Strategic Management of Tesco Supermarket - Case Study Example

Strategic Management of Tesco Supermarket By + INTRODUCTION The biggest retail market in the United Kingdom (UK) is owned by the food and drink industry, which in turn provides employment for over 3 million citizens. This impressive trend has been attributed by similar food and drink industries shifting their strategies and embracing technology such as Tesco’s Club card, which has had a welcoming reception among shoppers in the UK and beyond. In 2010, the retail sector contributed 11% of the gross domestic product (Fraser & Debenhams (n.d.). Many families have found solace in such corporations as employees in retail, primary production and manufacturing sectors. In the past decade, supermarkets have been under deep scrutiny with regard to how they treat suppliers of own-label products even though this strategy has been in play for a while now. This report examines the rise and rise of Tesco supermarket that has developed robust strategies to book its name on the top cream of the most efficient supermarkets in the UK and worldwide. It focusses on three main sections namely: strategic analysis, strategic development and implementation. Throughout the past two decades, Tesco has catapulted its way to the top of the food chain as the most popular grocery supermarket in the UK and always among the top five in a global perspective. In Tesco’s quest to build a strong foundation in information technology, this has perfectly matched their customers’ wants and needs. 2. STRATEGIC ANALYSIS 2.1. Profile of the industry, sector, competitors, consumers & company Tesco is one of the leading foods and general merchandizing retail company globally, in both size and market share. It is UK based and operates in 2318 outlets with an employee base of over 326,000 personnel (Palmer & Mark, 2010). It owns an online service platform, which provides a convenient base for electronic services. The online platform is governed by its subsidiary via the website Tesno.com. The UK is the company’s main hub of business and carries out its operations under six banners namely: Express Stores, Metro stores, Home Plus stores, Super stores, One-stop stores and Extras stores. The company not only manufactures and distributes over 40,000 food products but also clothing and other non-food lines. Fifty percent of the company’s sales come from own-label products which feature at three stages: value, normal and finest. Many stores in the UK also have gas stations in the proximity, making Tesco the leading independent petrol retailers in Britain. They have also venture into financial service industry under the slogan Tesco Personal Finance. Tesco was founded in the year 1919 in London. It is regarded as the largest retailer in Britain and the third largest in the world with reference to profits. For instance, Tesco had group sales of $95.1 billion in the year 2008, an 11.1% leap compared to the previous year. It has been at the forefront of UK grocery market for over twenty-five years (Palmer & Mark, 2010). Its success is attribute to the introduction of the Tesco Club card, its online–selling and their move into non-food items. Tesco has a wide range of competitors on one hand and a huge following in customer numbers as well. The challenge is retail market competition, which intensifies as it expands. The company’s main focus is to offer the customers their preferences, whenever they want them so as to build trust and loyalty (Goodwin, 2009). With the increasing geographical presence, Tesco currently operates in thirteen countries around the globe that is seven in Europe with UK included; Poland, Turkey, Hungary, The Republic of Ireland, Slovakia, Czech Republic, in the United States of America and in five Asian nations; Japan, Malaysia, Thailand, South Korea, and Taiwan. The company’s performance is highly swayed by the political conditions of the countries it operates in, including the EU. Tesco enjoys a twenty-eight percent (28%) market share, trailed by ASDA’s fifteen percent (15.2%), then Sainsbury’s fourteen percent (14.3%) and lastly Morrison’s ten percent (10.4%) . After Somerfield merged with the Cooperative, the group currently has 8% market share in which Cooperative has 6.3% and Somerfield is at 2.7%). Other UK chains of supermarkets are Waitrose, M&S, Iceland, and so on (Finch, 2008) The company is bound by government legislations with regard to employment in which the government encourages the retailers to strategically offer mix of jobs to its citizens to the perspective of specialized, highly-paid from the traditional lowly-paid and locally-based jobs (Finch, 2008). This is a strategy put in place to meet population demands for students, employed parents and the elderly. On the contrary Tesco has always opted to employ many elderly people, students and the disabled since they have high levels of loyalty hence desirable. Tesco has supported its universal growth with the revenues of its UK operations since the country has largest retail chain and also the oldest. Nevertheless, competition is a key factor that has fuelled this. The UK market alone is majorly flocked with same niche competitors such as Asda, Sainsbury’s, and Safeway that commands a 70% market share. The rest of the competitors, even if small scale, still prove to be competition. The likes of Somerfield, Budgens and Waitrose have a 10% market share (Seth & Randall 2011). The grocery market has changed into the supermarket-dominated