The Tescos Overall Performance - Essay Example

Business Strategy Report: TESCO PLC Table of contents Executive summary…………………………………………………………… 4 Strategic Analysis for TESCO TESCO role in the industry…………………………………………… 5 Attracting consumers………………………………………………….. 6 Treating suppliers……………………………………………………... 7 Financial statements…………………………………………………... 7 TESCO employees……………………………………………………..8 External analysis for TESCO.………………………………………………… 9 Political……………………………………………………………….. 9 Economic…………………………………………………………….... 9 Social………………………………………………………………….. 10 Technology…………………………………………………………….10 Environmental…………………………………………………………10 Internal analysis………………………………………………………………. 11 Strengths………………………………………………………………. 12 Weaknesses…………………………………………………………… 12 Opportunities………………………………………………………….. 13 Threats………………………………………………………………….13 Interrelationship between TESCO’s strategy and competition………13 Strategic Development for TESCO…………………………………………. 16 Products and market growth strategy……………………………….. 16 Market data for TESCO………………………………………………17 Strategy implementation..…………………………………………………….19 Conclusion……………………………………………………………………20 References…………………………………………………………………….21 Executive summary With the number of employees of more than five hundred thousand, the TESCO’s overall performance is focused on providing the most compelling offer to its consumers around all locations that it operates. This requires serious approach in analyzing, developing and implementing of its strategy taking into considerations all the factors that may impact its activities. These are the consumers’ preference and reliability in suppliers and also different socio-politics and technological aspects that affect businesses operations. That is why it is vital for the company to understand these internal and external factors to better analyze how they influence the company’s performance. Here the PESTEL and SWOT analysis as special tools enable the company to represent its strong sides and the fields for improvement and also assist in analyzing the opportunities that different factors give to it. Besides, when using the framework of Porter’s five forces, it assists the company to examine its current and potential rivals that may influence the business. While developing its new strategic vision, TESCO can use the Ansoff and Boston matrixes to identify its products and market share and also products and market growth strategy. The analysis of TESCO organizational design requires rethinking of its structure, systems, shared values and style of activities and also its employees and their abilities that would create the best opportunities for TESCO business growth and development. The McKinsey model will enable the company to identify the connections between such areas of the company. Understanding the potential of numerous factors that influence the company’s performance, it will help TESCO to maintain its superiority among the rivals and be the best consumer- oriented company. Strategic Analysis for TESCO TESCO role in the industry According to London Stock Exchange, the TESCO PLC Company, ISIN GB0008847096, represents FTSE sub-sector of Food Retailers and Wholesalers. Located in United Kingdom, it is one of the world’s largest retailers with the market capital in $15,214 million, revenue of 63557.00 million pounds and current total assets in 50164.00 million pounds (Company profile, 2014). Tesco currently operates in 13 countries, such as India, Malaysia, Czech Republic, Hungary, Ireland, Poland, Sovakia, China and others. No other supermarket chain with the basis in UK has operations abroad. While Tesco operates mainly in the UK, there are large format of hypermarkets located another countries. Founded in 1919, now it has grown to the sizes that give job to more than five hundred employees and serving millions of customers every day. The main competitors or TESCO are the J Sainsbury PLC, the UK chain of supermarkets, a British-based but the American-owned supermarket chain which retails food, clothing and financial services Asda Stores Ltd and the chain of supermarkets Morrisons’. Having put the horsemeat scandal behind these companies, Tesco and other large chains are now recovering and increase their focus on quality. Besides, the price match promotions in these supermarkets made consumers purchase the same goods across each store (Neville, 2013). With the announced record of the annual profit for TESCO, it was estimated that the supermarkets retailer is now earning more each year than the gross domestic product of the entire Egypt or Peru. According to the TESCO and Society Report 2013, the company has five hundred thousand colleagues around the world working at six and a half thousand stores and delivering food to half a million of homes a week. Engaging and understanding of different stakeholders is the fundamental for TESCO values. Since it operates for customers, staff and suppliers, it should realize the relevant relations issues that would enable the company plan its programs accordingly. Attracting consumers The most important stakeholders for TESCO are the customers whose needs should be heard by the company’s staff. Besides, the TESCO achieves its goals by receiving feedback