Tesco Ltd and Its Competitive Environment - Case Study Example

TESCO: An analysis of Tesco Ltd. and its competitive environment The fragile UK Economy The UK economy is extremely fragile at the moment. Jobs are scarce and people are extremely wary of how much they are spending on what. Luxury purchases have taken the back seat and everyone is only buying absolute necessities. Costs of commodities are continuously on the rise and brands are trying different ways in which to make good with the new set of cost conscious consumers. Also, technology is playing a very important role in changing buyer behavior by introducing newer methods to shop, like on the online and mobile platforms. (Ambaye 2007). There is therefore a lot of pressure on traditional means of consumer shopping and the consumer behavior in the current scene of the UK economy is bad news for all. In the third quarter however, there has been seen a slight increase in sales due to people shopping for winter clothes and school uniforms and economists believe that this my point to a recovery of the economy, starting in the beginning of 2013. The third quarter saw sales volumes grow by 1%, compared to 0% in the previous quarter – a tremendous improvement when compared to the low growth seen in the last two years of very low shopping. (Uruci 2012) Looking at the current figures, although the growth rate seems to be on the rise, there is always that nagging doubt whether the economy is going to flourish or fall in the near future and how that is going to affect the retail industry. Take for instance the Olympic season – online sales in the UK fell since people were busy watching the Olympics instead of shopping as they normally would. Such is the state of the economy in the UK. (BBC 2012) TESCO Founded in 1919 by Jack Cohen, Tesco is one of the largest retailers in the world. They operate in 14 countries and employ over 520,000 people, and serve millions of customers every week. (Tesco PLC: History). What used to originally be a grocery retailer has grown tremendously to include books, clothing, electronics, furniture, petrol, software, financial services, DVD rentals, telecom and internet services, music downloads and so much more. Food or groceries however, still remains their greatest strength. Tesco currently appeals to a wide audience, across social groups because of its variety of products that range between Tesco Value and Tesco Finest. This gives them a benefit as they aren’t just focused on cost, but they work to provide quality and experience as well. Tesco’s Competitive Environment Tesco is in an extremely competitive environment. They face competition from quite a lot of retail stores, many primarily grocers like themselves. Sainsburys, Asda, Morrisons, Marks and Spencer – all these groups have been working in the same market as Tesco for years and have their own competitive advantage. (retail-week.com) Tesco’s strongest point is the food they sell – groceries. And since food is quite possibly one of the most competitive fields, there can be no monopoly when it comes to food. Everyone needs food and organizations are just capitalizing on this dire necessity. And keeping up with the changing demands for foods that are almost ready to eat. In an attempt to stand out from the crowd and give their consumers something different, Tesco tried their hand at a few strategies – they focused on marketing about their lower prices, they introduced new, cheaper brands of food products. But this backfired and did them more harm than good by giving the impression of cheapness and implying bad quality. Tesco even tried their hand at new businesses – banks, second hand cars and home services. But to no avail. Food is their strong point and sometimes, it’s better to focus on your strengths and experiment with all else later. (bbc.co.uk) This is all probably why Tesco revamped their values. Let us now take a look at their strategies and understand how this could benefit them in the long run. Tesco’s Core Values Their core values are a great strength and they believe that one should treat people the way they would like to be treated (tescoplc.com) – a great philosophy for peaceful living. According to the Tesco website, this is their strategy for the decade: “To grow the UK core To be an outstanding international retailer in stores and online To be as strong in everything we sell as we are in food To grow retail services in all our markets To put our responsibilities to the communities we serve at the heart of what we do To be a creator of highly valued brands To build our team so that we create more value” (Tesco PLC: Strategy for the new decade) Porter’s Generic Strategies: Cost leadership, Differentiation and Focus Let us take a look at Tesco’s strategies in terms of Porters Generic Strategies. Now Porter’s Generic Strategies focus on three different core areas: Cost leadership, Differentiation and the Focus Strategy, which are the key strategies a company may use for their plans. Cost leadership focuses on keeping costs lower, differentiation focuses on giving consumers uniqueness in all their products or shopping experience and the focus strategy uses either cost or differentiation as their main strategy, but focuses it on a completely defined, niche target group, ensuring that you have the complete attention of your target group. (mindtools.com) Based on Porter’s Generic Strategies and what we can see of Tesco’s values, these are the conclusions we can derive for Tesco. Tesco wishes to grow the UK core. Their headquarters lie in the UK. That’s where their foundation lies too. It