Tesco and the Supermarket Industry in the UK - Case Study Example

Tesco and the supermarket industry in the UK Introduction This report represents a live case study of Tesco Plc, the leading supermarket chain headquartered in the UK. Different business tools such as Porter’s five force model, VRIO framework analysis and BCG market growth-share analysis have been used to understand the current market position of the company. This study has provided a great help to find out the weaknesses of this company and therefore, it has provided required recommendation. Strategic Purpose Tesco was established in the year of 1919 by Jack Cohen. Their business is scattered in supermarket and non super market operations. The UK operation is the largest out of all the Tesco business units (Kumar, 2008). The vision of Tesco has 4 major objectives such as creating need and demand across the world, implementing modern and innovative ideas, leading the local market and earning loyalty and trust of the stakeholders. Their strategic priorities are establishing leadership throughout all the channels, focusing on international growth and proper investment to strengthen the UK business (Tesco Plc, 2014). Industry Analysis The industry structure analysis is an effective part to understand the competitive advantage of any company (Porter, 2008). Porter’s five force analysis has been utilized as an important tool to assess the competitive environment of Tesco. Threat of substitute of products and services The food retail market in the UK is contained with major supermarket chains. The substitutes of these leading retailers are small chain of convenience stores. These small establishments are unable to give any competition to supermarkets like Tesco (Hollingsworth, 2004). Tesco is also opening Express Stores in local markets which is creating a tough competition for these substitutes to enter into the competitive market (Kumar, 2008). Therefore, the threat of substitutes is very low. Threat of new entrants The supermarket industry in the UK is already very well established (Kumar, 2008). Any company need to invest a huge amount in the entry level. The main organisations those have captured the market are Tesco, Sainsbury’s and Asda. They have captured 80% of all the buyers in the UK market. New entrants have to come up with something very innovative at an exceptionally low price to penetrate the market. Gaining the authorisation of the local government is also a time consuming matter (Kumar, 2008). Therefore it can be concluded that threat of the new entry in food retailer market of UK is considerably moderate. Intensity of rivalry The intensity of rivalry is very high in the food retail market. Tesco is facing an intense competition in the food retail market from its competitors such as Asda, Sainsbury’s and Morrison. This competition is mainly based on the price, product quality and promotion. The leading grocery retailer in UK is Asda and their market share has increased to 16.8% from 16.6%. Morrison and Sainsbury’s have also displayed significant growth in their market share (Rogers, Ghauri and George, 2005). The slow market growth of Tesco is the clear indication of threat for Tesco’s market position. During the time of recession few organisations such as Aldi and Lidl have captured the market by giving extraordinary discounts (The Guardian, 2014). Bargaining power of buyers The bargaining power of buyers in the UK food retailing market is high. Consumers are attracted towards the low priced goods. The availability of online retailing helps consumers to easily compare the prices of products and conveniently shop from the comfort of their home. Most of the supermarkets are providing almost similar products and the brand switching cost for buyers is very low (Rogers, Ghauri and George, 2005). Tesco is already facing a huge competition in terms of retaining their core customers (Tesco Plc, 2004). Bargaining power of suppliers Most of the suppliers in the UK want to have a strong business relationship with the leading grocery retailers. They do not want to lose their business contract with these supermarkets. The leading position of Tesco in the market gives them the power of negotiation with these suppliers for lowest possible price (Rogers, Ghauri and George, 2005). So it can be said that the bargaining power of suppliers is low. Resources and Capabilities Understanding the proper utilization of the resources and capabilities helps any organisation to develop their competitive advantages in the market. VRIO analysis is one of such tools that help any organisation to analyze their internal resources (Wiklund and Shepherd, 2003). The key resources and capabilities of Tesco are their procurement management, brand value, online shopping, information technology, strong financial position and global sourcing. Resource and capabilities Valuable Rare Inimitable Organised Competitive impact Performance implications Procurement management Yes No No No Competitive parity Industry average Brand value Yes No Yes Yes Short term competitive advantage Over industry average Online shopping Yes No No Yes Short term competitive advantage Over industry average Strong financial position and global sourcing Yes Yes Yes Yes Long term competitive advantage Over industry average Information technology Yes No No Yes Short term competitive advantage Over industry average The procurement management practice of Tesco is deteriorating day by day. They are not focusing on their relationship with the suppliers. They are also not showing empathy in improvement of procurement management by collaborating with major suppliers. The procurement people should be more ethical and wise when they are handling the relationship crisis with the suppliers (Atkinson, 2014). The main resource of Tesco is their brand