from its employees, using for example the Viewpoint staff survey. The other important group of stakeholders is the community, because it provides the company with the employment sources and supports its causes and initiatives. Treating suppliers Suppliers are treated fairly and honestly and the company establishes long term relations with them as it gives the opportunities for growth and shared consumer insight (Stakeholder engagement, n.d). Financial statements The vision of the company is to become its consumer’s strategic partner to be able to obviate the non-productive time. TESCO sees its mission in being acknowledged by its stakeholders to become full rig maintenance company; be able to offer the broadest range of services and become the company that fully equip its mechanization products (Tesco and Society Report, 2013). The TESCO annual report an financial statements 2014 indicated the growth in the underlying profit performance that reflect the current year weaker market conditions in the UK with regard to the trading conditions in Europe and the impact of the opening hours regulation in South Korea. Along with it, the total stakeholder return was improved despite the influence of the economic crisis in 2008-2009. TESCO employees Speaking about the employees’ turnover, the retention percentage is about ninety percent in the UK with the one percent down from 2013. TESCO cares about its consumers as well as about its staff, providing them with the training and developmental capabilities. Thus, the amount of employees that are trained for their next role is about six percent across the group. Becides, the approach of diversity in its widest sense is one of the important for the company. The company covers intellectual, geograohical and skills diversity in its activities respecting employees of different age, disability, gender and race (Tesco PLC Annual Report and Financial Statements, 2014). External analysis for TESCO Political The business environment consist of relationships between companies and its stakeholders, the measure of diversity of which determines the factors such as customers, suppliers, socio-politics or technology that affect businesses operations. With the dynamism in the environment, rapid and usually unexpected changes, a stability of such relations may be damaged and cause the predictable situations for the companies. To manage these changes, each company should identify them and after examining and analysis to be able to deal with them. PESTEL analysis is the best approach that enables businesses to understand the different factors that may affect their activities (Mason, 2007). For TESCO, such external factors that may influence the operations are the tax rates, acts of legislation and the stability of the country in which it represent its business. Economic As a result of the financial instability in the world economy, many governments call retailers for creation of jobs specifically for the domestic population. Such factor plays at hand to TESCO, as the company is an active member of the community where it operate, because it creates job places and thus increases the demand for TESCO products at the same time. Economic factors manage costs, demand, profits and prices of the company. That is why TESCO should be aware of any changes in taxation or any other finance risks that may be important to business. Since it is an international company, but is quite dependent in the UK market, its internationalization and diversification play as key strategies that pursue the company in its ability to play globally. Social Social changes open new opportunities for the company as well, because the modern trends show the UK consumers are moved by the bulk and one-stop shopping. Tesco, therefore, has increased the number of non-food offers for sale and recognized the consumers demand on goods and services. These demands usually influence the social conditioning and thus are an advantage for TESCO. Since consumers are aware of health issues, the company sees here the possibility to adapt these changes to the accommodating of the demand for organic products. Technology Besides, the innovations in the modern technology bring different opportunities for Tesco, such as development of online shopping facilities that enable home delivery. Moreover, self-service checkout points give more convenience for consumers and thus give the company ability to reduce costs for labor. It gives the company a significant amount on energy efficiency projects. All of these opportunities will be added to the long-term goals of the company in its desire to reduce the carbon footprint. However, with all the possibilities that modern society with its technological items bring the company, there are still many threats that may influence TESCO image. Environment The environmental factors increase pressure addressing different environmental issues to the company. These are the important components of the community well- being and thus should be taken into consideration for TESCO future success. Moreover, certain legislative factors that appear in the countries where TESCO operates, can also impact the company’s activities. The Food Retailing Commission