Tesco and the Supermarket Industry in the UK - Assignment Example

TESCO AND THE SUPERMARKET INDUSTRY IN THE UK By Date Question 1 Strategic Purposes Tesco is the largest supermarket by both domestic market share and global sales in the UK. The giant retail chain operates in general merchandising, groceries to name a few. The retail chain’s core strategic purposes include: To be a successful retailer internationally: Tesco has over the years been investing internationally while at the same time accumulating long-term returns and securities for its shareholders. Currently, the retail chain is in over 13 markets globally with plans underway to open 6-8 multi-brand stores in India. Thus, to achieve its international strategy Tesco has evolved a six component strategy encompassing: being flexible in Japan, Acting local in Thailand, maintaining focus, developing capabilities, building brands and using multi-formats from convenience to hypermarkets (Telegraph.co.uk, 2014). To grow the core business in the UK: the UK market has over 2200 stores, which account for about 70% of Tesco’s sales and profits. Thus, the retail chain plans to maintain its unique store formats strategies in UK that includes Express, Superstore, Metro, Homeplus and Extra. To gain strength in non-food as in food sector: Tesco’s broad range of non-food items are in Homeplus and Extra stores that include health, beauty and clothing, stationery, soft furnishings among many others. Moreover, the retail chain introduced 13,000 products through Tesco Direct an online catalogue platform. To develop retailing services such as Telecoms, Tesco.com and Tesco Personal Finance: The customers of Tesco are different and have different needs, which are changing from time to time. Therefore, to cater for the changing preferences, the retail chain has devised new ways to help their customers to shop. For instance, Tesco.Com has enabled the retail chain to attract over one million consumers since the year 2010 in the UK with the main focus targeted on groups of people or customers who have no access to transport or those without shopping time. On the other hand, Tesco Personal Finance provides customers with a choice of about 28 products ranging from credit cards, savings account and car insurances (Telegraph.co.uk, 2014). Putting community at heart is what the retail chain does: Tesco’s core purpose according to tescoplc.com (2014) is that, “Our core purpose is to create value for customers to earn their lifetime loyalty.” Our values, which underpin everything we do, are that no-one tries harder for customers and to treat people how we like to be treated” (Telegraph.co.uk, 2014). Therefore, as per this value the company envisages to meet the customer’s needs first than any other retail chain by understanding them and their needs. Moreover, the retail chain advocates for teamwork, trust and respect, sharing of experience and knowledge while listening and supporting the customers. To use the retail chain’s scale for good: through this core strategic purpose the company envisages to create new opportunities for the millions of young people globally. Moreover, the retail chain envisages to lead in the reduction of food wastage in the world, in addition to, encouraging and helping customers and colleagues to live better and healthier lives, hence, helping tacking the crisis of global obesity (Telegraph.co.uk, 2014). Question 2 Industry Analysis For the purpose of this paper Porter’s Five Forces analysis is used to analyse the external environment of the UK supermarket industry in which Tesco operates. Threat of new entrants: The UK food retail and grocery industry is dominated by already established retail chains such as Asda, Morrisons and Sainsbury’s that have already captured the food retail market; serving about 80% of all the UK shopping. However, given the huge amount of capital investment that is required to set-up a competitive retail chain to match the existing retail chains, therefore, the threat of entry of new firms into the food retail and grocery industry is relatively low. Moreover, new entrants will require to comply with regulatory mechanisms in the market as well as making long-term plans, which will take a long time to come up with. Finally, given the strong brand names of the existing retails chains that has earned them loyalty from customers because of their superior strategies and policies, then the threat of entry of new firms into the supermarket industry is relatively low (Freeman, 2010). Threat of substitute products & services: the threat for the substitute products is relatively low in case of food items and medium for non-food items. The only threat comes from small chins stores that are considered more convenient but these do not pose major threat to big retail chains like Tesco. Moreover, Tesco is establishing more of such small, convenient stores in remote areas to provide convenient transportation services to its customers (Prospects, 2013). Competition among existing retail chains: Competition is one of the major challenges that faces firms in any industry. The level of competition among the existing retail chains in the UK supermarket industry is relatively high because there are many chains with strong policies and huge capital investments. For instance, Asda, Morrisons, Sainsbury’s and Waitrose are great threats to Tesco in the UK. These retail chains are trying to penetrate into Tesco’s market share by offering competitive prices, which have resulted to price wars and through aggressive advertising strategies to create more brand presence in the market (Datamonitor, 2011). Therefore, Tesco needs to capitalise to on its competitive advantages to maintain its strong presence in the market. Bargaining power of buyers: the threat of bargaining power from buyers in relatively high in the UK supermarket industry because consumers have the option of switching from one retail store to the other at no cost if, for instance, they find one chain with lower product prices (Leonard, 2009). Therefore, Tesco faces threat of bargaining power of buyers and has to offer competitive prices for its products. Bargaining Power of suppliers: the threat of bargaining power from buyers in relatively low in the UK supermarket industry because the big retail chains like Tesco, Asda, etc. have direct contact with the suppliers, which makes them afraid of losing contracts with the retail chains. Therefore, Tesco faces no threat of bargaining power from suppliers (Leonard, 2009). Question 3 Resources and Capabilities A company can only be able to sustain its competitive if it has unique and valuable resources, which are rare, non-substitutable and non-imitable that it’s using to create a valuable strategy that is unique from those of competitors. Resources Resources can be categorised into tangible and intangible resources. Tesco’s most valuable intangible resources include the retail chain’s reputation/strong brand name, employee know-how and the reputation of its products. Others include wide knowledge base of the retailing industry, wide consumer