Tesco: Company Analysis - Case Study Example

Tesco – Company Analysis Introduction The companies, whether domestic or international, cannot afford to be complacent at any point of time, even when they are having successful run in the market. The recent global meltdown saw the downfall of the largest and the best industries in the world, one which were considered as leaders in their respective market whereas others entered in merger or acquisition. Prior to this, it is pertinent to mention that most of the business activity in UK is carried out by sole traders or partnerships and the most important form of business entity is limited liability. The limited liability companies have a legal status quite separate and distinct from that of their owners and the liability of owners is limited to the amount of money that they have invested in a company. The ownership of the company is divided into the shareholders where the decisions are taken by the board of directors and other key persons involved in the process (Pendlebury and Groves, 2003:1). Therefore, in the interest of the shareholders, the employees, investors, owners and other institutions related to the business entity, it is necessary to perform an analysis of the company so as that future setbacks can be avoided. The present paper undertakes an analysis of Tesco Plc, an UK based international retailer and suggest certain recommendations to maintain and perform better in the industry. Tesco Plc Tesco Plc is one of the largest retailers in the world with more than 2300 supermarkets, convenient stores hypermarkets, and employing about 472,000 people who serve millions of customers. The core purpose of the organization is to create value for customers to earn their lifetime loyalty. The company has a well established and consistent strategy for growth strengthening the UK business and continuously resulting in expansion. The main aim of the Tesco strategy is to reach the customer by expanding its services crossing the national boundaries. The objectives of the strategy is to be a successful international retailer, continue its growth in UK, be a leader in non food as well as food segment, develop retailing services and to put the community at the heart of its services. The age-olds strategy has resulted in positive growth for Tesco for decades with 6.8% increase in sales and 10.4% group profit before tax for the year 2009 as compared to 2008. The company has reported annual group sales of £62.5bn and £3.5bn operating profit in the year 2010. Further Tesco proudly regards itself as the most profitable online grocery retailer in the world (www.tescoplc.com). The company has been able to achieve its long term goal with an objective of providing best to the customers and providing them the flexibility of shopping anywhere – anytime through reaching them by expansion and online shopping. Porter’s Five Strategic Forces - Analysis Suppliers – Tesco is commonly referred to as a show case example for retail innovativeness as well as for retailer – supplier collaboration. The organization has achieved to replenish 95% of all products via central distribution through its progressive supply chain and continuous replenishment is realized by multiple deliveries per day for all stores. Tesco collaborates with its suppliers that help them to ensure the supply of products and understanding of customers and competitors pertaining to the product (Doukidis and Vrechepoulus, 2005:201). Buyer – It is the largest supermarket retailer in the United Kingdom, the fourth largest in the world and the world’s largest online grocery store. It was estimated that over 21 in 27 of UK retail sales was spent in Tesco for the year 2007. With over 2300 stores all over the world, the company has good number of diverse buyers (McLoughlin and Aaker, 2010:126). Barriers to entry – Tesco has established itself in 14 countries. The organization has been able to expand its business with more than 2300 stores and over half a million employees continuously striving to serve the customers in better way. However for other expansions in Asian countries, it needs to analyze the market situation as the customers in Asian countries like India, Pakistan, Sri Lanka, Bangladesh etc, may not welcome the company (McLoughlin and Aaker, 2010:126). Threats of Substitutes – Tesco chases the threat of substitutes in product by continuous product updation by tracking the changes in buying habits and shopper profiles. The strategy refers to three customer oriented pillars which includes understanding shoppers, segmenting shoppers and ensuring product availability (Doukidis and Vrechepoulus, 2005:201). Threats of Rivalry – Tesco is the leader and the largest supermarket retailer in the United Kingdom and has its branches in 14 countries. The company stands fourth in the world ranking and faces stiff competition from Wal-Mart, Carrefour. Home Depot and ASDA are also considered leader in the retail segment. Therefore it is necessary that Tesco upgrade their products, try to stock unique goods in the stores which are not available at any other stores to compete with its rivals. SWOT Analysis Strengths – Tesco takes one in three pounds spent in Britain’s grocery stores and stocks range