Tesco and the the UK Grocery Retail Industry - Essay Example

Tesco and the UK Grocery Retail Industry Answer the following questions according to the case Using PESTEL model to analyze the industry. As seen in the case there are several factors that have been affecting the various grocery stores. The factor that affect the performance of the stores are external and hence a PESTLE analysis for the same needs to be conducted. This analysis will allow us to analyse the industry and will also allow gaining an idea on how the high streets dream for the supermarkets is being affected. Political Factors: The government has brought in a number of schemes for the industry. This would mean that the businesses involved in the industry to practice (a) general decrease on the prices of the services offered, (b) greater quality of products and services variation, and (c) continuous innovation and development in product designs, services methods, as well as in production and distribution systems. This makes it very difficult for the supermarkets to be able to perform on the high streets. Economical Factors: The economic situation has been highly associated with the active and the dynamic exchange of goods and services done with the increased contribution of different business firms in line not only with national but with the whole globalization trends, in particular. As stated in the case, ‘There is a widespread belief that many small shops will have ceased trading by 2015 with few independent businesses taking their place ... Their loss will damage the UK socially, economically and environmentally.’ Contract management and outsourcing strategies root from the complex and sophisticated demands of the market and the distinct objectives of business companies to offer excellent customer value through excellent products and efficient services. Social Factors: The economic blueprint of the region is reflective of the current socio-cultural trends that characterize its people. As active consumers of products and clients of services, the market can be provided with the continuous supply of products and services that meets the multifaceted needs and dynamic necessities and specifications of the public. Environmental Factors: These market demands include quality, efficiency, and customer satisfaction. This further resulted to trends in technological advancement particularly on production and delivery of products and services to meet up to customer necessities and to increase the productivity and revenue of the businesses. A high street store definitely requires a high amount of care for the environmental factors and is influenced to a great extent by these factors. 2. Using Porters Five Forces model to discuss the competitive pressures in the environment in which Tesco exists. As noted in the previous question and also in sync with the case, it has been seen, that the Porter’s Five Forces also influence the companies to enter into the high street stores to a great extent and the below mentioned forces help understand the reasons to a great extent. Firstly, the barriers to entry are very low in this industry. Cost advantages can be minimized by smart outsourcing of production, and doing so can allow new entrants in the market with relatively little capital requirements. As seen in the case there are several small grocery stores that are being opened every single day on the high streets. These form a great threat to the super markets. However, building an appealing brand image is crucial to success, and this is where new entrants may have difficulty. Additionally, acquiring the necessary distribution points may prove challenging as a newcomer, and so some obstacles do exist for newcomers. Secondly, considering the buyer power, the current period has had a number of issues with the buyer power of the nation. This is mainly due to the recession. However in the case of Tesco, the threat is relatively low as the company operates on providing the customers with ‘Everyday Low Prices’. Also, in the current markets, it is the consumers who dictate what will sell and what won’t – ultimately, if they disapprove of the item, then it will not be sold. Next the supplier power, as seen in the case, since there are many suppliers in the industry, and there is little room for forward integration or differentiated inputs as many of these suppliers outsource production to the same or similar factories. In this industry it is the end consumer who must accept the product for it to be successful, and with no shortage of competing brands, the supplier has a limited ability to control the market. In the case of Tesco again this is relatively low as the company does apart from the various brands also manufacture their own brands. Hence this gives them an edge and allows them to be able to cope with the supplier power. Also, the threat of substitutes is relatively low in this industry. However if considering this in terms of Tesco alone, then it is seen that the company is faced with a number of threats as the number of substitutes in the market are many. As seen in the case, companies like Sainsbury, Morrison and many more act as a substitute threat for Tesco. Lastly, the rivalry is extremely high and this industry is very competitive. The case highlights that there are many competitors offering similar products, and brand identity is crucial for success. Additionally, short-term performances can be quite volatile given the number of external factors that could effect sales, ranging from current trends to weather and major current events. It has been seen that despite being the best and most dominant chain store in UK, the company has not been able to meet up to the competition that it faces from others like Sainsbury. 