Employability and Corporate Appraisal of Tesco - Report Example

CORPORATE APPRAISAL OF TESCO Table of Contents Introduction 3 0 Corporate Appraisal: 3 1 SWOT Analysis: 3 2 PESTLE analysis 4 2.0 Strategic Issues faced by Tesco 6 2.1 Internal Issues 6 2.2 External Issues 6 Conclusion and Recommendation 7 Reference list 8 Introduction In order to assess the financial and market position of an organization, corporate appraisal is used. It involves an organizational audit which gives a clear picture of where the company stands in the industry, by assessing the company’s strengths and weakness. These audits are done by unbiased third party auditors to confirm the company’s claims about its current financial and market positions (ICAEW, 2012). From a stakeholder’s point of view, the corporate appraisal is very crucial as it provides a trusted opinion on the financial statement of the organization. This study is an attempt to highlight the corporate appraisal process of Tesco. It covers the strength and weakness of the company and also its current financial position. Tesco, headquartered in Hertfordshire, England, is a multinational grocery and merchandise retailer. It was founded in 1919 and currently makes revenue of £ 70.894 billion (Tescoplc, 2014) 1.0 Corporate Appraisal: 1.1 SWOT Analysis: A SWOT analysis has been done in order to assess the current market situation of Tesco. Strengths Tesco is a global retail brand and it holds the fifth position in the category of brand valuation (Brand Finance, 2014). It is best known for offering value for money, convenience to customers and a wide range of products. Tesco currently own 6,784 stores. The company has established small local stores known as Tesco Metro and Tesco Express. These stores are convenient for customers who cannot travel long distance to visit a bigger store (Chiraldi, Smith, & Takahashi, 2012. Tesco benefits from economies of scale, as it buys in bulk and is able to sell a lower price (Tescoplc, 2014). The low pricing also helps Tesco to sustain among other competitors like Sainsbury and Asda. Several customer retention strategies are also employed like issuing Clubcard, which builds a long term relation with the customers. Weakness Tesco manages a very wide range of business units due to which the company is unable to focus on all of them equally, this causes deviation from its core competence. Tesco’s revenue is also affected by a lot of credit card defaults and bad debts and a large number of insurance claims (Ruddick, 2014). The company also lacks experience in some sector in which it wants to enter, like the smart phone and electronics business. A lot of investment is required in the IT and web technologies and also to refurbishment of its stores (Bunn and Ellis, 2012). In 2013, Tesco faced an allegation that their Everyday Value Spaghetti Bolognese contains horsemeat. After this scandal, a third of UK population said on an opinion poll, that they are less likely to buy processed food (BBC, 2013). This has eventually decreased their processed food sale. Opportunities Tesco has many expansion opportunities in the digital entertainment business, through investment in Blinkbox (Hall, 2011). Expansion of its online shopping sector will offer great market penetration. Customers who cannot visit the store due to a busy schedule will be able to benefit from this (Stevenson, 2014). There is overseas expansion opportunities in Australian market, where the competition in the grocery retail is much low and the market is also very price sensitive (Clarke, 2012). Threats Tesco’s high ranking makes it a target for its competitors like Asda, Morrison’s, Sainsbury, etc (Euromonitor, 2013). After the takeover of Asda by Wal-Mart, stores are branded at Asda Wal-Mart in UK. This takeover is a big threat to Tesco. Consumer intolerance and town planning has affected the livelihood of small shops and can also impact the expansion strategies of Tesco (Euromonitor, 2013). 1.2 PESTLE analysis The PESTLE analysis focuses on the unpredictable and dynamic environment in which Tesco is running its business. It identifies the forces which has an impact on Tesco’s operation. Political The UK government has helped Tesco by building a good infrastructure that would boost business. The new A11 highway, would provide good communication, thus, Tesco will earn extra income in Theftford as more traffic will be passing through. European Union allows free movement of products, services and capital between 27 countries. This helps Tesco to expand its business. After China removed all barriers of entry for foreign traders, it has become a lucrative opportunity for Tesco to do business in China (Tomlinson & Evans, 2010). The employment legislation encourages offering a range of job opportunities. Tesco’s business is highly influenced by the political factors of the countries in which it operates. Economic The economic factors impact the buying behaviour of the customers. