Marketing Audit of TESCO, UK - Essay Example

Marketing Audit of TESCO, UK Module Module Team Members SID Numbers Submitted Word Count: 2,391 Table of Contents Introduction …...................................................4 Internal Structures of Tesco, UK........................4 Competitor Analysis...........................................5 Porters 5 Forces..................................................5 PESTEL..............................................................6 Political/Legal.........................................7 Economic.................................................7 Social/Environmental Factors.................7 Technological ….....................................7 BCG Matrix.........................................................7 Critical Success Factors.......................................8 SWOT Analysis....................................................8 TOWS Matrix.......................................................8 Summary and Conclusions ….............................10 References............................................................12 Executive Summary This paper examines the internal and external structures of Tesco UK. It identifies that Tesco has strong internal structures which makes it a leader in the UK supermarket industry. The paper identifies that the main competitive threat that Tesco faces is either a merger by the two supermarkets that comes after Tesco in the UK markets or an entry of a foreign supermarket chain. Tesco Bank is the main question mark in Tescos portfolio. This is because it lacks market share and it is also not growing. Thus, Tesco bank needs some more attention and support. The paper identifies that Tescos biggest strength is in its asset base, organised systems and strong control over the UK markets. The main weaknesses are the low CSR budget they maintain and the potential for wasting money on small projects in poor sections of the UK. Tesco also has a problem of losing local markets to local competitors by imposing national standards on some far away sections of the UK. The TOWS matrix indicates that Tesco must focus on diversification and investment in proportion to the benefits that will be attained. Introduction Tesco is the largest supermarket retailer in the UK and the fourth largest in the world (McLoughlin & Aaker, 2010 p126). Tesco started as modest entity in 1924 and became a successful food retailer in the 1960s before going global in the 1980s (Raab, 2010 p174). As of 2003, Tesco had approximately 1,700 stores and outlets in the UK as well as some 1,300 stores internationally (Raab, 2010 p176). This paper examines Tescos UK strategic unit. From the 2011 Annual Report, four distinct component represent Tescos UK strategic unit: Food Sales, Retail, Brands and Service Unit (Tesco Annual Report, 2012). The Food sales unit involves sourcing food from farmers and other providers in the UK and selling them to consumers. The Retail unit involves the malls and stores which are outlets for the sale of non-Tesco brands to consumers. Brands involve the manufacturing of distinct Tesco products for consumers in different categories. The Services unit includes the financial services and Tesco mobile. Tesco was chosen because of the wide scope of their operations in the UK and the ease with which anyone can identify with illustrations and discussions on the company. Also, the availability of information on Tesco provided a basis for choosing it. In carrying out this analysis, we will apply important tools to identify the strategic business position of Tesco, UK. This is done by identifying the internal strengths, weaknesses and issues in Tesco as well as the industrial issues that faces Tesco currently. Also, the important concerns in the external environment are discussed. This is done through the use of popular strategic management tools and models. Internal Structures of Tesco, UK Internal attributes that help to assess the strategic position of an organisation include the resources as well as the hard and soft elements that define the organisations systems and scope (Marquis & Houston, 2010 p144). In the case of Tesco, the main elements that guide the actions and activities of the business are outlined by Armstrong (2011 p75) as: 1. Customer focus. 2. Understanding of customer needs. 3. Innovation 4. Delivery of unbeatable value 5. Concern for employees 6. Sensitivity to the community and 7. Knowledge management. These factors form the backbone of the success of Tesco and they define their operations and activities throughout the years. In the UK, the resource base of the company are enumerated in the 2011 Annual Reports. First of all, the company made an annual revenue of £40.766 billion in the 2011 fiscal year. This means that they made a huge amount of money that is more than the spendings of some small countries around the world. Tesco UK has 2,715 stores scattered around Britain. It has a total of 293,676 employees and the total shopping area that it has is 36.7 million square feet. This include the food sales, retail, and brands. Tesco Bank is treated separately from the whole entity. The Tesco Bank which operates in the UK made a revenue of £919 million and has 1,274 employees, as per the Tesco Annual Report. Competitor Analysis According to Euromonitor (2010) the estimations of the market share of the supermarket and retail industry is as follows Company Percentage of Market Share Tesco 30.60% ASDA 16.60% Sainsbury 16.30% Morrisons 11.10% Others 25.40% This shows that Tesco leads the UK supermarket industry and over a quarter of all UK shoppers who go to supermarkets go to Tesco facilities. Behind Tesco is ASDA and Sainsbury. As it appears, if ASDA and Sainsbury merges, it is likely that they would become a formidable force that can capture the market ahead of Tesco. Porters 5 Forces Porters Five Forces is a model which asserts that the competitive nature of a given industry is influenced by five main things: 1. Threat of