Tesco as One of the Largest Food Retailers in the World - Essay Example

Strategic Analysis of TESCO Contents Contents 2 Executive Summary 3 Brief case history 3 Data and Methods 5 Strategic Analysis 5 Strategic recommendations for the future 9 References 11 Executive Summary The largest industry in UK is the food and drink retail sector. The retail sector provides employment to over three million people and accounts for 9% in the total gross domestic product. Tesco is into the retail sector and is one of the largest food retailers in the world. It operates with around 2318 stores worldwide and has an employee base of 326,000. Tesco even operates through an e-commerce platform and provide online services worldwide. The largest market for Tesco is UK where it operates under the four banners of Superstore, Extra, Metro and Express. Tesco has a wide product range where it sells 40,000 food products, non food items, and clothing. There are three levels such as value, normal and finest for the Tesco’s own label products. Tesco has even diversifies into gas stations offered by many of its stores and has even become the largest independent petrol retailer of Britain. The other service that is brand offer is Tesco personal finance (Clarke, Bennison and Guy, 1994, pp.11-20). Tesco underpins the strategy that they are selling a brand rather than just products. The company had shifted into brand specific from generic model, and this transformation was mainly through the branded packaging of its products and more of “every penny counts” promotional technique. There has been a constant restricting of the product and services Tesco offers so that they are able to effectively manage the product life cycles and deliver the best to their consumers. Tesco’s innovative strategy and a clear brand proposition for a distinctive market have made Tesco the leader of the food retailing industry. Brief case history Tesco has always tried to apply innovative methods in order to improve the shopping experience of customers. The company’s expansion into financial and insurance sectors has helped the company to capitalize on its brand reputation. Tesco’s loyalty card system helps in maintaining customer loyalty by customizing its products as much as possible. Tesco even implemented a portal site for making the shopping more convenient for its customers and implementation of this strategy made the company the largest online supermarket. The extranet system that the company has employed serves as a platform for creating customized flow of information and proprietary between the business partners and the company. RFID systems and other IT integrated systems makes the company handle a wide range of products and services and even control the cost. Implementation of this technology helped Tesco to be market oriented as well as be innovative. Tesco is very much focused on competitive pricing and volumes and in order to do so it outsources its goods from the overseas market (De and Tonchia, 2003, pp.947-976). Tesco in order to overcome the shortage of products in the UK market sources the products from suppliers across the world, and even as a multi cultural employee base. Tesco achieves franchisee and supplier satisfaction through various surveys on supplier management programs. The company’s strategic approach is towards maintaining a strong brand value; it focuses on operating grocery superstores, online services and c-stores. Tesco has shown an outstanding contribution in trading across UK and Europe. Tesco’s non-food section has shown a considerable growth and even there is a steady increase in the international business with a quarterly contribution towards the total profit of the group. The company’s brand value is associated with trustworthy and good quality products that represent excellent value. The major weakness of the company is that its high dependence on the UK market even though there is a steady growth in its international business (Drejer, 2000, pp.206-220). There is very little chance of debt reduction by Tesco has the company has to invest a huge sum of money for opening stores worldwide in order to support its expansion plans. Asda one of the competitors of Tesco has been acquired by Wal-mart which has posed serious threat to the company. As Asda now would fiercely compete with Tesco on product range and competitive pricing. It may even increase the buying power of the UK market thus threatening the leader supermarket position of Tesco. Data and Methods The strategic analysis of Tesco is based on a variety of sources. A survey was conducted to compare whether Tesco has the same market dominance or it has been overtaken by its key competitors. The survey consisted of open ended questions to analyze the opinion of the citizens in UK. There was even certain question involved to capture the views regarding which areas need improvement in Tesco’s operations. The data and figures have been taken from the annual report of Tesco. The research was primarily based on the secondary data available over the net and business magazines, and some primary data to analyze areas of improvement. Strategic Analysis Tesco’s operations