Strategic Management Analysis of Tesco - Assignment Example

Strategic Management Analysis of Tesco Strategic Management Analysis of Tesco Introduction Chesthunt Hertfordshire, England United Kingdom is the headquarters of Tesco PLC, a multinational general enterprise retailer dealing in wine, food, mobile phones, electronics, fuel, among other products (Ma, 2014: 1998). Tesco owns different business platforms including Telecoms, petrol stations, Giraffe Restaurants, Your Beauty Salon, Tesco Tires, and other ventures (Tesco, 2014). Tesco has over 30% market share in the United Kingdom, over 2500 stores in 12 countries within three continents (Dransfield, 2010: 139). Tesco currently has the highest market share in the United Kingdom retail market owing to the best strategy management and the ability of the company to seize the market opportunity. Tesco realized the need for augmented product offering as a measure of increasing market share and allowing the company to augment profitability and resources resulting in the expansion of the business to non-grocery market. The result is evident with the increased grip of Tesco, as a retail giant in the United Kingdom (Tesco, 2014). Tesco’s strategy has seven parts that the business aims at meeting to ensure the success of the company both in the present and in the future. The strategy entails growing the UK market, create highly valued brands, emerge as an outstanding international retailer in online and stores, develop retail services in all markets, create more synergized team for better value, and be the best in selling of grocery and non-grocery items. This study aims at analyzing the market environment, resource capability, and strategic fit analysis of Tesco. Analysis of the market environment will entail analysis of the macro and micro environment and the competitive success factors of Tesco while resource capability analysis while detail core competencies, capabilities, and resources at Tesco. The strategic fit analysis will detail how Tesco uses strengths and weaknesses fit opportunities and threats in the market environment. Market Environment Analysis Market environment analysis involves the analysis of the macro and micro environment of Tesco to get a better understanding of the influence of the market environment on the performance of Tesco. Different tools come in handy for the analysis of the macro and micro environment of Tesco. Tesco has been in a position to overcome environmental challenges through competitive advantage use through distribution and pricing strategies. Macro-environment The macro environment is analyzed using PESTLE, which is an acronym for the external factors affecting the development and success of Tesco. These factors are the political, economic, social, technological, legal, and environmental factors that impede or accelerate the development of Tesco both in the United Kingdom and in global locations. These factors are deeply analyzed in the following subsections to depict their influence on the development and success of Tesco in recent years and going forward. Political factors Political factors define the conditions in a given country that affect the ability of the economy and its agents including firms and business to perform at the most effective rate possible. Tesco has over 4000 stores showing the global operations undertaken by the business resulting in the impacts of legislative and political conditions in countries of operation to the retail giant (Tesco, 2014). These impacts include the presence of employment legislation requiring retailers to offer employment to domestic and foreign employees, and Tesco has to comply with these regulations (Balchin, 1994). Tesco’s performance is also affected by political factors that negatively affect its performance including imposition of higher taxes to protect local industries in some countries. The stability in countries of operation is the other political factor affecting the performance of Tesco coupled with legislation regulating the Tesco’s growth in international markets (Pergamon Flexible Learning, 2005: 11). Economic factors Economic factors are those that affect the ability of the population, businesses, and the governments to make purchases or do businesses with Tesco. These factors directly or indirectly affect the ability of Tesco to meet its revenue and profitability needs in its global and domestic operations. The changes in economic factors including effects of the credit crunch have affected the ability of Tesco to meet its needs but the survival of the firm in these hard times have been attributed to brilliant strategy, understanding of client needs, and innovation. Augmented saving is the other economic factor that affect the performance of Tesco because of the reduced purchases by the consumers fearing for a recurrence of the credit crunch. The result has been a reduction in the sales and revenue generated at Tesco. The other economic factor is the need for producing affordable products to meet consumer needs and tastes despite the high living standards. Social factors There are a number of social factors affecting Tesco including the purchase of healthy and less affordable food in supermarkets requiring the need for Tesco to be health conscious in stocking grocery and other food products. There has been augmented preference for bulk purchases by the UK consumers owing to social changes resulting in increased offer of non-grocery products by Tesco. Demographic changes have led to the need to adopt electronic point of sale systems, electronic scanners, and electronic funds transfer to meet the needs of the digital generation for augmented efficiency, excellent stocking, and real-time communication at Tesco. The need for more advertising and goodwill has also affected Tesco requiring the business to be in a position to compete with new and old establishments including Wal-Mart and Sainsbury to continue its growth and profitability (Harrison, 2010: 14). Awareness of health issues by the consumers have led to Tesco’s adaptation to increased provision of organic products. Technological factors Technological factors are the effects of development of technology and new production processes in Tesco and other businesses to which these businesses have no control. Technology has been one of the main advantages to Tesco through using it to gain a competitive edge including the use of technology for its benefit and market share increase. These can be exemplified by the use of the Tesco loyalty card, data mining, and large data analysis that enabled Tesco have an in-depth understanding of customer needs and propelled Tesco to current success. The other uses of technology by Tesco are the introduction of Tesco.com that aided Tesco develop beyond boundaries within a very short time and allowed the business to rival Wal-Mart. Legal factors Legal factors affecting Tesco include the encouragement of fair business practices and competition by the UK government, laws, and regulations by government affect business performance of Tesco. Tesco has also to comply with legal factors in other locations of operations affecting its ability to meet revenue and profitability needs. Food Retailing Commission’s suggestion of a code of practice affects the performance and success of Tesco through limiting the ability of changing prices of suppliers without notice and demand supplier payments (Mintel Report, 2004). Environmental factors Pressure has been mounting on not only Tesco, but also other retailers and businesses to take responsibility for their business operations to the society and protect the environment (Lindgreen and Hingley, 2003). The corporate responsibility department at Tesco has been at the forefront in respecting this pressure and needs by the society through environmental conservation efforts, publishing of corporate responsibility reports, and publishing of waste food data. Graser and Scott (2003) reported the intention of the government for launching of strategies of cutting wastes and reducing use of resources aiding in minimizing environmental damage. Clarke, Benison, and Guy (1994) report the reluctance of businesses to take on new suppliers because of the requirement for environmental conservation needs. Tesco has been affected and making it very cognizant of the actions of its suppliers and taking part in the supply chain to ensure compliance with environmental regulation by the suppliers. Recycling and involvement in environmental initiatives enable Tesco appeal to consumers that require being associated with businesses that conserve the environment for the sake of future generations. It is evident from the above analysis that political, economic, legal, technological, social, and environmental factors affect the performance of Tesco through augmenting the competitiveness or limiting the success potential of Tesco. Micro-environment This section analyzes the micro-environment of Tesco to aid in understanding the effects o the customers, suppliers, competition, and distributors on the performance and success of the business (Pergamon Flexible Learning, 2005). Customers The customers have been very instrumental in driving Tesco’s success owing to a high customer loyalty. This enabled Tesco to overcome challenges during the financial crisis and was least affected compared to other retailers. Tesco has access many customers owing to a large amount of physical store location in strategic areas especially in the United Kingdom and other countries. This has enabled the business to have a high presence in the market and have an association with a huge client base augmenting profitability and financial performance of the business. Tesco has over 40 million club card holders globally allowing the business to have insight on client needs and provide products to meet these needs putting the business at a better level compared to the competition and increasing the hold the business has on existing clients. Suppliers Tesco realized the importance of an effective and efficient supply chain to the performance and success of the business. The result was the development of the most effective supply chain for the business consisting of trusted suppliers in both the local and international market. The effect has been the ability of the business to ensure Competitors The main competitors to Tesco in the United Kingdom market include Asda owned by Wal-Mart, Sainsbury, and Morrison’s that have a substantial market share compared to the market share of Tesco. Other competitors and their respective market shares are labeled in the table and chart below depicting the high control and grip on the UK market share by Tesco. This is attributed to aggression of Tesco in prices and provisions of value to the consumers that have enabled the retail giant to have the highest market share I the United Kingdom (Dransfield, 2010: 139). Distributors Effective distribution channels through direct customer sales has enabled Tesco to understand client needs and be responsible for all actions by the employees. The effect has been the ability of Tesco to ensure quality service and client needs are met within the period. Development of a Tesco culture has also been the impact of direct sale distribution augmenting customer loyalty, sales, market share, and revenue at Tesco. Critical success factors Success in the retail market requires businesses to have certain competitive success factors owing to the high competition in the market. For Tesco are overall cost leadership, differentiation, and market focus. These factors have been very influential in local and global expansion of Tesco. Resource capability Analysis Tesco has resources, capabilities, and competencies that have allowed the business serve millions of clients through 3370 stores in three continents effectively. Strategic location of stores, high growth rate of businesses, multiple operating formats of the stores, access to finances easily, ability to expand into new areas, effective customer care, and environmental conservation efforts, and ability to incorporate technology in its business. 