industry. A large proportion of large chains have generated their prowess because of operational efficiencies, online presence, marketing-mix expenditure and one-stop shopping in which all commodities are available under one roof. This powerful force has transmuted into a sheer spread of related business which have sprawled all over the neighbouring supermarkets such as small kiosks, butchers, bakers and upcoming grocery shops. Hence, in this day and age it possesses a huge obstacle for novel companies who wish to enter the grocery market. For instance, it becomes relatively difficult for new competitors to raise ample capital because of highly developed supply chains and large fixed costs (Seth & Randal, 2008). Evidently, the massive investments pumped in advanced technology by large chains, such as Tesco, for sales counter and stock control systems have had the same impact to both new entrants and the existing ones. Other hurdles include differentiation in which the main line companies produce goods and services and sell them for highly than the completion. With economies of scale blended with differentiation, it has proved to be a major milestone for Tesco and Asda as perceived in their aggressiveness in better distribution and promotional activity (Howker, 2009). 2.2. Organizational purpose The vision, mission and values of Tesco are clearly outlined in their periodicals but it begs the question if the giant company follows them to the letter. However, companies like Tesco, which have been reaping long-term success benefits, prove that their focus is never refracted. Their vision is has always driven them to the heights the company’s forefathers jotted down in historical books and by remaining constant in deeds their business strategies have paid off well. This is evident with the fact that the company continues to blend with the changing world (Felsted & Andrea, 2010). With no clear vison, a business may not pick up like projected from the onset due to competitive global environment and wither along its way to glory. With a seven-part business strategy, Tesco has and will always achieve its objectives both in short and long term projections. A vision is an aspiring view of the destination of a business. It offers a benchmark for the achievements a business would like to conquer. Tesco is a multi-billion dollar company with a foundation put up around customers and colleagues. Its focus is its vision, which illuminates the organization’s direction, and the strategic decisions it creates. The vision statement of Tesco reads: ‘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’ (Felsted & Andrea, 2010). Tesco’s vision statement is paraphrased into five sub- elements, which defines the kind of company it desires to be. These include: A growing business, full of opportunities Modern, innovative and full of ideas Wanted and needed around the world Winners locally whilst applying our skills globally Inspiring, earning trust and loyalty from customers, our colleagues and communities. The vision, mission statement together with the desired goals are correlated since they all connote what an organization works toward achieving whereas the strategies and procedures show how it will attain them. Tesco’s mission is simple: ‘We make what matters better, together’ (Hall & James, 2010). As soon as goals are established, service areas within a business then develop department-based strategies to ensure goals are realized. The vision pushes the business and the values are entrenched during the course of the strategic planning process. Whereas a vision outlines the objectives of high-ranking managers, a mission statement is an overall expression of the inclusive purpose of the business. It interconnects the goals of a company to all stakeholders. The vision ought to motivate all stakeholders and inspire employees towards accomplishing its stated goals. If well prepared, it should sway customers towards the business, as well as suppliers and external shareholders of its sincerity and pledge to them. Tesco’s management identifies the significant roles that its mission, vision and strategies play in its achievements and use a variety of key performance indicators (KPIs) to monitor and gage its performance (Freckleton, 2006). The values that Tesco has are vital to its success and they stand by them in a practical manner. For instance, the community-based global business formed by them called Tesco 18 Image 5Tesco to aid in Corporate Social Responsibility (CSR) activities is at the core of its operations. Tesco works with communities and helps it stick out from its competitors. Its obligation to using its scale for good is proven by its ‘Three Big Ambitions’: to create new prospects for millions of young people around the world, to improve health and help curb the global obesity crisis and to lead in decreasing food waste internationally. These are reinforced by ‘The Essentials’ of Tesco: we trade responsibly, we are reducing our impact on the environment, we are a great employer, and we support our local communities (Hall & James, 2010). For the first time in 20 years of operation, Tesco first dropped its profits in 2013. The decline was attributed to competitors closing in on the market share and this trend might creep further into this year. Revenues dropped and this was a tumultuous one for Britains main supermarket. Tesco reported its poorest performance for 20 years, with a 3.7% decline in sales in the first quarter of 2013. Analysts still question whether Tescos supremacy in the market will come to an end (Clark, 2014). With reference to ROCE, Tesco has always possessed the required margin of safety for the past 5 years and this makes them comfortable generating positive ROCE beyond high rates of interest and inflation. Tesco clocks have a high average ROCE of above 100% and continue to be economically stable (Rigby, n.d). Strategy, vision, values, and objectives are worthless if their effect is not supervised and evaluated. Tesco uses a variety of methods to collect data and assess evolvement against goals. It uses its Club card scheme, together with phone based enquiry and an online panel of consumers, to know what customers need and how gratified they are with Tesco’s performance. 