information, and service innovations like 24hr opening. On the other hand, the company’s tangible resources include a strong financial base despite the current account scandal, which has led to a fall in half profits by about 92% in 2014 (Telegraph.co.uk, 2014). Moreover, the retail chain has over 270, 000 employees with a retention ration of about 84.1 % implying a strong experience and know-how for the company. Moreover, this implies the retail chain is taking good care of its staff, which sends a good image to consumers and eliminates chances of their skilled employees joining rival retail giants. That notwithstanding, the company has many retail unique store formats spread across the UK with brand of the company on them, which include Express, Superstore, Metro, Homeplus and Extra (Telegraph.co.uk, 2014). Capabilities As already stated above, a company with unique and valuable resources stands in a better position to create capabilities, which can give it competitive advantage over the rival firms in the industry. Thus, some of the notable strategic capabilities Tesco has gained and developed from its strategic resources, which have enabled it create competitive advantages include: Branding and reputation: Tesco has been expanding rapidly over the years by working hard to ensure it differentiates its products from those of competitors through packaging and promotional activities. Moreover, with the introduction of club card system, Tesco has been able to gather valuable information concerning their consumers and their spending behaviours, which has enabled the retail chain to respond to customers’ needs in a timely manner (Euromonitor, 2012). IT and Knowledge integration: Over the years Tesco has always been ahead in using technology to provide innovative products and services to its customers. For instance, the retail chain has elaborate systems that enable it to serve customers, allows customers to make orders and helps the company to record valuable information about their customers. Moreover, due to integrated knowledge and IT, Tesco has been able to create customised and proprietary information between its business partners and the company (Lynch, 2006). Supplier management: to gain competitive advantage over rival firms in the supermarket industry in the UK, Tesco imports most of its products from oversee nations that come at cheaper prices compared to sourcing them within the UK even though it initially acquired its branded from the local manufacturers (Euromonitor, 2013). In addition, to maintain better communication in acquiring its products on a timely manner, Tesco has adopted and developed advanced systems of communications that have enabled the suppliers to deliver products in time (Euromonitor, 2013). Question 4 Business and Corporate Strategies Over the years, Tesco has adopted different strategies to become a leading retail chain in the UK. Moreover, this strategies enabled the retail chain to develop competitive advantages in the supermarket industry to sustain its position in the industry until recently when the retails chains profits plunged as a result of an accounting scandal. However, despite this changes the giant retail chain has over the years been committed to developing business and corporate strategies to enable it maintain its market leadership in this competitive industry. Therefore, to create shareholder value the company has pursues an innovative customer based strategy, which is anchored on the following value creating principles: Customer loyalty: Tesco recognises that customers are most valuable to its success. Therefore, the retail chain introduced the club card to reward its customers for their loyalty to the company (Telegraph.co.uk, 2014). Thus, through this program the retail chain has been able to create customer loyalty, which has given it competitive advantage of other rival retail chain stores in the UK. Stores: the retail chain has invested heavily in its existing stores and developed flexible new stores with unique formats at the same time, with the intention of giving customers the best shopping experience (Telegraph.co.uk, 2014). For instance, Tesco Personal Finance provides customers with a choice of about 28 products ranging from credit cards, savings account and car insurances. Products: Tesco works closely with its suppliers to enable it develop and package the highest quality products that it offers to its customers (Telegraph.co.uk, 2014). Moreover, through his principle the company has been able to work with suppliers brand products in the company’s brand thus, enabling it to create unique and well differentiated products from those of other rival retail chains in the industry. Value for money: Tesco recognises that to ensure customers are satisfied and get value for their money, the retail chain is committed to providing the highest quality products to its customers at the best unbeatable prices. That notwithstanding, the retail chain operates a two tier strategy of expansion. The first part focusses on the expansion of the company within the UK’s non-food market, which includes the telecom, healthy, financial services and the pharmacy sectors. Thus, to maintain penetration into this market the retail chain has adopted an aggressive pricing and promotional strategy, as well as, target marketing as it penetrates into this markets and other more risky but profitable sectors. Moreover, the company also uses the differentiation strategy by offering products branded in the company name, which has enabled the retail chain present unique and well positioned products to the consumers. Conversely, through the loyalty program, Tesco has been able to react to customer changes in taste and preferences in a timely manner than its competitors, hence, helping it to develop more on its competitive advantages by being the first retail chain addressing demand for new products in the market (Telegraph.co.uk, 2014). References Datamonitor, 2011. “Competition in retail industry”. Available at: http://www.datamonitor.com/store/Product/tesco_plc?productid=34972414-9A41-4048-A7B6-1B0017054743 [accessed 27 Dec. 2014].  Euromonitor, 2012. “Tesco PLC in the retail market”. Available at: http://www.euromonitor.com/tesco-plc-in-retailing/report [accessed 27 Dec. 2014].  Euromonitor, 2013. “Tesco In the Retail Industry”. Available at: http://www.euromonitor.com/retailing-in-the-united-kingdom/report [accessed 27 Dec. 2014].  Freeman, R.E., 2010. Strategic management: A stakeholder approach. UK: Cambridge University Press Leonard, G., 2009.  Applied Strategic Planning: “How to Develop A Plan that Really Works”. McGraw-Hill: William Pfeiffer. Lynch, R., 2006. Corporate Strategy (4th ed.), Harlow: Pearson Education Limited.  Prospects, 2013. “UK retail Industry Overview”. Available at: http://www.prospects.ac.uk/retail_and_sales_sector_overview.htm [accessed 27 Dec. 2014]. Telegraph.co.uk, 2014. Tesco crisis: everything you need to know. Available at: http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11181686/Tesco-crisis-what-you-need-to-know.html [accessed 27 Dec. 2014].  Read More