1. Financial Resources The profit and loss statements from 2010 to 2014 are depicted in the following table depicting the resource capability of Tesco in terms of finance. Profit & Loss Year Ended 22 February 2014 2013 2012 2011 2010 £ millions Turnover 63557.0 63406.0 63916.0 60455.0 56910.0 Operating Profit 2631.0 2382.0 4182.0 3917.0 3457.0 Net Interest -432.0 -397.0 -235.0 -333.0 -314.0 Profit Before Tax 2259.0 2057.0 4038.0 3641.0 3176.0 Profit After Tax 1912.0 1528.0 3164.0 2777.0 2336.0 Tesco is in a position to support future strategic initiatives owing to the presence of high profits and revenues from the operating profits before and after tax. Tesco has £ 1912 million as indicated in the 2014 profit and loss statement allowing the company to meet its strategic initiatives. 2. Human Resources Tesco has over 300,000 employees with the company being in a good position to provide training and career development opportunities. The development of human resources in the company has been effective allowing Tesco generate a high retention capacity of 84.1% depicting the good care and responsibility for the employees by the company. The company also ensures the employees are happy at the organization because of the policy of appointing directors, store managers, and department managers from the existing employees of the company who are well versed with company operations and culture. The presence of happy, dedicated, and motivated employees is a resource for Tesco that has been monumental in driving the strategy and initiatives to fruition and success. 3. Physical resources Tesco has hundreds of establishments carrying its brand in strategic locations in the United Kingdom and other global locations. There are varied types of stores at Tesco to ensure convenience and dedication to different customer bases including Homeplus, Superstore, Metro, Express, and Tesco Extra allowing for the business to generate profits and revenue from its operations. The large capacity and enormous area covered by Tesco stores are represented by the following table depicting the different formats and square meters covered by the company i9n its global operations. An increase of stores by 224 3vidences the huge and 3370 stores shows the huge amount of physical resources of the company. An expansive physical resource allows Tesco to provide the convenience to the consumers, getting closer to consumers, and have better positioning compared to its competitors. Format Number Total area (m²) Total area (sq ft) Mean area (m²) Mean area (sq ft) Percentage of space +/- Stores 2013/14 Tesco Extra 247 1,636,023 17,610,000 6,624 71,296 42.85% 9 Tesco Superstores 482 1,310,862 14,110,000 2,761 29,274 34.33% 1 Tesco Metro 195 203,551 2,191,000 1,044 11,236 5.33% 3 Tesco Express 1,672 360,743 3,883,000 216 2,322 9.45% 125 One Stop 722 106,095 1,142,000 147 1,582 2.78% 83 Tesco Homeplus 12 48,588 523,000 4,049 43,583 1.27% 0 Dobbies 34 152,175 1,638,000 4,476 48,176 3.99% 2 Total 3,370 3,818,036 41,097,000 1,133 12,195 100% 224 4. Intangible Resources Success in the roll out and use of loyalty system through the Tesco Loyalty card makes Tesco one of the global organizations that have been successful in managing its loyalty system. The use of Tesco club card has allowed Tesco to have access and loyalty from many consumers. The customers who have both the Tesco club and loyalty card ensures guaranteed clients for Tesco in the different global locations of the company. Other intangible resources for the business are goodwill, provision of quality goods and excellent service allowing the business to be the best choice for the consumers of any of their products and services. 5. Value Chain Analysis Value chain analysis allows for the understanding of the areas in which Tesco gains competitive advantage over its competitors. a. Primary Activities Tesco uses the stack them high and sell them cheap strategy in the retail provision of goods and services in the company. The strategy allows for a large amount of goods displayed by the company for the consumer convenience and choice. Tesco makes use of local, established suppliers for their products with British farmers providing meat, and greens and Red Tractor Standard ensure the products meet quality standards. Individual stores take on marketing, personnel development, operations, and service. b. Support activities The support activities at Tesco include ensuring local producers and suppliers provide the company with products and supplies, as a CSR initiative. Diverse staff is provided with career development at individual and corporate level at Tesco through a career development program including apprenticeship, training programs, and agenda. Care for employees, suppliers, and other stakeholders are the other support activities carried out at Tesco. c. Core Competencies Tesco has certain competencies that cannot be replicated by the competition as outlined in this part of the study. 1. Card Club Introduction of Card club by Terry Leah was not received well by the members of the organization but the success and achievement that have been accrued from the card is enormous and formed the basis for emulation by other retailers but Tesco has been the most successful. Loyal buyers to Tesco are showed appreciation through provision of loyalty points from their Tesco purchases irrespective of store location (Ma, 2014). Gathering points allows the consumers to access gifts and vouchers for merchandise. Tesco has demonstrated utmost competency in the loyalty card allowing for the development of effective loyalty base and augmented access to new consumers. 