Tesco Business Strategy - Report Example

Tesco Business Strategy Report EXECUTIVE SUMMARY Tesco Plc is the UK’s largest retailer of groceries and general merchandise. Headquartered in Cheshunt, England, the multinational is also the second largest retailer worldwide going by its revenues. Tesco has stores in twelve countries across Europe, North America, and Asia. It is also the market leader of grocery in the UK, Malaysia, Thailand, and the Republic of Ireland. In the UK, for instance, Tesco Plc has a market share of approximately 30 percent. Jack Cohen founded the corporation in 1919 as a group of market stalls. The business expanded rapidly after the formal opening of the first Tesco store in Burnt Oak, Middlesex, in 1929. The industrial advantage that Tesco has exploited extensively is its capability and willingness to develop and initiate new ideas to the industry. The extensive innovativeness is something that very few big companies have made. The ideas however, are embedded and focused on mutual benefit between the various stakeholders of the company. The company strives to achieve this through ammonization of the internal and external environmental factors that influence the company. The various strategies that the company has historically adapted and currently striving to adopt are thus not exclusively opportunistic to Tesco but considerate to the interests of the firm’s stakeholders. The firm achieves this by laying unique strategies based on market research. Among them are as discussed in the paper. The company has existing strategies that enables it to compete favorably in the market. The most tremendous marketing strategy is digital marketing that enables it reach many customers and increase its sales volume. Even though these strategies exist, the company can further strengthen its competitive advantage by introducing other strategies such as smart shopping, geographical diversification and pricing of their products and can also introduce of virtual employment. When implanting strategies Tesco Company focuses on customer satisfaction, sales volume and profits. The company strategizes its tactical decisions so as to achieve the set goals and objectives within a period not more than five years. Table of Contents EXECUTIVE SUMMARY 2 Table of Contents 3 1.0 Strategy Analysis 5 1.1 Industry Analysis 5 1.2 Competitors and market share 5 1.3 Profile of the Company 6 2.0 Stated Organizational Purpose 7 2.1 Vision and Mission Statements 7 2.2 Customer servicing 8 2.3 Return on capital employed (ROCE), Profits and sales from 2010 to 2014-Last five years 9 2.4 Internal and External Environment (SWOT) Analysis 10 3.0 Strategy Development 14 3.1 Existing strategies 14 3.2 strategies for the next five years at corporate, strategic business unit & functional levels 15 4.0 Strategy Implementation 18 4.1 Gantt chart for strategy implementation 21 4.2 Milestones 22 5.0 Conclusion 22 References 22 1.0 Strategy Analysis 1.1 Industry Analysis Tesco operates in the food retail industry. However, in recent years the company has diversified and currently stocks a variety of goods including non-food goods. In consideration to profits, the company is the third largest retailer in the globe. Despite the aggressive competition associated with the food industry, Tesco aspires to be the market leader in the whole industry. 1.2 Competitors and market share The industry market share is distributed such that Tesco leads with 28.6%, ASDA follows with 17.4%, Sainsbury’s with 16.5% Morrison’s with 11.1%, the co-operative with 6.1%, Waitrose with 5% and others share the remaining portion of the food industry market. Principal competitors include ASDA, Sainsbury, Morrison’s, Amazon, Waitrose, Wal-Mart, Iceland, and Somerfield. One of the primary threats to growth and expansion of Tesco into new markets is competitive rivalry. The major competitors of Tesco are mainly supermarkets and non-food retailers. Another competitor involved in the same concept includes Amazon. The company provides goods and services that aspire to meet the desires of different groups of customers in the retail business. 1.3 Profile of the Company Tesco Plc is the UK’s largest retailer of groceries and general merchandise. Headquartered in Cheshunt, England, the multinational is also the second largest retailer worldwide going by its revenues. Tesco has stores in twelve countries across Europe, North America, and Asia (Henry 2011, p. 80). It is also the market leader of grocery in the UK, Malaysia, Thailand, and the Republic of Ireland. In the UK, for instance, Tesco Plc has a market share of approximately 30 percent. Jack Cohen founded the corporation in 1919 as a group of market stalls. The business expanded rapidly after the formal opening of the first Tesco store in Burnt Oak, Middlesex, in 1929 (Henry 2011, p. 80). The company had over 100 stores in the entire country in 1939. The business has employed more than 200,000 staff and had almost 3,000 retail stores, of which 1,427 are Express convenience shops (RetailWeek, 2014). Tesco Plc is a constituent of FTSE 100 Index, listed on the London Stock Exchange. The global retailer of grocery and general merchandise had a market capitalization of £20.5 billion as of August 2014. The corporation’s market capitalization was feasibly the 28th largest of a company with primary listing in London Stock exchange. Tesco sells about 40,000 food products across its superstores, clothing and copious other non-food products. The company has three distinct levels for its level products namely value, normal, and finest (Hensmans et al., 2013). The own-brand products account for approximately 50 percent of all company sales. 