery services, after sales services and home shopping play vital role in consumer satisfaction and hence it is a significant factor that influences Tesco' market. Environmental The environmental issues like pollution and green house gas emission have gained attention from public part. Public always concerns environmental pollution and emissions of green house gas that causes ozone depletion and finally global warming. All the retailers have taken this factor to be a major concern and have taken actions so as to avoid any further consequences. There are other factors like packaging food, cleanliness, supply of organic food, meeting expected qualities of products dominate in everyday's media issues and hence groceries are under pressure to take actions to avoid these kinds of public issues. Legal Government legislation has made it difficult to obtain planning permission to construct stores in the areas where land is likely to be cheaper. 2. Porter's five force analysis Porter's five force analysis is a framework for the industry and business development using five forces that can determine the competitive intensity and attractiveness of the market. This analysis is based on five forces namely competitors, potential new entrants, customers, suppliers and substitutes. Competitors Sainsbury, Asda, Safeway and Somerfield are some of the main competitors of Tesco within the UK market of which Sainsbury holds comparatively larger share of the UK grocery market. Marks and Spencer is also a leading grocery in the market. Among the groceries, Tesco holds more than 15% of the UK grocery market which seems to be the highest. Potential new entrants There are new grocery firms in the UK market that can influence the existing market. But, due to the cut throat competition and brand loyalties of the existing firms like Tesco, Marks and Spencer and Sainsbury it is very difficult to a new firm to get major control in the market. Co-ops, Wm low, Ice land and Waitrose are some other groceries that still in the same level without getting a strong hold on the market share. Customers According to the survey published by UK's Institute of Grocery Distribution shows that the leading ten companies excluding Co-ops increased their market share by nearly 10 % and there has been a greater demand on grocery sales. It shows that customers tend more to enjoy the services offered by large groceries in the UK. Customers like grocery shopping if they are better offered services like home delivery and online shopping and other amenities too. Reports show that groceries including Tesco have improved their services and facilities offered to the customers. The most important factor is that UK customers want 'everything to be available under one roof' and this trend makes it easy to attract as many customers to the groceries. Tesco has recently improved its customer orientation programs and hence succeeded in attracting more customers than before. Suppliers Over the last few years UK groceries have changed the face of food retailing by building larger supermarkets and Hypermarkets. These Supermarkets and Hypermarket always need direct purchase from manufactures because it would be helpful to reduce the prices. Manufactures and suppliers for different products are available within UK market and hence Tesco has good access in to the manufactures for direct purchase. Substitutes Small scale retailers and street market shoppers are the substitutes for groceries. Busy workers like drivers and school children depend on small scale retailers and street market shoppers for small treat chocolates and small treat confectionary food items. But still small retailers can attract a very small share of the market and hence it does not seem to be an obstract to the big groceries. 3. SWOT analysis of Tesco SWOT analysis provides an observation in to internal and external environment of a firm. SWOT analysis is an important part of strategic management and planning. Tesco's SWOT analysis is a thorough observation and analysis of its internal factors. Environmental factors internal to the firm can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. Strengths Tesco's strengths are its resources and capabilities that can be used as basis for developing a competitive advantage. Tesco's strong brand name provides serves as a great market strength and it prevails the market advantages. Tesco's brand loyalty created through advertisements and customer oriented activities seems to be a great defender for any sorts of competition from other firms within the industry. Tesco has been able to create good reputation among the customers and was able create its own market. Tesco's good reputation is one of the strengths which can attract its customers further yet by providing more services in all its stores all over UK market. Weaknesses Lack of access to the best