Strategic Perspective - Tesco Supermarket Company - Case Study Example

Common Sense and Science Executive Summary It is prudent to that this entire report focus more on Tesco supermarket Company. The report tend to explore the on the external and internal environment of Tesco supermarket. Moreover, the report also tends to inform on PR crises affecting the supermarket. In addition, the report also suggests several option in regard to resource based strategies. Table of Contents 1. Introduction 2. Analysis of the external environment 3. Analysis of the internal environment 4. Analysis of PR crises 5. Strategic Analysis 6. Conclusions 7. References 8. Appendices Introduction Tesco is a well known supermarket in the United Kingdom which was founded in the year 1924 by a legendary man called Jack Cohen (Datamonitor Report, 2004). The business main focus in on grocery and general merchandise retail products. Tesco has many other stores across twelve countries of Asia, Europe and even North America. It is one of the well known food retailer in the world. It is ranked as the second largest retailer mall after Wal-Mart (Datamonitor Report, 2004). Tesco has registered 2318 stores and over 2318 employees globally (Datamonitor Report, 2004). Tesco has been included in London stokes exchange and it bears the name Tesco stores (Holdings) (Datamonitor Report, 2004). This report will focus on analysing Tesco supermarket internal and external environments. The report will also assess the analysis of PR crises and strategies employed. Analysis of the external environment Macro Environment Analysis Political environment By the virtue that Tesco is a globally operating business company it is exposed to variety of globalized environments. This is due to location of many of their stores around the world. To this effect, political factor and legislative condition of different countries are some of the key influence to Tesco operation (Clarke, Bennison and Guy, 1994). This vastly affects general performance of the business. This is even applicable to Tesco stores European Union (EU) the home of Tesco supermarkets. Some of this adverse macro environment Tesco is exposed to induce pressure on the management to follow their legislative condition in regard to labour. When it comes to employment legislation, most government do recommend retailer businesses to provide a mix of job opportunities (Clarke, Bennison and Guy, 1994). To be specific on this legislation, most government direct provision of employment ranging from flexible, lower paid and locally based jobs to highly-skilled, highly paid and centrally located jobs to the people within the business environment (Clarke, Bennison and Guy, 1994). Moreover, most legislation also dictates and insists on the business meeting the demand from the population categories such as students, working parents and senior citizens (Clarke, Bennison and Guy, 1994). In this regard, Tesco business considers all the legislative and directive option of individual environment both locally and internationally. To this effect it is noted that retailing business has a huge impact as far as jobs opportunities and people are concerned. This is by the fact that macro environment investment is seen to be having an objective of destroying local retail businesses (Clarke, Bennison and Guy, 1994). However, Tesco being an inherent and labour intensive sector do comply and hire more students, disabled and elderly employees. This normally saves on operation cost since these people are often paid at a lower rate (Clarke, Bennison and Guy, 1994). This is by the fact that in such an industry like Tesco with high number of employees, hiring such people assures their loyalty and is better than desirable employees (Clarke, Bennison and Guy, 1994). Economical environment This is environment contributing to factors that are of great concerns to Tesco Company. This is because, economical factors are mostly related to issues influencing demand, costs, prices and profits (Flavián, Haberberg and Polo, 2002). High unemployment level in most countries is the greatest influencing factor that affects economy. This is because; any negative effect on the economy has huge impact on businesses. This specifically affects areas like demand where the demand of many goods decreases. When the demand goes down, the manufacturers also reduce their production rates (Flavián, Haberberg and Polo, 2002). In real scenario, issue caused by negative impact on economy are mostly out of most companies control (Yip, 2004). Companies like Tesco do suffer economy related impacts precisely on areas of sales performance and marketing. Tesco is one of the companies that are highly depended on in the United Kingdom markets. This is because of the great contribution the business has towards revenue collected in the United Kingdom. Therefore, any adverse effect on economy relatively affects many other stock markets that rely on Tesco. However, currently the international business is doing great and growing gradually (Yip, 2004). There is high hope that in the near future Tesco shall be having huge contribution toward UK markets. Social cultural environment The current information reveals that Tesco Supermarkets in the UK have duly increased in quantity and variety of mostly non food items. This is due to the dynamic shopping trend by citizens of United Kingdom. Due to social changes and way of life, many people have dumped regular shopping culture (Acur and Bititci, 2004). The current society prefer single stop and bulk shopping to allow time saving for work and other business (Acur and Bititci, 2004). Due to this social change, business in Tesco is also altered. The company based in United Kingdom is now shifting from stocking grocery food to non food item. This is to ensure that their sales remain higher. They also try not to lose their customers to other non food items stores. The other socio-economic factor is age. The current demographic changes in the United Kingdom such as increasing aging population, increased female workers and decline in home meal population do affect business in Tesco (Finch, 2004). To this effect, it is clear that most people in the United Kingdom prefer value added products and services out sourced from the UK retailers (Finch, 2004). This means that in such a scenario, Tesco Company should join the mix and supply their products to fit the current demand. Such social changes if not well analysed could massively drive cost out of business (Finch, 2004). Finally, on socio-economic environment is the type of goods and services currently being demanded by customer’s matters a lot on the direction the business should follow (Ritz, 2005). This is a serious social conditioning that when ignored can result in, massive exodus out of the business. In such environment, it is important to respect customers wish and beliefs in order to maintain the sales. In today’s world, issue of health is very sensitive to people. To this regard many people are developing gradually different attitude towards some food types (Ritz, 2005). In these regard, Tesco was forced to adapt in delivering more of organic product mix in order to accommodate the increased demand for organic products (Ritz, 2005). In addition to this Tesco was the first supermarket company in United Kingdom that allowed people to pay their shopping bill through Cheques and also pay cash at the checkout (Ritz, 2005). Technological environment This is a major Macro-environmental variable which has played a key role in development of various Tesco products (Johnson and Scholes, 2003). Due to the emerging new technologies globally, Tesco did incorporate the emerging ideas to both boost the company business and also benefit its customers (Johnson and Scholes, 2003). It is realized that many people do embrace new technologies much more than old ones. Therefore for customer satisfaction, Tesco launched the Efficient Consumer Response (ECR) initiative (Johnson and Scholes, 2003). This technology was aimed at providing the shift that is currently apparent in the management of food supply chains (Johnson and Scholes, 2003). In addition to this, Tesco store in the United Kingdom still use the following technologies; wireless devices, Intelligent scale, electronic shelf labelling, self checkout machine and radio frequency identification devices (Johnson and Scholes, 2003). All this technologies have greatly accelerated sales transactions in Tesco stores. Furthermore, Tesco also introduced Electronic Point of scale (EPoS), electronic scanner and Electronic Fund Transfer (EFT) which are very instrumental in distribution and stocking activities among various Tesco stores in UK (Johnson and Scholes, 2003). Environmental factors Considerably, there is need for companies to acknowledge the larger community nearby their business. Companies have society responsibility and they have to operate in a way that the general society will benefit (Johnson and Scholes, 2003). When it comes to food business, the most food threatening considering factor has always been environmental issues (Johnson and Scholes, 2003). In regard to Tesco’s, this consideration is factored in corresponding to broad ethnical stance. Their regulation and corporate governance has concerns on the social environment aspect and have even exceeded the minimum obligation (Johnson and Scholes, 2003). Authorities have passed a regulation that will see advertisement made by Tesco on fatty unhealthy food heavily taxed in the name o protecting the environment. This is how environment can affect customer-supplier business relationship (Johnson and Scholes, 2003). Legislative factor This is a common factor than affect most business companies. Tesco’s being a business company is also broadly affected by government legislation and policies (Johnson and Scholes, 2003). It is known that tough legislation may impose negative implication on business performance Tesco. To make the matter worse, Tesco being a food retailer, there are serious adverse rules and policies implied to such businesses. In United Kingdom, the Food Retailing Commission (FRC) came up with a code of practice which banned most of the practices food stores were engaged in (Johnson and Scholes, 2003). This code included payment of money by suppliers and agreeing on changing food prices retrospectively or without notice (Johnson and Scholes, 2003). These are conditions that are very tough to business since the core objective of any business is to generate profits. The government legislative policies for monopoly controls and reduction of buyer’s power can flatly limit business entry to such sector due to access to raw materials (Johnson and Scholes, 2003). Micro-Porters 5 Forces In United Kingdom, the grocery market is vastly dominated by big companied that pose competition to Tesco. They include; Asda, Sainsbury’s and Safeway which altogether share a gross market of about 70% while the rest is consumed by other small scale groceries (De Toni and Tonchia, 2003). It is noted that in the United Kingdom the most groceries markets have been transforming and gradually evolving into supermarket dominated business over the past 30 years (De