2.0 Stated Organizational Purpose 2.1 Vision and Mission Statements The vision statement of the company is a typical extension of the above-discussed philosophies. Vision statement; “To be the most highly valued business by the customers we serve, the communities in which we operate, our loyal and committed colleagues and of course, our shareholders.” (Riley, 2013). The vision is pillared in five elements that serve to tell the kind of company that Tesco aspires to be. Components of the Tesco Vision statement; Desired all over the world An opportunistic growing business Modernity and ideas innovativeness Winner at the local grounds and in a position to exercise skillful tactics in the global market A Centre of inspiration to customers, colleagues and communities as the company aspires to garner loyalty and trust from stakeholders The companys mission statement is the simplest, and it states; “We make what matters better, together." The goals, vision and mission statements of Tesco describe the direction that it aspires to take in the world food industry. The strategies laid by the company define how the company plans to achieve its goals. 2.2 Customer servicing Tesco organizational strategy is set on a strong philosophy of culture that considers Every Little Helps philosophy. The philosophy of the company, believes two vital values one being the normative that “No one tries harder for the customer” and the other one states “Treat people how you like to be treated” the second philosophy in this case defines the working conditions of the employees in this company. As insinuated by the philosophy, it is a requirement of the company to manage its employees with utmost respect and integrity. It, therefore, means that, the Tesco working environment is truthful and respectful. The grounding of this philosophy is significant in the achievement of well-motivated staff and more importantly improvement efficiency of customer service. The philosophies are the core founders of the strong organizational culture exhibited in Tesco. 2.3 Return on capital employed (ROCE), Profits and sales from 2010 to 2014-Last five years Other financial statistics           Diluted earnings per share – continuing operations 29.19p 34.25p 39.23p 19.06p 23.72p Underlying diluted earnings per share – continuing operations 31.66p 36.26p 40.31p 33.74p 32.05p Dividend per share 13.05p 14.46p 14.76p 14.76p 14.76p Return on capital employed (‘ROCE’) 12.1% 12.9% 14.7% 14.5% 13.6% Total shareholder return8 9.5% 6.7% (3.0)% 2.1% 3.7% Net debt (£m) 7,929 6,790 6,838 6,597 6,597 Enterprise value (£m) 41,442 39,462 32,324 36,578 33,597             2.4 Internal and External Environment (SWOT) Analysis 2.4.1 Internal Environment (SW) and implications 2.4.1.1 Strengths and implications Multi-Channel strategy Tesco distribution channel is not reliant on hypermarkets. The company however relies more on relatively small growing and small markets and supermarkets hence making the company more convenient in delivery of products and services. The widespread of small markets and supermarkets all over the world means that in any case, Tesco is patchy present in any outlet of theses supermarkets and markets. The multi-channel synergy adopted by the company means expansion of its ambitions to expand the volume of sales and curb the internet-based challenge of pure play with retailers. The company operations The company exhibits a global sourcing strategy coupled with carbon print reduction. The strength enables the company to attain its strategy of conserving the environment and strongly extending its corporate responsibility. Private labeling and Branding and difficult to imitate by competitors The Tesco retail brand exhibits a global banner and ensures coexistence with local brands. In the several key markets of target, Tesco’s brands are among the top two in the market. The private labeling of brands is exclusive and potentially used as an innovative strategy in refining price segmentation. Tesco is competitively unique in its branding and labeling. Domestic establishment The competitive positioning of Tesco is a vital strength for its success in the food industry. The company seeks to expand its sales in the non-UK markets through gaining of the international sales significant proportion. The company’s strategic positioning in the UK markets has seen hypermarkets losing to retailers. The company is highly established in the UK making it an elephant at home, as far as sales volumes are concerned. 2.4.1.2 Weakness and implication Cultural web Based on the cultural web theory, that defines the cultural default that a multi-national growing company could face. Tesco exhibits a strong grounding of organizational culture meaning that irrespective of the country of destination, the company carries with it its culture. Cultural web represents the possibility of the cultural underlying assumptions that a company can consider when venturing new environments are exhibiting different cultures. However, the company has reportedly laid a system of control and measures to monitor and review staff efficiency in decisions. 