is only natural for them to want to grow their business there and overcome competition like Walmart and others. This is part of the Focus Differentiation Strategy, since their other strategies also include them wanting to be an outstanding retailer both in stores and online, and to grow their retail services in all their markets. One might think that when it comes to retail brands like Tesco, the Cost leadership advantage might give them the best edge. But the fact remains that all retail outlets today give the consumer some sort of cost advantage, it is the differentiation that makes the cut. Even more to consider is the fact that perhaps the Focus strategy might work for them best. Cost focus or differentiation focus? This can only be answered when they completely define their goals and strategies. Their strategy – to be a creator of highly valued brands – gives us an insight in this regard. Tesco does not just want to give consumers items at a reasonable price, they want to create a brand that the consumer will value and recognize. This makes it clear for us – Tesco is using the Generic Strategy of Differentiation Focus. This will give them a particular edge when it comes to consumers that know what they want, and know how much they are willing to spend on it. From what we have learned and understood about Tesco is that they are not just any retail outlet. Apart from being one of the largest retail outlets in the word, they also have the advantage that others don’t – they cater to a wide audience and focus on making each strata of society happy. Going the way they are, they definitely have a chance of becoming the largest retail outlet in the world. This is quite possibly what they want to achieve in the long run. And the strategy they are using will help get them there. Let us now examine how suitable, feasible and acceptable their strategy actually is. Suitability Feasibility Acceptability Analysis (SFA Analysis) This section will undertake the Suitability, Feasibility and Acceptability Analysis for the strategies understood previously, i.e., Differentiation Focus Strategy. (rc-businessmaster.com) Suitability – This helps us understand and gives us the reassurance that the strategy chosen – the Differentiation Focus Strategy is right for Tesco and whether it will help solve the issue Tesco is facing. Based on what we have learned about Tesco, it is quite evident that this strategy is perfect for Tesco’s current need of wanting to better the other agencies and creating high value brands for it consumer. Thus, this strategy should work well for Tesco if implemented. Feasibility – This helps us understand the implementation of the strategy and evaluate the likelihood of success based on various factors such as the current resources. Tesco is one of the largest retailers in the world. We can take that to understand that they have more than enough resources to implement the Differentiation Focus strategy given that they have already got ranges that cater to a wide social group. Thus, this strategy is feasible. Acceptability – A strategy is only successful if it is accepted by all parties concerned including stakeholder and customers. This section of the analysis helps us determine if that will happen and also, what will the return on investment be like, and if that is acceptable enough. For this, all one can say is that Tesco is doing well enough for the stakeholders to accept their strategy of Differentiation Focus. This strategy will definitely give Tesco an edge and help them gain acceptability with not just their stakeholders, but their customer base too. And as for the return on investment, looking at the progress that Tesco has made thus far, it is safe to bet that focusing on a strategy of differentiation will ultimately benefit them in the long run and gain them popularity with both the customer base and the stakeholders. Return on investment will also be high. From this analysis of Tesco we have understood that a brand that is already among the top three in the world is striving to add more value to their DNA. This shows a very positive side of Tesco and will go down well with its consumer base. Taking into consideration the Generic Strategy of Differentiation Focus, this strategy will work great for Tesco since it is literally an embodiment of the strategies they have in place for the decade. And the Suitability Feasibility Acceptability Analysis helps us understand that these strategies will in fact work wonders for Tesco and their brand image – in helping them create more brand value and getting higher returns on investment for the stakeholders. Tesco is doing all in its power to ensure just this. They have even launched a new investment programme to make a global footprint and thus drive more profits. (just-food.com) Organizations must always remember to play their strengths and keep working to fill a void. This strategy does both – it focuses on using Tesco’s strong point of catering to a large target audience and it will also help the consumer realize that Tesco is striving to give them a better shopping experience. Tesco’s goals are in no way farfetched or impractical. Whether it comes to funds or their capability to execute and fulfill their goals, they have the resources and the ability to do so. Not all organizations have their differentiating factor or strategy so in place. And not all organizations have the power to achieve the established goals. Tesco, having its strength in numbers, financials and support, and a strong customer base has it all. And this is what will help Tesco achieve its set goals. Read More