2.3. External and internal environment There are several factors that influence the external and internal environment of a business either positively or negatively. It is the mandate of the stakeholders to use the factor for their advantage in a timely fashion (Rigby, n.d). These factors include; political factors, economic factors, legal factors, environmental factors, social/cultural factors and technological factors. With reference to PESTEL and SWOT analysis of Tesco, the below factors are examined individually so as to encompass the position Tesco holds currently within the market compared to its competitors 2.3.1. Political Factors Tesco operates in a wide geographical area and with this in mind, different regimes put legislative measures and restriction to them so as to reap some benefits from their operations In the 13 countries they operate, Tesco is highly regulated (Newman, n.d). The company has to create employment, perform CSR activities and supporting communities. 2.3.2. Economical Factors Economic factors have always been a concern to Tesco since they definitely affect costs, demand, prices and profits. The most dominant factor on the economy joblessness, which shrinks the effective demand for goods, and badly affecting the demand needed to produce such goods (Seth & Randal, 2008). Such economic factors are almost out of the company’s control but they adversely affect the performance and market trends of a company Even though Tesco’s overseas businesses are still flourishing, any decline in the UK business can adversely affect their international trade since the foreign businesses largely depend on the UK food-retail business. 2.3.3. Social/Cultural Factors Presently, British customers have shifted to one-stop and bulk shopping. This is due to social changes. For instance, the increase in the aging population, female workers and decline in preparation of home cooked meals. This has prompted Tesco to focus on non-food items as well as added-value products and services. The sort of goods and services needed by consumers is a social conditioning function and the resulting consumer’s attitudes and beliefs (Fraser & Debenhams, n.d). 2.3.4. Technological Factors Technology is a key macro-environmental variable that impacts on the development of Tesco products. The innovative technologies have benefited both Tesco and their customers. Consequently customer satisfaction increases because goods are always available. Some of Tesco’s innovations include Wireless devices such as intelligent scale, electronic shelf labelling, self-check-out machine and radio Frequency Identification (RFID). 2.3.5. Environmental Factors The key societal issue intimidating food retailers has always been environmental issues, a key area for businesses to act in a socially responsible way. Hence, Tescos CSR is apprehensive with how a groups exceed the minimum responsibilities to stakeholders identified through regulation and corporate governance. 2.3.6. Legislative Factors Many government legislations and procedures have a direct influence on the performance of Tesco. For example, the Food Retailing Commission (FRC) recommended that an enforceable Code of Practice ought to be established to ban many of the existing practices, such as altering agreed prices retrospectively and demanding payments from. The presence of dominant competitors with recognised brands forms threat of extreme price wars as well. 3. STRATEGIC DEVELOPMENT 3.1. Success of Strategy With focus on the UK markets, Tesco maintains a transnational strategy. It also maintains a cost reduction pressures, specifically from their consumers. This is the best plan for companies and the right strategy for Tesco. Consequently, it is critical for Tesco to stay in the local market so that it juggles between customer demands and cost pressures specifically from their consumer’s perspective. This will in turn offer low prices to their products, as a theoretical strategy to help the business grow and develop while upholding their high position in the supermarket business (Howker, 2009). It is easy to note the achievements of Tesco’s growth and development explicitly in Asia and Europe, by monitoring their company’s subordinate skills. Tesco’s risk of implementing a new business developmental plan in the US has cost the company considerably. The company may have had better success in the US market if they linked up with a supermarket chain in the US and restructure the business to the Tesco’s supermarket model. Tesco’s key success factors are contributed by three main strategies. These include having strong brand, IT integration and supplier management. The company sells its brands through packaging and is connected with good quality, reliable goods