Tesco Company: Swot Analysis - Assignment Example

TESCO COMPANY, SWOT ANALYSIS of Introduction Tesco Company is a British multinational company that specializes in grocery as well as general merchandise. Its headquarters are in Hertfordshire, England. By profits, this is the second largest company in the world after Wal-Mart. The company has operations in 12 countries across Europe, Asia and the North America. Founded in 1919, the company has spread into one of the largest corporate companies and can favorably compete with others in terms of financial and positional rating at the London stock exchange and is also a member of the FTSE 100 Index. With customer service in mind, the company has a mission statement, “to create value for customers to earn their lifetime loyalty”. Their success therefore is on people; the customers, employees and the management (Tesco, 2014). This work seeks to establish the SWOT analysis of Tesco PLC. In light of the same, it will put in place a collection of factors that make it stand out in the market putting in mind that the negative aspects also create challenges that make it more stable. Organizational Strengths and Weaknesses Strengths The first strength is that the company has been able to benefit from the strong financial performance over the years which underline its strategic capabilities. In 2009 for instance, the company registered a turnover of £54 billion which, at that time was an increase of 14% as compared to the previous financial period (Hingley & Lindgreen, 2003). The reasons for this exemplary performance have been a collection of factors. In accordance with demands in the market, the customization of the products and services has increasingly made the company to achieve such high status. Key performance indicators have been set to enable the company to continue realizing a profitable cause in the verge of its operations. The table below indicates the continuous improvement in performance over the years as per 2009 and it has a collection of indicators showing different variables of growth and measurement over those years from 2000-2009. Source: Tesco, 2014 The large growth has been attributed to the customer retention strategy of the company. Most of the customers in the company are those that have been referred by an existing customer and then become permanent customers due to the good services at the company. The b company operates an online non-food retail company which highly contributes to the development of the revenue status. The Tesco club card has always been the core of customer tracking and operations and has also improved the rate of customer loyalty. The second point of strength is the diversification of its products. Tesco is not just a grocery store. It operates in such a large collection of other goods collection that it is almost a full one-stop operation store. The first area under this category is the entry into banking and service sector. This is a large area in any economy and could account for the required development. Moreover, other diversification areas in the service sector include insurance and other non-banking financial services. Secondly on this aspect of diversification, the company has developed a comprehensive entry into the property markets. The company has land bank both locally in the UK and overseas. This allows it to keep its asset levels higher and given that the value of land is ever appreciating, there is bound to be a continuous increase in the revenue obtained as a result of keeping the land. This is done through leasing out and selling these pieces of land to prospective developers after appreciation of the costs. The stability of shopping at these malls is aided by the fact that the company creates a supply base in which, through its customer loyalty cards, is able to offer door to door services on goods that are ordered by the customers. In this regard, the Tesco.com works well for the benefit of both customers and the company. Weaknesses Tesco has had a collection of weaknesses which, if not taken care of can be adverse to the company. One major weakness is the management aspect of the executives of the company. The chief executive Philip Clarke, when he came to power inherited a collection of issues that had accumulated during his predecessors’ period of management. In effect, the UK profits were used to finance the overseas issues leaving the operations in the UK market starved of effective operations. The staff services declined and with the competition from the other companies, there was a lag in the competition scene. Even so, Clarke still has too much on his hands given that there has been departure of some senior executives such as Richard Brasher, the UK managing director. Tim Mason, the deputy chief executive followed in the departure which is not a good sign for a company at the status of Tesco. This is considered a weakness because other companies in the similar business would take advantage of this low period and create a high point in the market which may not be easily rescinded. The 2012/13 period therefore witnessed losses in the revenue realized as a result of management leaving more often (Datamonitor, 2004). The second weakness of the company is the concentration of the market in the UK retail sector. In this market, the company has recorded more than 75% of its revenue earnings in the fiscal year 2009/2010. The commonly therefore lacks geographic diversification in its market segmentation. Moreover, the company depends on this UK market to finance the international stores which is not an economical aspect of investment. For instance, the investment in the west coast of America did not turn out to be good when the company strongly took up investments in the US in 2007. Although there has been evolution, a review of the business still shows that there is still a lot to do to become one of the best in the US market. With this concentration, a recent study on the contrary shows that customers in the UK and the US as well as a few other markets are moving away from purchasing in huge stores and this being the highest point of Tesco, there is need to understand the imminent repercussions. This is also a great weakness to the company because when SMEs understand this, they end up setting up smaller shopping centers to counter the big superstores. Smaller