Toni and Tonchia, 2003). This has vastly been accelerated by the way of life for people in the UK; the one stop bulk shopping trend. This is what has even enabled big business like Tesco to grow vastly in this sector. This capability of having everything in one roof is a threat to smaller shops like butchers bakers and many others (Graiser and Scott, 2004). Due to this effect, businesses like Tesco which have established and developed much makes it difficult for new companied to enter in the same business field. To reach the level of Tesco, a company need to have huge investment capital. Furthermore, the chain of supply has really developed and the technologies used by the existing companies are very advanced for new entrants to cope up with (Graiser and Scott, 2004). The other barrier is the economy scale and differentiation primarily in the provision of products or services with a higher perceived value than the other competitors (Graiser and Scott, 2004). Bargaining power of customers Porter theorized that the more the products become standardized or undifferentiated, the lower the switching cost and hence more power is yielded to buyers (Drejer, 2000). Introduction of the famous Tesco loyalty card was one of the greatest and successful interventions Tesco Company came up with. The strategy is meant to ensure that customer’s retention was very high. This has really helped Tesco business Company increase their profits significantly. Notable to mention is that, Tesco also factored in their strategies customer services (Drejer, 2000). This customizing service aimed at enabling customer’s needs at any point to be met. Furthermore, Tesco also introduced low prices, better variety of choices and constant flow of in-store promotions (Drejer, 2000). All this strategies helped brand like Tesco to not only control but also dominate and retain more and more customers throughout United Kingdom. Tesco also developed an online distribution channel in the year 1990s (Drejer, 2000). This was a big move that was aimed at expanding non-store retailing throughout United Kingdom. The online channel was promising since at that time online usage was growing to be very popular among British consumers (Drejer, 2000). Tesco was expecting large growth potential when consumers embraced the idea. Furthermore, Tesco became the first retail to operate online by offering to customer’s robust home shopping service (Drejer, 2000). This also resulted in establishment of Tesco.com, an online platform that made it possible for customers to access Tesco store products online. This is even more accelerated by the fact that many people in United Kingdom prefer shopping everything in the supermarkets. To supplement this demands, many supermarkets in UK including Tesco had to change their initial working plan. This forced Tesco to expand business and introduce non food items (Drejer, 2000). To add on this, market also strategized on including pharmacy and banking services near their customers (Drejer, 2000). This has ensured that all customers complete their shopping under one roof, Tesco. Threats of substitutes There have been threats of consumers shifting to alternative service providers (Anon, 2004). This would result in huge reduction in demand of various products affected. For Tesco which deal mostly with grocery, such shifting and substitute of need cannot last long. This is because of the trend in which small chains of convenience stores are emerging in the industry (Anon, 2004). To overcome this, Tesco and other big company had to develop strategies to eliminated substitute of shifting. This has been accomplished by Tesco opening other smaller branches like Metro and Express stores in local and rural areas (Anon, 2004). Bargaining power of competitors Larger players have been significantly growing at and steady manner in the grocery field. This is because it is easy to grow in market and company size when dealing with consumables like grocery. The other reason for Tesco progress is the fact that they are able to communicate with their consumers, retain consumer information and increasingly supply their consumers with their requests. Competition in the grocery field is very tight in United Kingdom and most grocery retailers depend on innovative ideas to maintain and build their market shares (Veliyath and Fitzgerald, 2000). This adverse competition has resulted in growth and development in the field. Moreover, big markets like Tesco do carry out various researches and respond quickly to consumer’s demands including their dynamic behaviour (Veliyath and Fitzgerald, 2000). Moreover, large markets have taken great caution when determining market prices of commodities as much as they focus also on adding value to their services (Veliyath and Fitzgerald, 2000). Due to this adverse competition, Tesco came up with plan to ensure that their customers are retained and have access to every product inside Tesco supermarkets. To this effect, Tesco started diversifying into other areas despite having been specialized on food items only. They brought in non-food commodities like clothes, electronics, financial sales, internet services and many other services (Veliyath and Fitzgerald, 2000). This ensured that all customers entering Tesco shops there and this minimised competition with other businesses. Analysis of the internal environment Core recourse and core competence The main focus of Tesco is Hypermarkets (MarketWatch, 2004). In reference to resource and competence of Tesco Company, the main focus is on the SWOT analysis and the explanation of key issues (MarketWatch, 