2. The Tesco Database and Information Technology The other competency that has been unmatchable to Tesco’s by the competition The Tesco Database and Information Technology that has allowed Tesco to understand the number, need, and preferences of the consumers and meet it well. Use of Tesco.com and loyalty card allowed Tesco understand client needs, provide e-commerce services creating convenience, and provision of click and collect services for consumers are the other areas that have develop from the Tesco database and IT. Innovation and new platform provision by Tesco depict the commitment of the company to provide the best for the consumers. From the above analysis, it is evident that Tesco has enough resource capabilities to meet future strategic initiatives and grow further beyond its dominance in the United Kingdom market. The core competencies at Tesco are also the basis for further development and growth at Tesco. Strategic Fit Analysis Analysis of the strategic fit at Tesco is done using SWOT analysis that allows the realization of the ability of the firm to use its strengths and weaknesses fit the opportunities and threats in its market environment. SWOT is an economic acronym and tool for the analysis of the strengths and opportunities for the business and their use in overcoming weaknesses and threats. Tesco’s SWOT analysis shows different aspects and capabilities in the company that has allowed the business to be a global retail giant. Strategic Fit Analysis Table Tesco SWOT Analysis Strengths Well-developed brand Loyal customers Growing appeal to customers Loyal, proud staff at Tesco Weaknesses High amount of loans High credit card debt Dependence on UK market Threats Competition from established brands Slow economic growth Competition offering better quality at low prices Loss of upper social class customers Emergence of new competitors Opportunities Internet marketing and ecommerce Augment non-food product offering Offer more skin care products International growth Increase customer base Strengths Tesco has a number of strengths that have allowed the business to overcome different challenges including having a well-developed brand that resonates with many consumers for quality and affordability. The second strength evident at Tesco is the presence of loyal customers who were there for the business at all times. The impact of the high customer loyalty is the growth of Tesco despite the effects of the 2008 financial crisis that affected a lot of businesses and firms reducing their profitability and limiting their growth. Strength of growing appeal to customers is evident at Tesco after the company introduced many innovative choices for consumers including online purchases, click, and collect services and offering a wide range of products at affordable prices. The other strength at Tesco is loyal, proud staff working for Tesco allowing for efficiency and effectiveness in meeting client requirements and business performance (Kumar & Reinartz, 2012: 128). Customer loyalty and ability to meet customer needs is demonstrated by the ability of the company to generate increased sales and revenue in the different products offered to the consumers as depicted in the charts below: Caption: Sales and revenue growth at Tesco Weaknesses There are, however, weaknesses that affect Tesco including high amount of loans that facilitated the expansion of the company at an amazing rate reducing the credit potential of the business. The other weaknesses at Tesco are high credit card debt levels and lower prices focus reducing the revenue generation and profitability of the business. The high dependence on UK market is another weakness, as a sluggish UK economy will have huge effects on the performance and profitability of Tesco. Opportunities There are opportunities for growth and developments at Tesco that will enable the business overcome the threats and reduce the weaknesses. These opportunities include the use of the internet for the provision of products and services offering speed, availability, and facilities to the consumers. The other opportunity for Tesco is offering more non-food products to allow for the growth of sales for the company further in both the UK and global markets. Tesco has achieved the spot as the fastest retailer of skin care products making this another opportunity to drive further growth for the company in the future. Other opportunities that present growth and development channels for Tesco include availability for international growth and increasing customer base through the loyalty card and online programs offered by the business. Threats Tesco has been in a position to make its main threat opportunities through reducing food prices to fend off threats from other established brands. The reduction of the prices during the recession enabled Tesco to have a greater and tighter grip of the UK market turning the threat of low revenue and profitability from the recession to high market share and sales. The threat of being beaten by the competition on price and quality still looms for Tesco and has to be evaluated and dealt with before it stifles the growth and development of the business. Tesco has predominantly provided products at low prices to beat the competition to the customers, thereby compromising on quality resulting in the loss of clients from the upper social class. Emergence of new competitors in the retail market is a threat that faces Tesco. It is evident that Tesco has excellent strategic fit evidenced by market leadership in the United Kingdom, competitive advantage over the competition, and economies of scale. Understanding of the market, the retail sector, and environmental issues in the food retail industry and country, and high experience also depict this situation. Rising market share show that Tesco is successful in overcoming the threats from the competition using consumer knowledge and client management. Tesco manages to use these factors to develop new products innovatively and venture in new investments. References BALCHIN A. (1994) Part-time workers in the multiple retail sector: small change from employment protection legislation? Employee Relations, Vol. 16 Issue 7, pp.43-57. CLARKE I., BENNISON D. AND GUY C. (1994) The Dynamics of UK Grocery Retailing at the Local Scale, International Journal of Retail & Distribution Management, Vol. 22 Issue 6, pp.11- 20. DRANSFIELD, R. (2010). AS level for OCR applied business: GCE AS level single award. Oxford, Heinemann. GRAISER A. AND SCOTT T. 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