companies are always aware of the fact that any opportunity in the market must be taken up seriously. In this regard, the smaller companies are bound to come up strongly and take over the market as soon as it’s possible. Opportunities As indicated in the weaknesses section, the company has a wide concentration in the UK market. It is also an opportunity for it to diversify its market segmentation base by venturing into other countries especially those in the Asian region. The company has already put in place international expansion procedures and in particular identified the Indian market. This has been done with the aim of strengthening the global position in the market. The company has already signed an agreement with Tent, an affiliate of the Tata group which is usually set on one of the largest industrial corporations in India. The company should focus on other strong markets in Asia such as Korea and china, being emerging markets to develop its international spread. It has been realized the company has set aside £1 billion for expansion of the British market. This can be taken as an opportunity to develop international markets for the good of the company. The expansion into the Asian market will work to counter saturation in the UK market where people are losing interest in the high scale store shopping. This opportunity will serve as a way of spreading the risk of non-performance. This principle acts on the basis that if one market fails to perform, the other will effectively cover it up. However, there is almost no cover up given the current concentration in the British market. The second opportunity is that there has been an overview of the company having an opportunity to invest in the BRIC nations. This can be activated by the fact that these countries have a growing e-retailing connection which is one of the major stronghold zones for Tesco. They can also create a ClubCard category outside the UK in these BRIC nations so that there is a collectively strong connection between the customer premises and the store supplies. In this case, the company can increase its other service sectors such as the banking sector and the mortgage services (Worthington & Welch, 2011). Threats The 2009 financial crisis affected the UK market to a great deal as a whole. The economy contracted by 2.4% in 2009 and was expected to continue shrinking as recovery measures are out in place. The international monetary fund (IMF) estimates that the company was to further shrink by 4.2%. This is a lethal threat to Tesco as a company because it has a high concentration of its operations in this market. Moreover, the crisis caused a high rate of unemployment in most sectors of the economy which had a discretionary effect on the purchasing behavior of the consumers. This drastically affected in entirety the sales that the company made. Moreover, there was the Eurozone crisis and political reforms that directly affect the operations of the company. Some countries impose very stringent measures to regulate multinational companies within their borders. This has been a major threat of concern to the progress of the company (Datamonitor, 2004). Tesco may not be exposed much to issues related to the peripheral countries in the Eurozone like Spain and Greece. However, the central region of the Eurozone has not been immune absolutely to the effects of the crisis. Given that Tesco operates in these countries, it has been at a threat of being affected. The second threat that adversely has an effect to progress of the company is the stiff competition it is facing from other global firms entering even to the UK. As the company tries to reposition, other large companies like Asda, Sainsbury as well as Morrison’s are all expanding at a threatening rate. Given that the customers are in the wake of a transformational metamorphosis from large scale stores to the smaller ones, there is no salvation on the lower side. In the UK, there is a nightmare scenario whereby the pressures being thrown at the market may be too much to bear. From the American report, there is likelihood that with time, the company may be forced out of the US market due to its inability to adapt to the stiff competition from companies like Wal-Mart. The banking section may not deliver effectively or may totally fail to deliver because of the “consumer inertia”. Therefore the company has a collection of threats, some of which are beyond its ability to control. Summary and Conclusion The company can capitalize on the opportunities available to fight the perceived threats that are threatening its operations. For instance, the company plans to re-invest into the UK economy one billion pounds to increase the quality of its operations, however, it has been seen that this is a wholly threatened market and may never be the best option for the company. With the threats of consumers almost creating a shift from the large stores, the company can make re-investments in smaller stores as well as rebranding some of these smaller stores so that the run-away consumers still land in the small stores under the same company operations (Worthington & Welch, 2011). This paper has developed a SWOT analysis of Tesco Company where it has established that it has all the strength to help it remain in operation. Since it has a large capital base, the company is able to manipulate all the other factors of production for productivity. Its weaknesses are majorly management issues which are however very critical. On the other hand, there are still enough opportunities in the Asian region. Moreover, the BRIC nations can offer enough space for more investment. With the threats it has almost neutralized, there is bound to be guarded very well if the company has to continue its operations. References Datamonitor. (2004, August). Tesco Plc. Retrieved March 4, 2014, from Datamonitor: www.datamonitor .com Hingley, M., & Lindgreen, A. (2003). The impact of food safety and animal welfare policies on supply chain management: the case of the Tesco meat supply chain. British Food Journal, 105(6), 328-349. Tesco. (2014, March 3). Vision ans Strategy. Retrieved March 4, 2014, from Tesco: http://www.tescoplc.com/index.asp?pageid=12 Worthington, S., & Welch, P. (2011). Banking without the banks. International Journal of Bank Marketing, 29(2), 190-201. Read More