substitutes 2. Threat of New Entrants 3. Competitive Rivalry 4. Bargaining Power of Buyers 5. Bargaining Power of Suppliers (Henry, 2010 p80) The UK supermarket industry is competitive. However, these factors seem to be influential and can be used to analyse the industry and predict how things will go for Tesco in the next two to five years. First of all, there are threats of substitutes springing up. Mainly the substitutes involve cheap imports from outside the United Kingdom. This include most of the brands that Tesco sells and the presence of small firms and businesses from overseas that can play the exact role that Tesco plays in the country. This includes cheap imports from South America and other parts of the world that can affect Tesco. However, the diversified nature of Tesco gives it a leverage which means that it can turn to other product lines with much ease than most of these potential substitutes. Threat of New Entrant involve the entry of potential companies that can compete with Tesco. Basically, this threat does not seem eminent in the UK because it is not likely that UK entities can get the capitalization needed to form a company that can compete reasonably with Tesco. However, international brands like Macys and Carrefour can easily enter the markets from overseas. The practical difficulty might be the inability to capture market share in the UK or legal restrictions placed by the British government. Competitive Rivalry involves the competition being put forward by ASDA, Sainsburys and Morrisons as well as the other supermarket chains. These chains produce brands as well as food and retail services. Most of them are quickly produce financial services as well as mobile phone services which makes the terrain very competitive for Tesco. The threat of buyers integrating horizontally involves the possibility of some dominant retailers who buy from Tesco coming together to form a company that can stand up against Tesco in competition. This is not feasible because they are not likely to get the capital needed to compete with Tesco. Also, the threat of suppliers coming together is limited. This is because Tesco buys from a range of small farmers who source their products through electronic means. These farmers do not have the resources to invest to meet Tescos standards. PESTEL Environmental scanning involves the examination of Political, Economic, Social, Technological, Environmental and Legal matters (Henry, 2010). However, since the Political and Legal matters as well as the Social and Environmental matters of Tescos situation overlaps, only the first four variables, (PEST) will be discussed. Political/Legal Politically, the UKs legal structures and political systems have been influenced by European Union supranational codes. Due to this, there have been various changes in the UK which is relevant to Tesco. First of all, there are legislations that have allowed the opening up of Europe to Tesco. Secondly, Employment laws have changed significantly. Salaries need to meet the minimum EU targets and more migrants are coming in from the former Eastern Europe who have the right to be employed in Tesco branches. Economic According to Hamilton et al (2012) the UK economy has surged by 1%. This is because of the Olympics and the revenue it injected into the UK economy. This means that the UK has exited rescission and there is chance that the next five years will witness a boom in the UK economy. Social/Environmental Factors More and more people in the UK are living longer and people are spending more on healthier living than the past decade (Berwin, 2009). Estimates of the UK population stands at 63,047,162 (Office of National Statistics, 2011). Out of this 17.3% are aged between 0 and 14 years. 66.2% are aged between 15 and 64% whilst the rest, 16.5% are over 65 years old. This means that the active population is shrinking and in its place, a younger population and an older population is emerging. This means that a supermarket needs to vary its products and get a proportional volume of offerings for these different groups of people. Technological The main technological change in the UK is the use of the internet. More an and more people are now spending more time on the Internet than ever. This means that business success is very much connected to their ability to develop e-business and e-commerce routes for the best results. BCG Matrix The Boston Consutling Group Matrix shows that a business needs to balance its products on the basis of growth and market share control (Phadtare, 2011 ). Market Share High Low Growth High Star Question Mark Low Cash Cow Dog Table 1: Growth-Share Matrix (Fyall & Garwood, 2005). In the case of Tesco, it appears that the Retail unit is the Star. This is because the retail unit is the main concept that gives the company its real identity. It is the retail unit that provides all the necessary resources and revenue necessary for the company to remain in operation. The food unit still has a high market share. However, the growth is choked because of a number of issues. First of all, people are limited with what they can consume. Secondly, there is a general problem with the over provision of food resources to the market. Due to this, the growth in the food market is somewhat forestalled. On the other hand, the Tesco brands seem to have a lower market share when compared with the food market and the retail unit. This is because the brands are seen as some kind of no-frills products and they are still struggling to get the kind of market share that other Tesco sales units enjoy. Since there is potential, there is the need for some more effort to be put into promoting the Tesco brands and improving them. This makes the brand unit a Dog. The Tesco bank which is now coming up is the one with a low market share and a low growth rate when compared to all the other income units of Tesco. This means that Tesco bank is a problem child or question mark. There is the need for Tesco to invest more resources into the bank, build a strong customer base and continue to grow it. Critical Success Factors There are some factors and situations that are critical for the future survival of Tesco. Some of them are identified in the 2011 Annual Reports. The main CSFs are: 1. Diversification in each of the four major portfolios. 