Emerging Issues and New Challenges in the Retail Supply Chain - Essay Example

?Tesco Plc. of Birmingham Retail Marketing (07 21436) Introduction and Background Tesco Plc is one of the largest retailers in the world, the leading supermarket retailer in the United Kingdom, the world’s largest on-line grocery retailer and the fourth largest retailer behind Wal-Mart, Carrefour and Home Depot (Morris, 2004, p.5). The retailer has been selected due to its interesting business model, profitability, business and competitive strategy, service strategy, supply chain and sale mode which has been changed across the years to ensure it remains competitive. Since 1999; Tesco has been the most profitable retailer in the United Kingdom having a 31% share of the UK grocery market in the third quarter of 2009. The company’s gross turnover for the 2008/2009 full year was reported in February 2009 as ?59.4 billion. The retailer has over 4308 stores in 14 countries worldwide, over half a million employees and it was estimated in 2007 that over ?1 out of every ?7 of UK retail stores was spent in Tesco (Dennis and Perrey, 2011, p.52). Tesco PLC Established by Jack Cohen in London in 1919, it began as a stall in East London before gradually growing to include markets all over London. Cohen thereafter began wholesale trade and within five years, the first Tesco brand appeared, and, in 1929, the first Tesco store was opened. The key to Tesco’s growth over in the XX century lies in its change of image and strategy. Aaker and McLoughlin (2010, p.127) document that from the onset, Cohen’s approach was to sell it cheap a strategy that had caused the company to overstretch itself thereby having dwindling profitability. Prior to 2006, Tesco had faced a number of challenges such as low food price inflation, increasing difficulty in getting permission especially for the large Greenfields sites, three strong competitors Sainsbury, Safeway and Asda, being in number two market position and the arrival of two new store formats; the assortment stores and the warehouse clubs. Nonetheless, the store used a number of strategies and a range of innovative schemes to develop its brand name and grow to become a leading supermarket chain by 2006 (Aaker and McLoughlin, 2010, p.52). Retail theory Tesco’s retail format can be analyzed through the Retail Accordion Theory which recognizes the wide-narrow-wide pattern of the dominant retailing which forms the market (Baker and Saren, 2000, p.356). Tesco has continuously changed its strategy and image with the first major feat being able to appeal to all segments of the market, the lower, the middle and the upper classes. The inclusive offer strategy was based on the vision of selling high-quality products at reasonable price, a vision that was achieved by offering four different levels of its products. There were the finest range of premium products introduced in 1998, followed by the Tesco Organic rage introduced in 2006 and the Tesco Healthy Living range and, finally, the Value range to attract the price conscious customers was rolled out in 2008 and 2009. This focus on customer’s service lies in the company’s belief in continuously improving the standard of services provided and responding to customer’s needs (Fernie and Sparks 2009, p.49). The retail format Tesco’s retail format is interesting having six different store formats differentiated by the range of products sold and their size, but all branded as variants of the Tesco Umbrellas (Baker and Saren, 2000, p.356). The six formats include the Tesco Extra or the Hypermarkets, Tesco Superstores or the large supermarkets and Tesco Express or the convenience stores, Tesco Home plus, Tesco Metro and Tesco One Stop. Evidently, Tesco’s retail outlets range from small local stores often attached to petrol stations to one stop stores with an average of 1,300 square feet providing customers with essential products on a 23/7 basis to the extra stores which are 70 times bigger and cover all the major consumer goods including furniture and entertainment, foods, electrical goods and clothing (Dennis and Perrey, 2011, p.52). Tesco Express often stores within neighborhoods averaging 2,200 square feet and normally stocks food products and other day to day essentials (Baker and Saren, 2000, p.356). The Homeplus is a series of non-food stores which offer all range Tesco’s range of products other than food. In addition to the stores, Tesco has Internet retailing which was introduced in May 1984 with its customer, Mrs. Jane Snowball’s purchase of grocery being recorded as the world’s first ever recorded online shopping transaction. Tesco’s Internet presence became more dominant in 1994 and Tesco.com, a robust home shopping website, formally launched in 2000 (Dennis and Perrey, 2011, p.53). In most cases, groceries are sold within the delivery range with goods being either handpicked within the store or delivered. Tesco has also introduced a DVD rental and music download service in addition to an online movie streaming service which allows shoppers to stream selected DVDs prior to purchase (Baker and Saren, 2000, p.357). Customer Segment Targeted Tesco phenomenal success has been attributed to its customer management strategies which involve: selling more to existing customers in stores, attracting new customers and exploring new geographies (Morris, 2004, p.10). Tesco has a Product-Customer Segmentation which has three key segments: the less affluent, mid-market and the up market with a market share of 23%, 53% and 24% respectively (Morris, 2004, p.13). Their products are categorized into six categories which include: the price sensitive 16%, mainstream 