value. They are the leading brand in the UK and a globally well-known name. They are very careful about their brand value in terms of their packaging and the promotional events. Product and services department of Tesco is very alert in providing efficient delivery of their products to the customers. To create a unique brand value they have introduced Loyalty Card system to its potential customers (Christie, 2014). Online shopping facility is giving Tesco a better exposure to new customers. Most of its competitors are already well known in the market of online shopping. They are also developing the online shopping services for their customer by including various state of the art facilities. Tesco is on the process of making their Dot Com Store an important part of their services for their customers (Tesco Plc, 2004). Their strong financial capability is the main source for their global expansion plan. Their global expansion helps them to maintain their cost leadership in their respective industry. Tesco has developed their global product sourcing over a period of time and they are gradually becoming very popular outside of Europe (Tesco Plc, 2004). Information technology used by Tesco comes under its core capabilities. Tesco Hindustan Service Centre (Tesco HSC) plays an important role in providing IT system of Tesco. This IT service helps them to track all of their business transaction all over the world (Tesco Plc, 2004). Business and Corporate Strategies Strategic planning is an important tool used by corporate leaders to increase the competitiveness of any organisation. BCG growth-share matrix is a tool which is important to evaluate the strength of the brand and new investment strategies (Hax and Majluf, 1983). Star Star indicates high market growth and market share. Tesco’s petrol filling centres could be a star. These centres are serving over four million motorists every week. They are potentially generating sufficient amount of money from the supermarket chains which they can invest to improve these petrol filling centres (Gilbert, 2014). Question marks Video on demand services, Blinkbox and Tesco telecommunication can be considered as the question mark for Tesco Company. These business units are in high growth market but they are facing a low market share (Spary, 2014). They need to find out the appropriate investment for these business units to turn them into a star. Cash Cow Tesco’s grocery retail chain can be considered as cash cow. These are the most profit generating unit of Tesco. Their grocery sections are best in terms of distribution, quality of products and customer services. They need to maintain the current market activities and market strategies for this unit (Gilbert, 2014). Dog A dog is those business units or products which have low market growth and low market share. The financial products of Tesco can be considered as a dog. Tesco has reported fall in their profit due to the poor performance of their financial products. They are planning to sell certain part of their financial product business to improve its balance sheet (Ruddick, 2014). Conclusion This live case study of Tesco Plc has explained their current position in the UK retail industry. Porter five force analysis confirms their strong position in the UK market. Though VRIO analysis emphasizes on the poor performance of their procurement management, they have almost all the major resource and capabilities that provides them long term competitive advantage. The analysis of corporate strategizes ensures that they have a number of successful business units to generate sufficient profit. It can be suggested that few of its business units such as BlinkBox and video on demand need extra care to create a strong position in the market. Reference List Atkinson, D., 2014. Tesco procurement practices exposed and it’s not pretty. [online] Available at [Accessed 26 December 2014]. Christie, S., 2014. Supermarkets loyalty credit cards: how much can you earn? [online] Available at [Accessed 26 December 2014]. Gilbert, M., 2014. Being Tesco Stinks, but the Shopping Is Great. [online] Available at [Accessed 26 December 2014]. Hax, A. C. and Majluf, N. S., 1983. The use of the growth-share matrix in strategic planning. Interfaces, 13(1), pp.46-60. Hollingsworth, A. 2004. Increasing retail concentration: Evidence from the UK food retail sector. British Food Journal, 106(8), pp.629-638. Kumar, S., 2008. A study of the supermarket industry and its growing logistics capabilities. International Journal of Retail & Distribution Management, 36(3), pp.192-211. Porter, M. E., 2008. The five competitive forces that shape strategy. Harvard business review, 86(1), pp.25-40. Rogers, H., Ghauri, P. N. and George, K. L., 2005. The impact of market orientation on the internationalization of retailing firms: Tesco in Eastern Europe. The International Review of Retail, Distribution and Consumer Research, 15(1), pp.53-74. Ruddick, G., 2014. Tesco crisis: everything you need to know. [online] Available at < http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11181686/Tesco-crisis-what-you-need-to-know.html> [Accessed 26 December 2014]. Spary, S., 2014. Tesco invests in digital to become part of the rhythm of shoppers lives. [online] Available at [Accessed 26 December 2014]. Tesco Plc, 2004. Company profile. [pdf] Datamonitor. Available at [Accessed 26 December 2014]. Tesco Plc, 2014. Vision and strategy. [online] Available at [Accessed 26 December 2014]. The Guardian, 2014. How Aldi’s price plan shook up Tesco, Morrison’s, Asda and Sainsbury’s. [online] Available at [Accessed 26 December 2014]. Wiklund, J. and Shepherd, D., 2003. Knowledge‐based resources, entrepreneurial orientation, and the performance of small and medium‐sized businesses. Strategic management journal, 24(13), pp.1307-1314. Read More