2. Regular review of strategy. 3. Strong communication within tesco. 4. Structured stakeholder engagement. 5. Regular finance and treasury risk analysis and planning. 6. Internal audit. 7. Pension risk management 8. Competitive strategy review: prince, products and quality. 9. Reputational risk management. SWOT Analysis Strength 1. Large size of the Tesco operations 2. Strong senior management with proven experience and skills 3. Strong asset and infrastructural base 4. Coverage of the whole UK. 5. Strong capital base 6. Strong working capital system Weaknesses 1. Large scope of operations and possibility of missing local opportunities. 2. Macroeconomic differences in area covered by Tesco UK 3. Difficulty in blending international expansion with UK focus. 4. Limited CSR basis Opportunities 1. Presence of huge opportunities in the UK and the ability to grow deeper into the UK markets through diversification. 2. The ability to maintain business units around the UK due to strong senior managements experience. 3. Ability to expand infrastructural base throughout the UK. 4. Potential to diversify to other units of the UK economy like real estate and mobile telephony. Threats 1. Potential of losing local opportunities to local businesses. 2. Inability to build sufficient infrastructure to get economic benefits from areas that are not very rich like rural Wales 3. Need to look international as well as local creates the problem of the lack of proper focus. 4. Competitors can use their strong CSR per capita as a marketing campaign. TOWS Matrix The TOWS matrix goes beyond SWOT to give recommendations to issues raised in the market audit. These are the details for Tesco UK External Opportunities External Threats Internal Strength 1. Tesco needs to find ways of diversifying and innovating for UK consumers to appreciate them. 2. Tesco must invest significantly in areas that are likely to bring high returns and revenues 3. Tesco UK must expand its capital base by investing in infrastructure 1. Since Tesco has a lot of capital, they must try to localize some specific units of their operations. 2. Tesco must build minor infrastructure in places that have less revenue generation capability and large ones where it is appropriate. 3. Tesco must invest in CSR. 4. Tesco must invest in the training of staff members to blend the globalization campaing with the UK growht campaign Internal Weaknesses 1. Local opportunities must be sought through the narrowing of scope to meet local conditions. 2. Tesco needs to set up a national CSR campaign that will ensure that it gives something to all communities they operate in 3. Tesco must invest in the technicalities of expanding to other parts of the world. It must spend money on areas in the world that are profitable and seek to grow gradually. 1. Tesco must localize in some parts of the UK in order to gain optimum results. 2. Tesco must not invest too much in areas that are not likely to give high returns. Investments must be in proportion to returns. 3. Tesco must provide adequate resources to sponsor the international expansion so that it does not affect the UK operations. 4. Tesco must increase its CSR base. Summary and Conclusions The audit indicates that Tesco is a company with strong hard and soft internal strucutres that enables it to thrive in the supermarket industry. Tesco is strong in assets, capital and internal arrangements that makes it a UK market leader. In terms of competition, Tesco is a major contender in the UK industry. However, there is a risk that international supermarkets can enter the market and threaten Tescos dominance. Tesco needs to maintain competitive advantage to maintain the lead. Politically and legally, Tesco is affected by EU legislations and arrangements. Economically, the new UK turnaround after the Olympics is likely to have a positive impact on Tesco. Socially and Environmentally, the UK is becoming more sensitive to healthy living. Also, the UK is fast becoming an aged nation. The Tesco Bank is a problem child under the BCG Matrix. Tesco can make the best of it by investing in it and growing the market share and also improving the rate of growth. References Armstrong, M. & Brown, D. (2011) Strategic Reward: Make it Happen, London: Kogan Page Berwin, L. (2009) Social Trends: How Britain Behaves [Online] Available at: http://www.retail-week.com/social-trends-how-britain-behaves/5002132.article Retrieved: 27th October, 2012. Fyall, A. & Garwood, B. (20050 Tourism Marketing London: SAGE Publications Euromonitor (2010), ‘Industry Profile – Food retailing’, Euromonitor International, 2010 Hamilton, S. & Ryan, J. (2012) British Economy Surges by 1% [Online] Available at: http://www.businessweek.com/news/2012-10-25/u-dot-k-dot-economy-surges-1-percent-as-britain-exits-double-dip-recession Retrieved: 27th October, 2012. Henry, A. (2010) Understanding Strategic Management Oxford: Oxford University Press. Marquis, B. L & Houston, C. J. (2010) Leadership Roles & Management Functions Amsterdam: Wolters Kluwer McLoughlin, D. & Aaker, D. A. (2010) “Competing Against Industry Giants. Competing Against Tesco.” Strategic Market Management: Global Perspective Hoboken, NJ: John Wiley & Sons. Office of National Statistics (2012) UK Population London: The Stationery Office. Phadtare, M. T. (2011) Strategic Management Concepts & Cases Mason OH: Cengage. Raab, G. (2010) Customer Relationship Management. Surrey: Gower Publishing. Singh, P. (2008) Strategic Management in Perspective London: Springer Stevenson, J. (2009) Strategic Management Leeds: Kinetic Publishing. Tesco PLC (2012) Tesco Annual Report, 2011. 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