2.4.2 External Environment (OT) Analysis 2.4.2.1 PESTEL Analysis based on OT and implications Political factors and implications Since the company operates globally, the worlds changing political environment affects the performance and policies of Tesco significantly. Such factors like, political influence of tax rates, the political stability of a country of business operation and legislation passed and adopted are critical in the operations of a firm due to their severe influence when the turn unfavorable to the firm. Whether negative or positive, political factors influence the conduct of Tesco’s business operations. Economic factors and implications Economic factors are the critical concerns for Tesco. The great interest laid on economic factors by Tesco is because economic factors are prominent in leveraging costs, prices, profits and demand. Tesco needs to be aware of any alteration of policies in the economic system since alteration of the taxation policies, for instance, can affect the finances accessibility for the firm. Social factors and implications The social factors are other external environmental factors affecting the running of Tesco. The variety of goods and services demanded by individuals follow some unique trends of the social aspects of a society based on societies beliefs and attitudes. Customers of the current century are increasingly considering health issues more importantly than ever before. The current approach of people to foodstuffs is changing with these health concerns. As a result, Tesco is in the process of adapting the dynamic trends of the social aspects of individuals through accommodation of the demand for organic foods. Current shopping trends in the UK are geared towards one-stop shopping and bulk shopping. Tesco in response has increased the varieties of items it sells in its outlets. Environmental factors and implications Environmental factors are other concerns. There is increasing pressure on the sides of companies to address environmental challenges. Companies are expected to put into place practices capable of bringing benefits to the wider society. Tesco is committed to environmental conservation and promises to reduce carbon print in 2020 by 50%. Technological factors and implications Technological factors are other issues of the external environment that are influential to Tesco. The recent advancements in technology have opened up opportunity frontiers for Tesco. The introduction of online shopping accompanied by facilities for home delivery is an example of advantageous technological progress for Tesco. Legal factors and implications The legal environment also affects the operations of Tesco directly. Governmental legislation and policies are effective and can change the course of action and policies adopted by the firm. For instance, the 2004 code of practice proposed by the Food Retailing Commission will put an embargo into some practices like company’s decision to alter prices without demand or notification for payment from suppliers. 3.0 Strategy Development 3.1 Existing strategies Tesco has aligned its retail growth strategy with digital marketing strategy to enable the company to respond to online opportunities. It has opened up marketplace for selling products as part of the businesss direct offering. Tesco is also determined to make its products and services mostly appealing to all market segments. A typical case in point is the multinational retailer’s strategy to use its own brand goods and services. Tesco also uses its brand products to several of its product categories, including beverage, food, home, Tesco mobile, clothing, and financial services (Hensmans et al., 2013). Incidentally, the company started marketing itself using the phrase “The Tesco Way” since 1997 when Terry Leahy took over as company CEO. “The Tesco way” primarily describes the core principles, purposes, values, and goals of the corporation. In reality, the phrase has typically become the standard marketing/publicity strategy for the UK largest retailer of grocery and general merchandise (Hensmans et al., 2013). Under the leadership of Leahy, Tesco expanded considerably both domestically and internationally, indicating a shift in the multinational retailer’s focus on people, workers, and customers. It continues to invest strongly in UK markets as well as equip staff with necessary skills to deliver excellent customer service. It also seeks to make prices more stable, logical and competitive. Lastly, the company is has invented a loyalty card - the Club card as well as established multichannel leadership. 3.2 strategies for the next five years at corporate, strategic business unit & functional levels Though the company has well outlined internal and external business strategies, it needs to come with strategies that are more competitive. The strategies will allow the company to compete globally. The proposed strategies might include among others the following. 3.2.1 Business stream level Smart shopping This is where the company works with the target of fulfilling the customers request within the shortest time possible. Though the company has online selling, the strategy still is not effective. The organization takes a long time to respond to the customers even if it has digital and online selling. For a company to have high response time, it needs to come up with smart shopping. The company needs to redefine the online selling strategy to allow customers receive the products within twenty- four hours period. An example of a company that uses smart shopping as a strategy is Amazon Company. When a client orders for a commodity such as a book from Amazon Company, they are guaranteed that they will receive the book within twenty- four hours. Tesco Company can learn from such an organization. For a company to achieve this strategy, it needs to have well defined outlets of their products. The company does not necessarily need to have their stores everywhere like what they are doing, but they can cut the costs through subcontracting. Subcontracting is the effective method as the company can use other companies to market and sell