Vision, Mission and Primary Stakeholders of Tesco - Case Study Example

Company Analysis: Tesco I. Vision, Mission and primary stakeholders The Company Tesco is the second largest retailer in Great Britain (recently overtaken by Sainsbury in first of 2011) and the third largest supermarket in the world. Its market share in the UK retailing industry is 12.5% and it controls over 30% of the grocery market which is 75% dominated by four major players Tesco, ASDA, Sainsbury and Morrison (Dobson et al 2008). Tesco has 2,440 stores and has an employee of more than 4,000,000 people. Its online grocery store www.tesco.com is recognized as the world’s biggest online grocer in the world. It has its own-label products which accounts approximately 50% of its sale. II. Vision and mission Vision To create value for customers to earn their lifetime loyalty – and our Values – no one tries harder for customers and treat people how we like to be treated. To be seen as the most highly valued business in the world. Valued not only by our customers, but also by the communities it serve, its staff and our shareholders. To win locally by applying our skills globally. The key word is ‘locally’ because retailing is local (Tesco Annual Report, 2011 pg. 5). Mission To be a modern and innovative company. To stay ahead of the curve, anticipating changes and adapting for the sake of its customers and staff (Tesco Annual Report, 2011 pg. 6). Tesco is and will remain a growth company. It will continue to pursue growth in all parts of the business – in the UK, internationally, in services and across general merchandise, clothing and electricals (Tesco Annual Report, 2011 pg. 5). III. Porter’s Five Forces of Competition a. Threat of rivalry The threat of rivalry undermined Tesco’s leading position in the market. In a report made by Lyall (2011), she explained that the reason why Tesco fell behind Sainsbury in first of 2011 is due to the “tougher competition from foreign discounters such as Aldi and Lidl, combined with an increase in domestic rivalries” which blunted the edge Tesco once had. The combined threats from foreign discounters and traditional rivals such as Sainsbury redefines the competition landscape where the grocery industry in the UK was thought to be traditionally oligopolistic and only confined to the five major players (Burt & Sparks, 2003). In crafting a business strategy, Tesco now has to rethink its industry assessment and consider foreign discounters as a real threat in its position in the market. b. Threat of substitute products The threat of substitute products to Tesco is low because any attempt to substitute the existing product line can drive the prices down that could hurt all the players in the industry that includes Tesco and its competitors. c. Threat of new competitors The new development in the first quarter sales of the grocery industry requires reassessment of the market. Where before new competitors are not considered much of a threat considering that the market is oligopolistic in nature (Burt & Sparks, 2003), new competitors such as foreign discounters (i.e. Aldi and Lidl) proved to be a real threat that can undermine Tesco’s once leading position in the market. d. Bargaining power of suppliers Threat from suppliers is minimal. In the grocery industry, it is the norm that large supermarkets dictate the price that will be paid to suppliers. The supplier has very little leverage to bargain because if supplier does not agree with the supermarket, supplier will have no retailer to sell its products. e. Bargaining power of buyers Tesco’s underperformance in the first half of 2011 could be attributed to the bargaining power of buyers shifting preference towards the cheaper foreign discounters. This is highly probable because these foreign discounters addresses the market’s heightened sensitivity to price where buyers are likely to switch retailers with a mere £10 increase in their weekly shop (Mintel, 2011a). IV. SWOT analysis Strength Among the food and grocery retailers, Tesco is the third largest grocery retailer in the world. It has 4,331 stores across Europe, United States and Asia. Tesco’s size being one of the leading grocery retailer in the world provides it with the advantage of economy of scale and easy entry into untapped markets (Data Monitor, 2010). Tesco’s investment in information technology over the years enabled it to optimize its performance at a peak efficiency. This investment played a significant role in driving the company sales and improved supply chain. Its improvements in “stock management supply chain application in 2009 implemented an efficient ordering systems and introduction of in-store monitoring processes, helped the increased availability of products in stores and reduced warehouse stock . This technological improvement enabled Tesco to become more responsive to customer’s needs while effectively optimizing inventory costs (Data Monitor, 2010 pg.5-6). Weakness The product recall in June 2009 in Ireland indicates a lapse in Tesco’s quality control that could cause not only financial drawbacks but could also hurt the image of its brand. The recalled product was the 567 gram cans of Value Beans and Sausage that was found to contain plastics. A product recall was also made with its fresh & easy brand chili lemon flavored pistachio nuts due to the suspicion that they may have been contaminated with salmonella virus (Data Monitor, 2010). Opportunities Tesco’s online shopping capability enables it to reach 13% of adults who has never shopped online. This untapped market can make a sizeable pool of opportunity in the short term (Mintel, 2011b). Tesco can capitalize in this untapped market because it has the largest online grocery store. Its online grocery store can also supplement its lackluster sale performance and regain its leading market position. In addition, the passage of the new “Tesco Law” can also provide opportunity to Tesco to explore in other non-traditional market where it can supplement its sales to regain its leading market position. Threats Competitors are the biggest threat for Tesco that does not only include the four major players but also the foreign discounters. V. Recommendation, strategies and corporate governance The seeming underperformance of Tesco is caused more by external factors such as the economic slowdown that consumers are holding back their buys especially in premium items. Foreign discounters which were not considered as a potent threat before has also has also undermined Tesco’s leading position in the grocer market. This two factors has affected Tesco because almost half of its product line are considered to be premium brands and this has affected Tesco because the recent economic crisis made buyers to become price conscious which made the cheaper discounters a good alternative. This setback should not however discourage Tesco. In the long run, Tesco internal capabilities will enable it to regain its market position. It has the distinct advantage of having the most number of stores in UK not to mention having one of the most sophisticated technological infrastructure to become responsive to customers when the economy gets better. It is important however that Tesco should reassess the industry to consider foreign discounters as a threat. This will provide Tesco a realistic and timely perspective of the market when it execute its business strategy. The new trend in the market with regard to Tesco’s competitors now require a change of perspective on the part of Tesco. Where before discounters were generally ignored by Tesco’s dominance as harmless, they now posed as a real threat due to the changing macroeconomic environment and must be factored in as a threat when Tesco formulates its strategy. The playing field right now is moving away from oligolopoly and Tesco must no longer rely on its size to dominate the market. References Burt, Steve L.; Sparks, Leigh (2003). Power and Competition in the UK Retail Grocery Market. British Journal of Management, (3), 237-254 Data Monitor: Tesco Corporation (2010). Tesco Corporation SWOT Analysis, 1-9. Lyall, Ian. Resilient Sainsbury turns the tables on struggling Tesco. Online. Available from: http://www.proactiveinvestors.co.uk/companies/news/33986/resilient-sainsbury-turns-the-tables-on-struggling-tesco-33986.html [Accessed 15 June 2012] Mintel (2011a). Online Grocery Retailing - UK - September 2011 online. Available from: http://oxygen.mintel.com/sinatra/oxygen/display/id=545492 [Accessed 15 June 2012] Mintel (2011b). Pricing and Promotions in Food - UK - May 2011 online. Available from http://oxygen.mintel.com/sinatra/oxygen/search_results/show&/display/id=545239 [Accessed 15 June 2012] Tesco (2011). Annual Report and Financial Statements 2011. Available from http://www.tescoplc.com/media/417/tesco_annual_report_2011.pdf [Accessed 15 June 2012] Read More