proposed a Code of Practice to be developed and implemented in order to ban current practices that deal with the changing prices without notice or demanding payments from suppliers. It TESCO does not provide its customers price reductions on their consumption of fuel, it will reduce the amount that they would spend in TESCO grocery stores (PESTEL Analysis for Tesco discusses its Business Environment, 2014.) TESCO aims to enlarge its business internationally and pursue its strong and sustainable long-term growth. Therefore, its mission and strategic goals are to grow within the UK market and to continue its expansion as the international retailer in-store and online. Based on the internal and external factors, it is possible to represent the strong sides of the company and the fields which should be improved, and also the opportunities that different factors open for the company. Internal analysis Strengths Increasing market share; Geographical spread; Online capabilities; Brand value Weaknesses Reliance on the UK market; Huge losses in the U.S. market; Management uncertainty; Consumers avoid shopping in big hypermarkets Opportunities UK stores restructuring; New advertisement capabilities; Non-food retail Threats UK structural change; Overseas investments to fall; Wal-Mart purchasing of Asda Strengths With the thirteen percent that TESCO holds in the UK retail market, it gives the company a considerable advantage over its main competitors. Enhancing space contribution from hypermarkets will allow TESCO to drive a higher share in non-food. Besides, Tesco’s international business is growing and it prognoses the company will earn about a quarter of its profits in the next five years. The other strong side of the company is in its geographical growth and the online capabilities that ensure Tesco to be the world’s biggest online supermarket. Last year the company sales were five hundred and seventy- seven million pounds that is an increase of twenty- nine percent comparing g to the previous years. Moreover, the online operations in more than two hundred stores around the country ensure another million households to use the company’s services and platform that gives TESCO opportunity for development. Operations in Europe, Asia and Ireland have grown by seventy- eight percent during the last year, giving the company to earn a strong brand image with good quality of trustworthy goods. Weaknesses However, while domestic business is growing steadily, the international operations especially in the U.S. contribute the company less. While this is not the main weakness of TESCO in its short term goals, but any changes in the supermarket industry over the next years can play against the TESCO activities and profit. The U.S. Tesco has many competitors in local chains. The company business evolved big percent of consumers in the U.S, however, it is still losing money and taking a lot of management time. Research proves that consumers move against shopping in big hypermarkets, which is a negative factor for TESCO. Opportunities However, if the company rebuilds its existing stores, increase staffing levels to assist consumers, the growth of Tesco’s popularity will only grow. It is also estimated that Tesco’s non-food sales are going to double in the next four years. With TESCO commitment to price leadership, it will result the industry profitability. Threats One the threats that TESCO can face with is the growing of achievement- oriented competitors, such as Asda, since the US shopping giant Wal-Mart purchased it. Asda will be able to compete well on price and range of goods with TESCO. Currently, Asda is the third biggest supermarket in the UK, giving a certain challenge to TESCO (TESCO, 2004). Interrelationship between TESCO’s strategy and competition To sustain the long- term profitability, every business should comply its strategy to the competition. This requires examining the current and potential rivals that may influence the business. Porter’s five forces assist in such investigating, as while analyzing the competitive forces, the company obtains the picture of what influences its profitability. It also helps to identify the changing trends in order to exploit them and reshape if necessary (Porter, 2008). When considering TESCO, the threat of substitute products in the grocery retail market is considerably low for food and at the same time medium to high for non-food products. For food retailers there are substitutes represented by small chains of stores, off licences or organic shops that are not seen as a threat to huge supermarkets such as TESCO. The company of the size as TESCO is able to provide high quality products at lower prices. Besides, TESCO creates strong competitor for these enterprises, because it have developed and opened Express stores in towns and city centers. This Porter’s force is a threat for the small stores rather than for TESCO. However, if take into account the non-food items, such as clothing, one would notice that while the economic recession prevails, consumers are more likely to economize and use the services of stores with discounted prices. Such situation creates potential threat to the TESCO shops. Porter’s