2004). These issues involve major capability of the external and internal business environment which would result in strategic development process (MarketWatch, 2004). In regard to Tesco, the strength of the company is that the company is ranked 3rd largest grocery retail Company in the whole world (MarketWatch, 2004). This is by the fact that according to 2010 rating, the company had holding worthy of 30.7% of United Kingdom general grocery market (MarketWatch, 2004). Moreover, the company has been registering tremendous increase in profit and has never suffered much of the recession. However, there are no markets in the world without challenges facing it. The records have shown that Tesco Company also suffers various weaknesses. To begin with, in the year 2009-2010, Tesco Company had been struggling to perform as compared to its financial records of the previous years (Veliyath and Fitzgerald, 2000). This was to maintain their standard and strategize to offer strong competition with its rivals. The development of so many strategies to favor customers has also affected the company to an extent of registering huge loses (Veliyath and Fitzgerald, 2000). These were strategies Tesco came up with to outdo their competitors like ASDA and Sainsbury’s. However, cheap is very expensive, at that time, Tesco’s competitors who focused more in offering quality products gained more profits as Tesco lost (Veliyath and Fitzgerald, 2000). Core competence This simply refers to the ability of a company to understand the activities which may be considerably performed well to achieve competitive advantage (Balchin, 1994). In this regards, the degree of competence in Tesco Company is great. This is by the fact that they have been able to distribute their services and spread their business to variety of markets and environment (Balchin, 1994). Under competence, Tesco has been successful on providing to its customers significant contribution in terms of the benefits of the outcome (Balchin, 1994). Finally, Tesco has been able to develop framework that makes it difficult for their competitors to imitate, help create new products and services, identifying new markets and in product differentiation (Balchin, 1994). All this capability simple demonstrate how competent Tesco Company is and how they have ability to frame new strategies. Value Chain Analysis This openly describe the categories of activities within and around an organization, which together creates a product or service (Lindgreen and Hingley, 2003). Notable to mention is the fact that value chain analysis is composed of major primary activities which are very essential in describing the internal environment within a business company. Moreover, value chain analysis is a very essential tool which is mostly employed when strategically evaluating value adding processes in a company (Lindgreen and Hingley, 2003). This is fundamental when pointing out company’s strength and weaknesses. (Lindgreen and Hingley, 2003) It is prudent to mention that value chain analysis bears a concept that aid in decision support tool. This in regard to Porters value chain, primary activities basically include inbound logistics, operations, outbound logistics, sales and marketing services (Lindgreen and Hingley, 2003). Moreover, there are secondary activities included in value chain according to Porters plan. They include; procurement, human resource management, technological development and infrastructure (Lindgreen and Hingley, 2003). Analysis of PR crises One of the major public relation (PR) crises that faced Tesco Company is the saga with the Nexus communications/CorpComms magazine reporting (Lindgreen and Hingley, 2003). In addition to this, Tesco has also been identified to be using short cuts to achieve huge profits. This is evident in the horse meat scandal. In this incident, over 20 Kg of minced meat found with label of Tesco and in their shelves were determined to be horse meat instead of beef (Lindgreen and Hingley, 2003). The information which came from the Media of UK reported confirmed evidence that the National food safety authority identified horse DNA in the beef burger products. These were products that were sold by Tesco in UK and Ireland. Tesco technical management team also confirmed the truth of the information but moved in so fast to offer apologies to their customer. This was a big blow to the company. Despite the company maintaining 30% of its market share, they terribly dropped in profit making due to this scandal whereas their competitor increased (Lindgreen and Hingley, 2003). They were forced to withdraw sales from the supplier in question and launched investigation on the issue. Strategic Analysis Business strategies Tesco has a number of strategic analyses. In general, Tesco is associated with three different levels of strategies associated with organization (Palmer, 2004). In regard to the levels, the top most level is referred to as the corporate level strategy (Palmer, 2004). Under this level, the main focus is alarmed with the main and overall purpose and extent of the organization. Second on the rank is the business level strategy (Palmer, 2004). This is directed in exploring on specific markets. Moreover, the business level is also tasked to research on how best the company can compete successfully within the new markets (Palmer, 2004). The third level is referred to operation strategies. This simply targets in ensuring that the company delivered its services successfully (Palmer, 2004). Generic strategies These are strategies that are generally characterized by individual retail