Tesco Company Analysis - Essay Example

Tesco company analysis Company background Tesco Company s its history from 1919 when a young man known as Cohen who was 21 years of age started a small grocery in UK which later grew to the current retailer that has branches in different parts of the world e.g. Scotland, Hungary etc . Tesco operations started in 1930s when Cohen travelled to US and got interested by the business environment and self service model which was emerging in United States. Since its establishment, the business has recorded tremendous growth despite facing several economic downturns such as one experienced in 1990 which hit the business revenues. Since 1997, Tesco has recorded tremendous growth making it the leading food retailer in the United Kingdom (Quelch 2010, p.1). This was spearheaded by good leadership under CEO Terry Leahy who emphasized on innovation and customer satisfaction (Quelch 2010, p.2). Issues and objectives One of the main issues that are of great concern is inability of Tesco plc to penetrate in United States market despite the market having only few competitors such as Raphs, Vons, Albertsons and Stater Brothers. This is despite the company’s strategies to send 50 managers to learn more about the market and come up with appropriate procedures to penetrate them The main objective is to analyze if it is important for the company to go ahead with the market penetration process or it’s supposed to withdraw from the market as profits obtained cannot be compared with the investment that the company used i.e. $700 in order to position itself in the market (Quelch 2010, p.2). The predecessors such as Sainsbury, Marks and Spencer had to sell their ownership to other business as they found the market unfavorable for the business to thrive. As a result, one of the main objectives of the paper will be coming up with the appropriate conclusion on if it is profitable to venture in United States market or the business. It will also try to analyze why many retailers withdraw from the United States market. Tesco SWOT Analysis Tesco Company has experience on various markets. The company is the major retailer in United Kingdom with branches in Hungary, Ireland, and France etc. This gives the company a variety of strategies to select from in order to penetrate the US market (Quelch 2010, p.3). On the other hand major weakness that this knowledge has is that it makes it hard for the company to select the appropriate strategy to apply in the US market. This is because different markets react differently on the entry strategies applied by the companies. Tesco companies have large financial reserves that can be used in the entry process. Initially the company had acquired different stores as a strategy to penetrate the markets e.g. in Ireland, France and Scotland. The company also purchased smaller already established retailers and ensured that it retains the local management. This is because these managers had adequate knowledge concerning local markets (Quelch, 2010). UK market plays a great role in supporting the entry strategy by Tesco in United States. Being a leading retailer in UK, Tesco is able to gain finances that can be used in marketing of its products and stores in new markets. On the other hand, entry of the company in new markets which are uncertain may lead to losses. This aspect can lead to reduced competition ability of Tesco plc in United Kingdom and other outlets. In an example, the company used approximately $700 million on its fresh and easy venture. Out of this investment, the company generated 30% of the total sales which is about $30 million. This was against projected returns of $100 million (Quelch, 2010). Tesco’s position in United Kingdom as a price leader may reduce the profit margin of the company in order to retain its key price points in must have commercial items. This might have adverse effects on the expansion program of the company in the United States market (Quelch, 2010). Tesco Company has an opportunity of diversifying its operations in other sectors such as in beauty sector. The company financial capital is adequate to diversify its operations in order to reduce risks and uncertainties that may face the company in United States. Diversification of its products would also play an important role in increasing profits that are important in competing in the market (Quelch, 2010). Major threat to Tesco Company is the US major competitors some of which are well established in the market. One of them is Wal-Mart which has adequate knowledge concerning the United States market. Wal-Mart can curtail the plan of Tesco Company leading to its failure in the US market just like its predecessor (Quelch, 2010). Alternatives One of the main alternatives that a company can use to penetrate the US market is through purchasing already existing businesses which has earned customer loyalty. Some of the existing businesses that the business can acquire include supermarkets, discount stores and drug chains which were said to increase their fresh food offerings. Existence of these businesses could be the block towards entry of Tesco plc in United States market (Quelch, 2010). Risks One of the major risks that might lead to failure of entry strategy is increased competition from leading businesses that operates in the same sector. These include Wal-Mart and Carrefour which are well established in the global markets (Quelch 2010, p.5). In addition the company is at a risk of losing its investing which might have adverse effect on areas that it dominates. Recommendation Basing the conclusion on the Tesco plc strength, weaknesses, opportunities and threat I would recommend that the company go ahead with entry process. The most important step that would help the company is using the names of local companies that the company will acquire as people of areas where other companies have failed are loyal to existing businesses brand names. In addition the company should engage itself to intensive advertising in order to attract customers to their products and services. These strategies will be effective in California and Nevada which are mainly hit by the attitude of consuming locally produced goods. Reference Quelch, J. A. 2010. Tesco PLC: Fresh & easy in United States. Harvard business school Read More