that represent first-rate value. (Friedlos & Dave, 2006). In a scale of 1 to 10, the below is comparative analysis between Tesco and its main rivals in the UK grocery industry. CSF Sainsbury’s Asda Safeway Branding 10 8 6 IT Integration 8 7 6 Supplier Management 10 6 8 Total 28 21 20 Fig 3.1: Comparative analysis of Tesco and main rivals The above analysis show that the main threat possibly originates from Sainsburys that has a strong brand name and cautiously picks and controls its suppliers. With reference to Ansoff Matrix, Tesco should embrace this strategy since it is thorough and examines a firm’s performance in the long term. As shown in the figure below, it is a strategic planning tool, which connects all organizational strategies of marketing with its general strategies. These are represented in a 2 by 2 matrix and penetrate both the new and existing markets to examine what products can best sell in one market than the other. Fig 3.2. Ansoff Matrix (Dave, 2006) 3.2. Human Resource Management Tesco employs over 380,000 people worldwide, with 260,000 working within the UK making it have the largest private sector employee base (Hall & James, 2010). This shows that the company highly regards human resources management and as part of their core proficiencies to assimilate a geocentric policy for the company. By managing a big number of workforces due to their developments across the globe, it was required for Tesco to retain a significant number of employees, as each store involves many employees to support daily operations efficiently. Part of their management method is to make sure supervisors know the main details of their niche markets, which is very important when an international branch is opened (Howker, 2009). This ensures that the familiarity with the local knowledge of a new market is realised within the Tesco’s daily resources. For the company to function at its present pace and size, it has been forced to employ personnel in five key areas of business, which include, store administration, site location experts, marketing and financial workforce, supporting and sustaining transnational operations. These sectors are crucial for Tesco to inaugurate success in many differentiated cultural markets of their commerce 4. IMPLEMENTATION 4.1. Which Market’s to Enter and When: Tesco should inspect underachieving stores in hopes to purchase them for possible revenue growth. Mainly by conquering favourable markets where the economy is steady and the political environment is secure. Tesco will frequently enter a market prematurely but will only bargain and purchase at the markets bottom selling point, to increase their turnover (Finch, 2008) 4.2. Supplier Management Tesco imports most of its goods from abroad since the manufacturers are price and volume competitive. The company has supported employment of many British families and encouraged other brands to develop high-class production facilities as well. However, Tesco found it necessary to import products not found easily in the UK from abroad through well-established partners. This creates a unique relationship with the suppliers and heightens efficiency. Tesco has close associations with its suppliers trusting that fixed and long term orders uphold the investment necessary to improve the supply chain. The international company also develops several supplier management programmes to study vital suppliers and franchisee satisfaction. The firm also engages in the Ethnical Trading Initiative. (Barnes, 2011) The below chart shows the key actions, timings and milestones that are some of the key performance indicators put into play by the company to assess customers and market trends. Activities Possible Start Length Type Supporting Local Communities Month 1 2 weeks Sequential Buying and Selling Products Responsibly Month 2 3 weeks Parallel Creating good jobs and careers Month 1-3 8 weeks Parallel Providing colleagues and customers with healthy options Month 6-9 12 weeks Sequential Fig 4.1: Tesco’s key actions, timings and milestones (key performance indicators) (Mark, 2011) 5. CONCLUSION Tesco is one of the principal retailers in a global perspective. This achievement has not come about by gamble but is the end result of effective leadership and management. Their clear vision, mission and practical core values have played a central role to Tesco’s success. Furthermore, it has been supported by an obligation to establish and monitor definite objectives and devising plans to ensure these are realized. All phases of the business are frequently monitored and, when necessary, strategies are adapted to ensure objectives are eventually met. At the core of all activities carried out by the company, Tesco is a commitment to being a reliable retailer. This is proven through its application of its ‘Three Big Ambitions’ as well as ‘The Essentials’ to analyse how it is using its scale for good. Every judgement made considers these areas to ensure customers, communities, contractors and staff are treated equally and with respect. Tesco’s values reinforce all that Tesco does and, in turn, keeps clienteles satisfied with their shopping experience and loyal to the brand (Clark, 2014). Bibliography A mortgage from Tesco? Supermarket finance. (A retailer branches out). (2008, October 4). The Economist. Barnes, R. 2011. The great Tesco beauty gamble (the Tesco supermarket chains marketing strategy for breaking into the UK beauty services market). 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