3. Using SWOT model to analyze Tescos strengths and weakness as well as provides an high level overview of the opportunities the companys can capitalize on and threats it could face in the immediate future. Based on the information from the case, and a brief understanding of the market, the following SWOT analysis of the company can be drawn out: Strengths -      Direct Access to market - base -      Good strategic positioning has been the foundation of company’s success -      High employee productivity as a result of its good scheme -      Vibrant and independent culture is supported with a generous profit-sharing plan and stock ownership plan for all employees -      Technology innovations -      An efficient management team -      Constant focus in the company’s mission -      Strong relationships with different groups and organizations that always host functions and parties -      Excellent staff who are superiorly trained and very customer oriented -      Economical services -      High quality services -      High loyalty from customers Weaknesses -          High levels of globalisation -          Increasing use of technological developments across the world -          The very steep competition in the industry -          The higher costs involved and the selling prices are relatively much lower Opportunities -       Additional content area or development -       Joint ventures with other company paves way for integrating new business -       Starting up of a catering business -       Consumers want to effortlessness of catering a function or a party -       Growing opportunities in catering services. -       The steep learning curve that Tesco can increase and improve on the technology being used -       Developing many long-term clients -       The company can form additional alliances that will inculcate the culture and business systems of a foreign neighbour and other business enterprise to support its foreign growth approach Threats -       Small towns with growing businesses do not want entry of Tesco. -       Variety of competition in the national, regional and local market. -       There is a powerful competition among alternate and substitute products. -       Rivalry among with similar companies in the industry. -       There are other established and thriving companies in the industry. -       The economy’s situation that reduced client’s finances for parties. 4. Identify the type of strategies (using Ansoff’s Growth Vector Matrix, Porter’s Three Generic Strategies) pursued by Tesco, Sainsburys and Asda. Identify the methods (eg. internal development/ Joint development/ Acquisitions…) pursued by Tesco, Sainsburys and Asda. Discuss the reasons they may have been pursued. Ansoff’s Matrix: Market Penetration: The companies have managed to penetrate into a number of different markets at present. The three companies however still need to improve on this element of the business. Market Development: Also as Tesco, Sainsbury and Asda are already recognized to be the biggest and best in the industry in the UK, the companies have had plans of expanding into other countries as well. Product Development: The companies are already known for the differentiation in terms of the products, however the company can increase the horizontal differentiation to a greater extent to thereby provide the users with a larger choice to choose from and increase customer satisfaction. Diversification: Tesco also has high chances of diversifying into a number of businesses across newer markets. The company can develop new products for the new markets which will thereby increase its market presence and recognition across the markets. Of the three companies, Tesco has used this matrix to a great extent and is one of the only companies that has a strong chance of diversifying as well as higher market penetration, development and also product development. Porter’s Generic Model: Considering the three companies based on the above model, it is seen that the strongest among the three is Tesco. This is mainly because the company has a strong hold on the markets based on the cost and are market leaders when compared to the three companies. It is known for its cost effectiveness and also for the differentiation. Also when considered Tesco has a more focused and well structured strategic plan and the company has placed a strong focus on the markets and caters to all levels of society. Tesco has utilised the ‘Internal development’ model for its working and the company is known for its constant efforts to improve and become more effective every single day. This is clear from the comment which has been made in the case by the Corporate Affairs Director, Lucy Neville-Rolfe, "Some new (research) which Tesco sponsored but was being produced by independent academics ... found that the opening of Express stores makes local shopping more attractive and they found there was no negative impact on local independent retailers". The main reasons for the every evolving and improvement – involved company is due to the fact that ‘nothing is irreplaceable’. Tesco is aware that in a competitive world like now, if a company does not work constantly on improving the services and the products, there are high chances for the company to be replaced and not remembered. This is clearly seen in every step of the company and the ever lasting strives of the company to be different from the rest of the market. Also the aim to be able to provide something for every sector of the society is one of its best features. This along with the ever lasting need to improve, is the combined factors for the company’s success. 5. Gives suggestions for Tesco, for maximizing market share and revenue, managing the external environment, and strategies to make best of competences, resources and opportunities available At present Tesco holds a very strong position in the market share and also in terms of the revenues. The company currently ranks number one in the market. This shows that the current market strategy used by the company is strong and allows for a strong market share. However if the company aims at expanding to help utilise the resources better and also for using the opportunities well, then it can be recommended for the company to move into the catering sector. This is a very large market. The catering industry is a steadily growing industry and the value of the industry has seen a continuous growth over the past few years. Hence this could prove to be very beneficial for the company and will also help the company improve and widen its already famous brand image. For the start of the business, it would be best if the company concentrates on catering for regular as well as the luxury events. Once the company has been able to gain a strong market customer base in these sectors, there can be a lot of improvements and the company can consider moving into the airline catering services, corporate catering services. Read More