distribution channels can be regarded to be a general weakness of Tesco as it feels difficult to access best manufactures due to the distance and other difficulties. As any other grocery firm, Tesco as well feels difficult to get access in to manufactures that are free from unfair trade activities. Fair trade issues in the UK market largely affects a firm to decide on how and where from to purchase and how much to be paid. As stated earlier, both chocolate manufacturer and sellers have to think about the fair trade issues. They need to consider the slaves who are being compelled to work in cocoa fields and being paid less. As compared to other groceries within the UK market, Tesco needs to concentrate more on online shopping. Online shopping is becoming as the most convenient shopping method for most of the public as it needs less time for shopping and relatively less to be paid. Tesco can attract more customers through online shopping and any sort of advanced loyalty card strategies. Opportunities In a more competitive and fluctuating market like UK grocery market, Tesco has wider opportunities of introducing new technologies so as to attract more customers and to provide most convenient shopping. Apart from the existing loyalty card services, Tesco can focus more on improved and customer oriented services to be offered through advanced loyalty card technologies. EPOS technologies need to be implemented in all the stores throughout the UK so that more number of customers can get better services and can enjoy convenient shopping. Tesco is getting wide potential market worldwide and hence it can try the best to remove international trade barriers. Threats In a constant changing business environment it is quite common that there should be threats and obstacles for the business operations. Shift in consumer taste is the main threat to the groceries in the UK market. Nowadays UK consumers tend to need snacks in highest quantities and hence groceries need to change accordingly. (Food and Drink Europe.com- 2008) Trade barriers in international trade are some other threats for Tesco in expanding its business in to other countries. 4. Disadvantages of SWOT analysis SWOT analysis has been criticized that it does not give analysis of everything that we need for a particular business. The business analysis of Tesco won't be worthwhile unless it gives a thorough observation and analysis of all the relevant facts related to the market within which it operates. It has also been criticized that a SWOT analysis reflects a person's or a group's perspective and view points on a situation which can be misrepresented or misused so as to justify a previously decided course of action. SWOT analysis is criticizes that it cannot be easily converted in to action. The threats also can be viewed as opportunities depending on the people involved. A SWOT analysis is usually a simple list of strengths, weaknesses, threats and opportunities and theses are not critically presented. When a firm is planning about compiling lists it may not be focused sufficiently on how to achieve its objectives. Conclusion This paper presents three analysis of Tesco namely PESTEL, Porter's Five Force analysis and SWOT analysis. These analyses provide information on both internal and external factors that are most likely to be influenced in the business operations of Tesco. This paper also lists out the arguments against SWOT analysis. 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BRETT ROBBS, (2004) Microsoft Encarta Encyclopedia Deluxe 2004, Microsoft, USA EUROMONITOR INTERNATIONAL (2008) Quality counts in the UK Consumer Foodservice market, Retrieved 01/11/2008 from http://www.euromonitor.com/Quality_counts_in_the_UK_Consumer_Foodservice_market JESS HALLIDAY (July 2008), UK Cake Eaters Prefer Smaller Treats, Confectionary news.com, http://www.confectionerynews.com/The-Big-Picture/UK-cake-eaters-prefer-smaller-treats FOOD AND DRINK EUROPE.COM (2008), Fragmented consumer tastes dictate growth in snack market, Retrieved 01/11/08 from http://www.foodanddrinkeurope.com/Consumer-Trends/Fragmented-consumer-tastes-dictate-growth-in-snack-market MICHAEL GEORGE (2008), Talking Tesco: How we compete, Tesco.com Retrieved 01/11/2008 from http://www.tesco.com/talkingtesco/suppliers/ TALKING TESCO (2008), Talking Tesco: How we compete, Tesco.com Retrieved 01/11/2008 from http://www.tesco.com/talkingtesco/stores/ TALKING TESCO (2008), Talking Tesco: How we compete, Tesco.com Retrieved 01/11/2008 from http://www.tesco.com/talkingtesco/highStreet/ TALKING TESCO (2008), Talking Tesco: How we compete, Product choice is increasing,Tesco.com Retrieved 01/11/2008 from http://www.tesco.com/talkingtesco/productChoice/ TALKING TESCO (2008), Talking Tesco: How we compete, Tesco.com Retrieved 01/11/2008 from http://www.tesco.com/talkingtesco/retailing/ Read More