of items from music downloads to household mortgages along with clothing lines and cut price electrical stores in various parts apart from traditional grocery products. The stocks are supplied through its collaboration with the suppliers thus providing unique products which are not available in the market in order to avoid duplication. Further it is important to mention that Tesco holds 29% of the market share ahead of its competitors like ASDA, Sainsbury and Morrison in United Kingdom (Dransfield and Needham, 2005:139). Weakness – Tesco has been unable to dominate the city centre marketplace as it has failed to make them universal (www.321books.co.uk). Tesco finance profits levels were impacted through bad debt, credit card arrears and household insurance claims. Further its position as a price leader in UK markets can lead to reduced profit margins in a bid to maintain the key price points on certain products. Also the grocery outlets are not up to the level of specialist retailers to operate in specific areas (www.businessteacher.org.uk). Opportunities – According to CCAI’s post code based research, Tesco has the lowest market share in the Harrogate, Sunderland and Wolverhampton postcode areas and has identified the opportunities and is planning to develop new site in these areas to promote Tesco (Talking Retail, 2007). Tesco seeks to expand its horizons to Thai cities, Slovakia, and many other countries where there is great demand for groceries. The fact that Tesco is the world’s largest online retailer provides abundant opportunities in order to reach the customer where there are no development stores. (Reuvid, 2005:225) Threats - The main threat arises from its international competitors like Wal-Mart that acquired ASDA, and other top retailer stores. It is further important to mention that rising raw material costs from both food and non food will impact profit margins overall. Patterns in consumer behaviors are changing constantly and it has become difficult to update the products continuously. (www.businessteacher.org.uk). Technical Measures to address the weaknesses Location Specific Website – Tesco has over 2300 stores in 14 countries, but it is not able to reach other customers residing in other parts of the world. Though it is the largest online retailer in the world, it does not targets the consumers located in farther areas like India or Pakistan. A country specific website would be beneficial to the users along with targeted marketing so to attract consumers to online marketing in remote areas. Consumer feedback and analysis of behavioral pattern – A database need to be planned and maintained so as to gather information pertaining to the tastes, like and dislikes of consumers in every shop, online data updating on the matter, so as to analyze the behavioral pattern depending on which decisions based on product removal and updating, introduction of new product, etc. can be taken. Further data will also be required to analyze the buying patterns of consumer regarding the products that are mostly purchased and the others which are not, so that it will help us in the area which products need not be replaced and which products should be replaced. IT Technologies Website To create the website and enable online sales in most parts of the world, Web 2.0 technology will be used and it will run on centralized clustered server in order to avoid blackout. Database Management Oracle 101 MySQL/ PostgreSQL Clustered Servers Conclusion Tesco being the largest retailer in UK needs to revitalize its strategy to compete with other large international supermarket retailers like Wal-Mart which is looking to take over and also possesses the capability to do so. Therefore it is necessary to revamp its business processes and products every now and then so as to avoid duplicity. The above recommended IT solutions will help Tesco in achieving maximum customer reach and increased product sales along with the analysis of consumer feedback pertaining to likes and dislikes. Such data will help Tesco is taking decisions in various divisions like sales and purchases and also defining strategies to reach the customers. References 1. Pendlebury M and Groves R (2003) Company accounts: analysis, interpretation and understanding Ed.6, Cengage Learning, EMEA, US 2. Tesco Plc, About Us, http://www.tescoplc.com/plc/about_us/ 3. Doukidis, Georgios I. and Vrechopoulos, Adam P (2005) Consumer driven electronic transformation: applying new technologies to enthuse consumers and transform the supply chain, Springer, Germany 4. McLoughlin D and Aaker A D (2010) Strategic Market Management: Global Perspectives, John Wiley and Sons, UK 5. Dransfield R and Needham D (2005) GCE AS Level Applied Business Double Award for OCR, Heinemann, US 6. Tesco Weaknesses, http://www.321books.co.uk/catalog/tesco/weaknesses.htm 7. Business Teacher, Tesco SWOT Analysis – Tesco Group, http://www.businessteacher.org.uk/business-resources/swot-analysis-database/tesco-swot-analysis/ 8. Talking Retail (2005) Tesco still has opportunity for growth, http://www.talkingretail.com/news/industry-news/6742-tesco-still-has-opportunity-for-growth.html 9. Reuvid, J (2005) Doing Business with Slovakia, GMB Publishing Ltd, UK Read More