24%, convenience 9%, traditional 15%, healthy 17% and the finer foods 19%. The finer foods and the healthy products target the up market while the healthy, traditional, convenience and the mainstream product categories targeting the mid-market (Morris, 2004, p.13). The lower market is targeted by the price sensitive and the mainstream product categories. Tesco Finest with 1,200 lines is a brand targeting the up market and Tesco’s strategy is to offer super-premium product and prices. The strategy also offers limited to high-value added items and directly addresses Marks & Spencer. Tesco organic with 1.245 lines has a strategy to directly attract up market shoppers, capture margin in new category and aims to provide a complete shopping budget (Morris, 2004, p.15). The Tesco mainstream brand also offers the same quality as the national brand, and has the strategy of increasing the branded versus the margins. Tesco Value with 1200 lines is offers cheap and basic products and has the strategy of directly addressing limited assortments and limited to low value added items. The Tesco healthy living brand has an estimated 600 lines and targets specialty niches with products and aims at stretching to non-foods (Morris, 2004:, p.15). The last brand is the Tesco Kinds which targets children aged between 5 and 11 and has a strategy of helping parents improve diet and offer food products with minimum artificial ingredients (Morris, 2004, p.15). Advertising strategy used Marketing and advertising have played a key role in winning Tesco the customer loyalty and market share. The company has over the years used both direct and indirect approaches to advertise. Across the years, Tesco has used thousands of television adverts with specific themes, for example, adverts in the 80s focused in keeping ‘the cost of living in check, hence, stressing on cheap prices (Dennis and Perrey, 2011, p.54). Also in the 80s, Tesco often stressed on its relatively lower pricing, for example, the 1982 ‘Checkout 82’ adverts showed a till having a receipt coming out of it and indicating the prices (Humby, Hunt and Phillips, 2008, p.44). Tesco’s adverts have also included a fusion of pop culture and celebrities such as the inclusion of Spice Girls and actors Jane Harrocks and James Nesbitt in the adverts in the 2000s. Presently, Tesco’s key advertising slogan is ‘Every little helps’ and majority of its adverts mainly consist of shots or images of its products and their pricing superimposed on a red ink. Other approaches include tailoring promotions to meet the needs and wants of individual customers, introducing customer loyalty customer system and analyzing information derived from such systems to advertise on specific segment of the market (Fernie and Sparks 2009, p.51). Range of products Tesco has over the time shown very strong commitment to trading in various products which have enabled them establish strong and successful outlets and their sales have grown tremendously during this time despite hard economic environment (Dennis and Perrey, 2011, p.52). In the United Kingdom they have the largest range of products, what started as a food retailer selling food stuffs such as wines, fresh foods, groceries and restaurant services has developed with time through implementation of their strategies to include non-food commodities such as telecommunication gadgets (phones) and electronics. Key electronic gadgets include: Computers, Digital TV boxes & media, DVD & home cinema, EBook readers, IPods, I Pads and Printers and Scanners, (Fernie and Sparks, 2009, p.52). Under the Music and Films category, Tesco sells assorted Films and Music CDs and DVDs. Games sold within the store include video games and play stations while books include EBooks, printed books and other stationeries. Tesco’s photo center specializes in photo books, canvas prints and personalized gifts while its optic division carries out free eye test, value frames, designer frames and contact lenses. Tesco’s clothes division specializes in shoes, men and women wear, children’s wear and other clothing commodities. Tesco’s diversification has propelled it to serve its customers in a one stop shop and compete fairly in the ever competitive market of several stores. Top Competitors In every business undertaking, all the players in the market face competition among themselves that may result in some being faced out of business, these companies compete for customers, distributors and suppliers and seeks to establish strong customer base in which ever manner that is legal and ethical (Aaker and McLoughlin, 2010, p.41). During these times of competition, they involve each other in price wars and quality service delivery with the sole purpose of winning the trust and loyalty of available customers. Tesco plc has a number of competitors key among them being BP plc, Safeway plc, ALDI group, Somerfield, ASDA group limited, The Boots group plc, Marks and Spencer group plc, John Lewis Partnership plc, Booker cash and carry, Shell group and The Big food group plc (Dennis and Perrey, 2011, p.52). These companies deal in general commodities that Tesco trade in, from food to non-food, thereby posing a great challenge to the company’s vision of expanding its customer base. However, the company has continued to play its role to its loyal customers through provision of quality services and products, with this it has build confidence in the public making more people to buy their products, (Humby, Hunt and Phillips, 2008: 44). Customer service strategies used In 1997, Tesco Plc set out to grow their business and made diversity in their services and products. They have deployed seven part