their products. However, this does not mean that the business sells the products to other retail companies. That will not be smart selling. For a company to achieve smart selling and still maintain the originality of their products, it needs to own their products up to the final consumer. Vertical integration is crucial in such cases. Therefore, to achieve smart selling, Tesco Company can subcontract other companies. However, in such cases, the company can allow customers to book their products from the central office or regional branches of Tesco Company. After ordering the products and depending on the geographical region of the client, the company can refer the client to the nearest sub-contract company to that client. The company can then remit commission to the subcontracted company. Such a strategy will not only maintain products’ originality but also reduce other expenses such as shipping or transportation costs. The smart shopping is effective especially when it is applied by giant companies. The strategy fits Tesco Company as it is one of the largest companies. Their products are all over the world. The only problem is the method of selling. If it adopts smart selling strategy, then it will have sales growth. The business will also get a bigger market share. 3.2.2 Corporate level Internal business strategies Geographical Diversification and pricing of products When it comes to objective of increasing profits, Tesco Company can price its products basing on the geographical, social and financial statuses of the customers. When a company has a big market share, it will replicate into larger sales volume. When a company has higher sales volume, it results in higher profits. Sales volume is directly proportional to the profits. Pricing the products basing on geographical location of different customers will enable the company to reach more customers. Many customers will afford the products regardless of the financial statuses. In regions where the customers are down financially, the company can price their products lower than where the customers are financially well-off. When a company prices its products higher in regions where the customers are likely to be financially stable, they will still make good sales. Such kind of pricing strategy will counterbalance the companys sales and thus allow for making of more profits. It is estimated that the company makes about 70% of its revenue annually from the market of UK. However, this revenue is still small because it still lacks geographical pricing of their products. The lack of geographical diversification is a weakness of the company. The weakness has a direct impact on the sales of the company, and this will cut down companys profits. When a company diversifies its pricing strategies, it can easily overcome the financial crisis. Revenues will stream into the business throughout the year. Even during the bad economic times, the revenues will still be recovered. This is because when there is geographical diversification in the business, the company can have continuous and balanced stream of revenues throughout the year. When one region goes down economically, it will have adverse effects on the companys profits. Such a challenge will not be felt when a company has diversified pricing strategies. 3.2.3 Functional level External strategies Resource competence Introduction of virtual employment Another strategy that the company can introduce is the distant working employment. The employees do not necessarily need to be stationed in particular places. The company can employ such people and make them to wok near their homes. The company after employing its workers can have biometric registration of those employees and then disperse them to their destinations based on the originality. The administration costs will be cut down if the company adopts this strategy. However, with this strategy, the company should be keen not to deny their employees their rights such as the right to sound wages and salaries. Because the company is big such a strategy will work well. Cost reduction The company can reduce the cost of pricing to allow it penetrate into the market and have a larger market share. The cost can be reduced based on the geographical location of customers. Such cost reduction will allow the company to sell more of their products and have higher profits. 4.0 Strategy Implementation Tesco Company should implement its strategies with the aim of increasing its sales volumes, market share and eventually profits. The company should set the strategies on the goals and objectives of that company. To increase the sales volume, the company can lower the cost of its goods, differentiating its products. The strategies should thus be achievable within the shortest time possible. If the company sets strategies and they are not achievable then, the companys goals and objectives might not be achieved as well. Strategies that targets to increase business sales volumes and profits should be set and implemented within a span of five years. For a company to achieve smart shopping strategy, it should organize its resources in such a way that, they are ready to test the acceptability and capability in the market. After analysis of customer’s geographical locations, the company can thus survey the potential businesspeople, organizations or individual who can become sub-contractors of their products. Smart shopping strategy is implantable and achievable within a span of five years. However, the company should get prepared as early as two years. When a company’s strategies are implemented within the shortest time, it will allow the company’s better