are across the globe, it operates in over 6 countries apart from UK. The legislative and political conditions of these countries greatly have an impact on the performance of the company. The government emphasizes on flexibility in the pay scale for the retail sector. Tesco recruits students, elderly workers, disables at a low salary scale which ensure more employee loyalty and low turnover rate. The economic factors are external to a company and cannot be controlled (Finch, 2004, pp.183-196). Though the international business of Tesco is on a steady growth but it operations are mainly based on the UK market. If there is any slowdown in the food market of UK it would greatly affect the operations of Tesco. The company is even subjected to a high level of market concentration risk. The British consumers are more prone towards bulk and one-stop shopping. Even the trends of the consumers are changing in terms of increase demand towards value added products and services. Consumers are even becoming more health conscious and a common example of this changing demand is incorporating of organic products in the product mix by Tesco. Technology plays a vital role in business operations. This is the reason behind Tesco’s adaptation to the latest technology in terms of online services, RFID, wireless devices, intelligent scale, self check out machine and electronic shelf labelling (Flavián, Haberberg and Polo, 2002, pp.125-138). The CSR activity of Tesco is to develop corporate governance and regulations to exceed the minimum obligations to the stakeholders. Another strategy that is adopted by Tesco is a price reduction on purchase of fuel by the consumers in respect of the amount that is spent by them on the grocery stores at Tesco. Tesco’s strategy is more aligned towards delivering the best to its customers not only by product diversification but also through competitive pricing. UK’s grocery market is greatly dominated by the Tesco, Asda, Safeway and Sainsbury (Martinel and Sparks, 2003, pp.557-590). The players has developed a strong marketing mix and a better distribution which has made it impossible for the new entrants to enter in the market because of highly developed supply chain and high investment in stores. The bargaining power of suppliers is largely threatened by the outsourcing carried out by Tesco and the other players (Graiser and Scott, 2004, pp.10-14). The rivalry between the firms has brought down the profit margin of the suppliers and even their bargaining power. Tesco has been able to maintain its customer base and even control the bargaining power of buyers by offering the best products at lowest prices, customized services, meeting the consumer demand, and through continuous in-store promotions. With the emergence of chain convenience stores it has become very essential for Tesco and its other competitors to expand their operations in local towns through metros and express stores. The highly competitive market has forced the UK based retailers to constantly develop their products and services in order to maintain its market share. There are several innovative methods adopted by firms such as in trading methods to meet the consumer demand. The players who dominate the market is more focus on restricting the value and price of their products and adding more value to the services they offer. Strategic group analysis is analyzing the various operations of other businesses in the same group (Johnson and Scholes, 2003, pp.93-95). This analysis is based on the market focus where the market is segmented on basis of various aspects. Tesco on basis of this strategic group analysis finds out where the products of the competitor fall on basis of price and quality. The result of this analysis helps the company to lower the price of the product accordingly and set appropriate quality standards to outperform than its competitors. (Myers, H. 2004, p.3) The strategic group analysis is on the basis of branding, supplier management and IT integration. The results highlight that in terms of strong brand position Sainsbury’s is the potential competitor of Tesco. The firm needs to rebuild its brand position by adding extra value to its products. Another effective strategic tool is the Ansoff matrix. This matrix suggests different strategies that are adopted by a company depending on the product and the market. As in case of Tesco it entered into new geographical markets with its existing product line which is known as the market development strategy. Tesco even has applied market penetration strategy by entering into existing markets with the existing product range by offering the best of prices to the customers without compromising on its quality, this has helped the company to penetrate into the market and capture more of market share (Acura and Bititci, 2004, pp.388-408). Tesco enters with development of new product range into the existing market. With the use of product development strategy Tesco constantly develops new products in order to fit into the current market. Diversification is the most risky strategy for the Tesco group as completely developing a new product range and entering into a new