threat of entry of new competitors regarding TESCO is low. This is because it requires certain capital investments for the firm to be able to compete with other brand names such as TESCO. Main brands that have already captured the food retail market account for eighty percent of all shopping in the UK. That is why new entrants should represent the unique product with the exceptionally low price and high quality to be able to enter the market. TESCO is well aware of the high intensity of competitive rivalry in the food and grocery retail industry. It faces such competition from Asda, Sainsbury’s, Morrisons’ and Waitrose, its main competitors, which at the same time are competing with each other. They compete over price, products and promotions and TESCO should understand that Asda, for example, is one of its main competitors with an increase of market share from sixteen point six percent to sixteen point eight percent and that is during the 2009-2010. Sainsbury’s enlargement is up to sixteen and one percent and Morrisons to eleven and six percent from eleven and three. For TESCO the slow market growth can mean that these market shares from competitors are threats that are intensifying the market rivalry. Therefore, TESCO can lose its market leadership position. Other smaller local retailers are more attracted by the consumers as their stores are nearer. Besides, hard discounts that are promoted by some large retailers such as Aldi and Lidl are able to cover certain percentage of consumers in the market, leaving TESCO behind. The other force that Porter proposed is the bargaining power of buyers. For the food retail industry it means that consumers switch their preferences rom one brand to another very easy. Consumers are attracted by the low prices and with the availability of the food retailer to sell its products through internet. Such technological availability helps consumers to choose the prices of products. This is an advantage for TESCO, because it already operates online and thus is able to earn more loyal customers. Along with bargaining power of customers, the suppliers are also inclined to choose food and grocery retailers for establishing their business relations. Here they prefer to select large supermarkets. Hence, the position of TESCO retailer goes beyond the usual choosing of certain products. It is more about stability of such relations, ability to trust the brand name and good image of the company. However, here TESCO has competitors in the persons of Aldi, Sainsbury’s, Morrisons’ and other huge retailers. Tescos share of the UK grocery market has decreased to its lowest level because consumers have chosen German discount chains Aldi and Lidl better in saving money when purchasing. The latest data proved that TESCO’s market share dropped to twenty eight percent, with one and seven percent less comparing to the previous half year period. It met the pressure from the market discounters stealing sales at the value end since the main competitor, the Waitrose, gradually grew its capacity (Wood, 2014). Tesco lose its market share but, struggling with Morrisons’. However, for Morrisons’ itself this was also the fall of its indicators of sales, the recorded three and two percent. By comparison, Aldi Company was more successful and posted its sales ahead and grew in thirty three percent, holding the market share a full percentage point. Strategic Development Products and market growth strategy After the examining of the external and internal factors that influence the TESCO operations and the identifying of its strong sides and opportunities along with the forces that enable TESCO to remain and be able to compete rivals, it is essential to search and develop the current strategic directions where TESCO needs to move. It is true that during its long history the company offered different schemes and promotions to attract and retain the consumers, employees and other stakeholders with the brand name and the quality of its products and services. One can notice that TESCO earned a good portion of loyal customers. In the present time, the UK market has opened new opportunities for the company further development by increasing the number of new consumers of every type and race. TESCO used such availability fully, representing its goods and developing supplier management programs to satisfy its stakeholders. Despite the fact that the company moves in the right direction, there are already many things that it should change and revise. A fresh strategy, so far hidden from the mass, should be implemented. Here the Ansoff matrix will be useful as a tool to assist TESCO to think over its products and market growth strategy. The matrix suggests company’s attempts to grow with regard to the new or existing products in new or existing markets. TESCO should increase and retain the market share of the current products. In order to penetrate the market, it should ensure the dominance of growth markets and make certain restructure of the existing products and services. TESCO seeks to sell its existing products into new markets and here the company should use new geographical markets for exporting its products. Besides, TESCO should use product