strategy to enable them achieve long term growth, they are. Firstly, improvement of customers’ shopping trip and those that majorly matter to them (customers) this significantly renovates and improve performance of shareholders. Secondly, they work tirelessly to be international retailer through expanding their customers’ base. What started as food retailers have been diversified to include non-food stuffs such as clothes and other commodities and have wider variety of products their customers. They have also grown retail to all their outlets and have developed Tesco bank that generates close to one billion Euros annually (Humby, Hunt and Phillips, 2008, p.43). Tesco has also improved their social responsibility to the communities, for example, in 2011, this strategy was updated to encompass and emphasize their constant responsibilities to these communities. These maintain all round customer contact and confidence development in their products which also acts as a marketing strategy (Dennis and Perrey, 2011, p.52). Lastly, they have built a team of professionals that would input more value to service delivery and oversee the ever expanding environment by maintaining quality of products. As they continue to grow they are in constant need of employees who not only have fundamental role in the present day but also capable of creating bigger and better team for future challenges. Analysis Being a major food and non-food retailer and having 2,291 outlets worldwide, Tesco has a number of strengths and opportunities as well as weaknesses and threats. Its key strengths include an increased market share as it holds 13% retail market in UK which means that it shall grow in the coming times. Its entry into the insurance sector was also a success, for example, in 2003, it had 3 million motor insurance policies in the UK making it the fastest developing company within the insurance sector. With the introduction of tesco.com, the group had total online sales of 577 million in 2008 indicating that many households are using their online services forming a strong platform for future expansion (Dennis and Perrey, 2011, p.52). Tesco also has a strong image associated with their products: the company has seen an increase in customers’ confidence and trust. The key weakness of Tesco is its over reliance on UK market since though the company has expanded to other countries, majority of its revenues come from the UK market. The company also has a weak financial position due to its debts accrued from the aggressive campaign to increasing stores. The company has the opportunity to increase its non-food products both in UK and other countries. It can also venture into the health market by expanding its optical division which is already operational. The company also has the opportunity for further growth. With a well managed expansion strategy, the company needs to move into other areas of the world such as Africa in order to have a multi million customer base worldwide. A number of threats face the company key among them being the Price wars. With the ever increasing competition from other players, the company may engage in price war of commodities leading to low unreasonable prices that may result into losses. International expansion is also expensive besides some countries have strict and rigid trade laws making it difficult to operate locally within that country. Tesco Loyalty Cards is also a special strategic measure. The special cards are given to customers as a sign of loyalty with the cards accumulating points as you buy almost everything at the store except tobacco and its products, lottery, stamps and infant formulae milk (Zentes, Morschett, and Schramm-Klein, 2011, p.34). Conclusion Tesco views private label as a key element of its success noting that it selects, prepares, and packages everyday products in dozens of different ways. It is true that the company has sufficiently served its customers in almost all aspects from food to non-food commodities, however, with increasing number of people and the global village reality the company needs to increase its outlets both locally and internationally in order to reach those who need the services and products – this will reduce their over reliance on the UK market and generate enough revenue to off-set its debts (Baker and Saren, 2000, p.358). It should reinforce its customer services as this will directly impact on the much longed customer base both in UK and outside, they should increase their communal responsibility to other areas of need such as less privileged in the society this will not only increase their confidence in the company but its also a sign of giving back to the community. Their insurance company should be diversified to cover other aspects of life insurance since, in the present day, there are a lot of risks and catastrophes that people need to guard against. References Aaker, D. A. and McLoughlin, D., 2010. Strategic Market Management: Global Perspectives. Wiley Publishers. Baker, J. M. and Saren, M., 2000. Marketing Theory: A Student Text. Cengage Learning. Fernie, J. and Sparks L., 2009. Logistics and Retail Management: Emerging Issues and New Challenges in the Retail Supply Chain. Kogan Page. Humby, C., Hunt, T. and Phillips, T., 2008. Scoring Points: How Tesco Continues to Win Customer Loyalty. Kogan Page. Morris, T., 2004. Tesco: A Case Study in Supermarket Excellence. Coriolis Research. Dennis, S. and Perrey, J., 2011. Retail Marketing and Branding: A Definitive Guide to Maximizing ROI. Wiley. Zentes, J., Morschett, D. and Schramm-Klein, H., 2011. Strategic Retail Management: Text and International Cases. Gabler Verlag. Read More