response to the industry structure (Lindgreen and Hingley, 2003). Tesco being a giant retailer, the company has to develop more than three generic strategies that will help them sustain and survive in the competitive world. Cost Leadership strategy is the first to be considered by such gigantic company like Tesco (Lindgreen and Hingley, 2003). To expand on this statement, Tesco have to develop strategies that will rank them as the lowest costing grocery retailer in United Kingdom. However, it is not easy to maintain that low price. Tesco Company has to achieve this by ensuring that they control their operating costs so well to allow them price their products competitively (Lindgreen and Hingley, 2003). This should also ensure that despite having low prices, they should also be generating very high profits to obtain a higher competitive margin (Myers, 2004). The other strategy is differentiation. This is the capability of Tesco to offer products and services to customers that are unique and most valued (Myers, 2004). This should be accomplished by the ability of Tesco to create brands loyalty for their offering and thus price inelasticity on the part of buyers (Myers, 2004). Moreover, other features symbolizing advanced company differentiation include use of special features like technology advancement and product offering (Aaker, 2009). Implementation modes When it comes to market developments through partnership and diversification, Tesco will employ the joint development and strategic alliance. Under this alliance, Tesco will jointly enter new markets like in China and Japan (Thomsen, 2004). This is because the alliance will be purely symbiotic. As much as Tesco will be expanding its markets, the joint partners will also be inviting economic growth driver in their countries. This will increase revenues and expansion for both the company and the host country. The Asian market is a hot spot for Tesco. This is because countries like Japan and others are demonstrating high rates of consumer spending and increased trend toward retailing (Thomsen, 2004). To competently fit in such new markets, Tesco must include an extensive local knowledge and operating expertise of the partner. In such partnering, Tesco should take the role of delivering its own supplies, product development, store operation and delivery skills (Thomsen, 2004). However, permanent success will depend on three key areas. They include the ability of Tesco to facilitate sustainability, acceptability and feasibility (Thomsen, 2004). Final suggestions It is clear that Tesco is developing at an alarming rate; it is prudent that the management realized that the company is built around customers and colleagues. To this factor, it is necessary for the management to always follow the company vision guide precisely when making decision. There is need for the company to give customers first priority and value them more to maintain their loyalty. Openness and honesty is one treasure attribute consumers seek from businesses. The openness portrayed after the horse meet scandal assure customers and the company only suffered light loss and recovered back to its feet. When it comes to generic strategies, it is important for the organization to fully desist from employing all the three strategies at once. This is because it will result in a situation known as stuck in the middle. Conclusion The broad success of Tesco Company broad has been developing gradually. It is clear that the brand Tesco has developed from very far. It is also evident that in business, competition should be embraced. All companies need not t fear competition or quit from competition. The most important thing is to be innovative and develop strategies that will be outstanding and unique among competitors. In summary it is important to mention that Tesco is currently one of the largest companies in the world. In addition to this, Tesco has also been declared to be on of the most popular brands globally. Up to date, the company still values and considers decision from consumers. The company has also been successful in fitting to whatever social structure including the current culture of one top shopping system and many other social changes. References Aaker, D. A., 2009. Brand portfolio strategy: Creating relevance, differentiation, energy, leverage, and clarity. New York: Simon and Schuster. Acur, N., and Bititci, U., 2004. A balanced approach to strategy process, International Journal of Operations & Production Management, Vol. 24 issue 4, pp.388-408. Anon, 2004. Case study IV: Tesco implements the business engine network to gain full control of its IT project portfolio. Journal of Database Marketing & Customer StrategyManagement, Vol. 12 Issue 1, pp.66-73. Balchin, A., 1994. Part-time workers in the multiple retail sectors: small change from employment protection legislation? Employee Relations, Vol. 16 Issue 7, pp.43-57. Clarke, I., Bennison, D., and Guy, C., 1994. 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Business Review, Vol. 11, April, pp.22-23. Veliyath, R., and Fitzgerald, E., 2000. Firm Capabilities, Business Strategies, Customer Preferences, and Hypercompetitive Arenas: The Sustainability of Competitive Advantages with Implications for Firm Competitiveness. Competitiveness Review, Vol. 10 Issue 1, pp.56-82. Yip, G., 2004. Using Strategy in Change Your Business Model, Business Strategy Review. Summer, Vol. 15 Issue 12, pp. 17-24. Appendices (APPENDIX A) Business trend of Tesco (Flavián, Haberberg and Polo, 2002) (APPENDIX B) Analysis of the internal environment (MarketWatch, 2004) Read More