performance. In most cases, the companys performance is measured by how fast the management is implementing the strategies. A company that implements its strategies within the shortest time possible has a positive perspective from the public. It will thus attract more customers into the business. A large number of customers in the business enable the company’s profit to shoot up. Tesco’s vision and values underpin every initiative and activities the company undertakes. Overall, the company employs these values to enhance customer satisfaction in addition to improving their shopping experience and loyalty to Tesco brands. The company should shift focus from its expansion plans to refitting of the existing stores (Lamb et al., 2008). Mergers or formation of strategic alliances with other companies can be an effective approach to improving their production capacity, efficiency and quality of goods and services rendered to customers in the UK and other countries around the world. Strategic alliances could also help them overcome come their weaknesses and challenges of the internal environment. One of the proposed plans is that the company implements the Gourmet Food Section and Delicatessen at its stores. The demand for specialty foods and gourmet product in the UK has been overwhelming (Dubrin, 2009). The gourmet section would primarily focus on high-quality grocery items from across the globe, including New Zealand, France, Italy, and Australia. Gift items would also be available to shoppers as well as products that would complement the global theme of the section. Delicatessen section would offer astounding international cuisine as well as menu for breakfast, lunch and dinner with twenty sitting capacity. However, Tesco has fallen short of cracking the Chinese market. Compared to westerners, most Asian consumers are variety seekers. Their store hopping has replicated western supermarkets with a difficult conundrum (Lamb et al., 2008). Tesco mostly chose the former, thinking its Club card would give it an advantage over local rivals; however they failed (Witthoeft, 2014). The Club card brings valuable information about Chinese shoppers’ tastes, preferences, and shopping habits (Lamb et al., 2008). However, the value of the club card or certainly any loyalty program in the Asian market may have been grossly overestimated. Strategy that can be implemented within five years. Based on the customers’ needs and business growth, the company should implement the smart shopping strategy. This will make the market to expand and in turn allow it have higher sales volume. Further, the company’s profits will also shoot up. The company thus will be in a position to grow and expand in terms of both market growth and financial growth. 4.1 Gantt chart for strategy implementation Strategy Time for implantation ( years) Responsible personnel Its importance Smart shopping 2 Technical department and research managers Introducing smart shopping within 2 years enables meeting of project implementation dateline Geographical and pricing 3 Finance manager Wider market share Introduction of virtual employees 2 Technical and finance managers Reduces administration costs Implementation of Gourmet food section 1 The company managers and sales manager Expands market and increases companies sales volume Implementation of delicatessen store 3 Procurement manager Enables the company to compete favorably in the market 4.2 Milestones The company faces many challenges especially in the implementation of its proposed strategies. These milestones may hinder the company from meeting the project dateline. Project of implementing the strategies should take the shortest time possible. The milestones might include geographical location of the company’s customers that might be cumbersome. It might also take a longer time for the company to get competent personnel to design smart shopping portfolio. Further, the cost of implementing the strategies might be costly to company. 5.0 Conclusion In summary, Tesco Plc is one of the largest retailers of grocery and general merchandise worldwide. Practical strategies, leadership, and management have played an important part in the expansion and success of the multinational to different countries around the world. In addition, clear goals and vision have significantly helped the company achieve its tremendous success in Europe and the rest of the world (Lamb et al., 2008). The company’s commitment to initiating and monitoring specific goals and devising strategies have been instrumental in both short term and long term growth and development. Tesco is looking forward to playing a vital role as a responsible retailer of grocery and general merchandise. Hence, even the decisions the company takes ensures fair treatment for all customers, employees, suppliers, and communities. New strategies, such smart selling will boost the companys performance. Further, the companys sales volume will increase and eventually increase the company’s growth and expansion. References Dubrin, A. J. (2009). Essentials of management. Mason, OH, Thomson Business & Economics. Fernie, J., & Sparks, L. (2004). Logistics and retail management: insights into current practice and trends from leading experts. Sterling, Va, Kogan Page. Gibbons, L., 2013. Tesco Chinese merger to create £10bn business, s.l.: s.n. Henry, A. E. (2011). Understanding strategic management. Oxford, Oxford University Press. P. 80 Hensmans, M., Johnson, G., & Yip, G. S. (2013). Strategic transformation: changing while winning. Houndmills, Basingstoke, Hampshire, Palgrave Macmillan. 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