develoment strategy for selling new products and offering a conditional discounted price. Diversification, as one of the components of Ansoff matrix takes place for business to be able to produce a new product in an area that it understands or it should be a completely new market. For TESCO it is very good to try to master banking services, for example. However, the company have achieved certain experience in diversification. It extended its business from food to non- food products. Market data for TESCO In order to understand its new direction, the other marketing tool, the Boston matrix (BCG) should be used for placing the products under each stage. However, it is impoirtant to examine the business growth in different locations where TESCO operates in. The annual report 2013 provides the clear data of how the company feels itself in different markets. With the largest revenue in its home country, TESCO is also on the highest position. However, profit from trading is higher in its Asia market. The same high indicator belongs to the loyal customers. The BCG matrix will help to identify the products and market share. In the matrix these are the dog. A question mark shows the products that have a low share of the high growth market. The cow symbol illustrates the products with the high share of the low growth market. Stars are high products in growth markets with a high share (Ionescu, 2011). TESCO started its business as a retailer and further it expanded its services to the Petrol and telecommunication. So far the Tsco Petrol is the major unit for TESCO with the sales in twelve and three percent with the additional sales of petroleum. With such competitors as Samsung, Warid, Jazz and Telenor, TESCO has considerable low share position in Asian market. However, Asian market is a new trend and people are going ti buy things from TESCO more often. Cash cow of the Boston matrix better fits the European markets where TESCO is more popular comparing to Asian one. Due to the brand name TESCO’s share prices are high. The dogs of the matrix indicate on the improvements that should be done regarding the American market, which is full of large- sized competitors. Therefore, they create negative position for TESCO and its products. Strategy implementation To analyze the TESCO organizational design, the company should look at its strategy, structure, systems, shared values, style of performing activities, its employees and skills they have in order to create the most susceptible opportunities for its growth and development. For this purpose the McKinsey model will represent the connections between seven areas of the company (Enduring Ideas: The 7-S Framework, 2008). Conclusion Identifying the areas for improving will help the TESC to perform its activities effectively. With the active participation of the top management of the company, it will be possible to determine the optimal design for the organization and to know the desired alignment to set goals and make action plans more visible and easier. The action plan is actually the decision to make changes in the particular area of the company. By reorganization of relationships with stakeholders, TESCO will be able to establish and manage the new stage of its collaboration with the top players of its business. By understanding the previous steps it is possible to review the 7s on the regular basis to be able to improve each area of the business. References Company profile. 2014, London Stock Exchange, Available from http://www.londonstockexchange.com/download/pdfcompany/Company%20report%20for%20TSCO%2003-Dec-2014.pdf Enduring Ideas: The 7-S Framework. 2008, McKinsey Quarterly, Available from http://www.mckinsey.com/insights/strategy/enduring_ideas_the_7-s_framework Ionescu, T. 2011, Boston Consulting Group II – A Business Portfolio Analysis Matrix, International Journal of Economic Practices and Theories, Vol. 1, No. 2 Mason, R. 2007, The external environment’s effect on management and strategy, Management Decision, Vol. 45 No. 1, Emerald Group Publishing Ltd. Neville, S. 2013, Big four supermarkets squeezed by high-end and discount competitors, The Guardian, Available from http://www.theguardian.com/business/2013/jul/16/big-four-supermarkets-squeezed-competitors Porter, M. 2008, The five competitive forces that shape strategy, Harvard Business Review, Available from http://www.exed.hbs.edu/assets/documents/hbr-shape-strategy.pdf Stakeholder engagement. n.d, Corporate responsibility review, Available form http://www.tesco.ie/crreview08/managecr-stakeholders.html Tesco and Society Report. 2013, Available from http://www.tescoplc.com/files/pdf/reports/tesco_and_society_2013_ipad.pdf Tesco PLC Annual Report and Financial Statements. 2014, Available from http://www.tescoplc.com/files/pdf/reports/ar14/download_annual_report.pdf TESCO. 2004, Industry analysis of Datamonitor, Available from http://people.exeter.ac.uk/wl203/BEAM011/Materials/Lecture%204/TESCO%20Company%20Profile.pdf Wood, Z. 2014, Tesco market share shrinks to lowest level in almost a decade, The Guardian, Available from http://www.theguardian.com/business/2014/mar/11/tesco-market-share-shrinks-lowest-level-decade-aldi-supermarket Read More