market requires high amount of investment and there is uncertainty in terms of the return on the investment. (Desjardins, 2005, p.6) Tesco has the tangible resources such as finance and infrastructure. The intangible resources comprises of brand value, reputation, and skilled human resources. These resources build up the capabilities of the organization of achieving differentiation strategy and cost leadership. It has shown its capability by continuously adopting to the changing environment (Palmer, 2004, pp.1075-1101). The company had emphasized on strategic capabilities by launching club card in 1995 to enhance customer loyalty. Tesco has built an integrated IT system, to increase the efficiency of the operations of the company. It provides the best online services to its customers, and the technology helps the company to handle large volumes of products and services while effectively controlling the cost. Strategic recommendations for the future Tesco’s hypermarket format in UK has triggered up the sales of the company. There exists a great scope for this hypermarket format to increase profit levels of Tesco. The international business of Tesco has developed over the years and there is a growth scope for this segment in the future. Even the rise in the non-food sales of Tesco has increased the total profit percentage of the firm. Tesco’s health and beauty products have made it the fastest growing skincare retailer in the UK market. There is a great scope for Tesco to enter with this new product range to other emerging markets. A further international expansion would support the sustainable growth of Tesco. China being one of the largest economics and a developing market with forecasted growth initiates a great opportunity for the Tesco for its expanded operations in this country (Veliyath and Fitzgerald, 2000, pp.56-82). The first strategy that can be adopted by Tesco is the cost leadership strategy, by which the company needs to control the operating cost so as to offer the best competitive price to its customers. Another strategy that is recommended is the differentiation strategy. This strategy would focus on the company adding more unique features into the products and services being offered which the customer would value. Tesco can adopt any one of the strategies that is to focus on a specific market and confine their products only to this market, else focus on a broader market with a small product line. The company can adopt any strategy either strategy of focus or niche. Tesco can even focus on demographically high opportunity markets such as Japan, China, and other Asian countries for further expansion (Anon, 2004, pp.66-73). The suggested strategy would be to enter into strategic alliances with the local retailers so as gain a larger market presence and economy of scale. This kind of joint ventures would benefit Tesco in terms of feasibility, sustainability and acceptability. Even the operations expertise and local knowledge of its partner would help Tesco to incorporate these skills into its supply chain operations, product development and store operations so as to enhance the shopping experience of the customer (Rowley, 2003, pp.274-278). Tesco can add more innovative products to its product range in order to meet the changing demand of the customers. Tesco can even implement a new strategy of developing different store formats in UK so as to offer vale added service to its customers by providing different kinds of shopping experience. Such an innovative method of value addition can give the advantage to Tesco to charge a premium price. Tesco needs to minimize its weakness and exploit its opportunities and strengths so as to build a sustainable competitive advantage in the highly competitive market. References Acur, N., Bititci, U. 2004. 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Supply chain risk management, Supply Chain Management: An International Journal. Vol. 9 (2), pp.183-196. Flavián, C., Haberberg , A., Polo, Y. 2002. Food retailing strategies in the European Union. A comparative analysis in the UK and Spain, Journal of Retailing & Consumer Services. Vol. 9 (3), pp.125-138. Graiser, A., Scott, T. 2004. Understanding the Dynamics of the Supermarket Sector, The Secured Lender. Vol. 60 (6), pp.10-14. Johnson, G., Scholes, K. 2003. Exploring Corporate Strategy. Prentice Hill: London. Martinel, E., Sparks, L. 2003. Food retailers and financial services in the UK: a co-operative perspective, British Food Journal. Vol. 105 (9) , pp.577-590. Myers, H. 2004. Trends in the food retail sector across Europe, European Retail Digest. Vol.41 (3). Palmer, M. 2004. International retail restructuring and divestment: the experience of Tesco, Journal of Marketing Management. Vol. 20 (9), pp.1075-1101. Rowley, J. 2003. Beds, insurance and coffee – a complete retail experience from Tesco online, British Food Journal. Vol. 105 (4), pp.274-278. Veliyath, R., Fitzgerald, E. 2000. Firm Capabilities, Business Strategies, Customer Preferences, and Hypercompetitive Arenas: The Sustainability of Competitive Advantages with Implications for Firm Competitiveness. Vol. 10 (1), pp.56-82. Read More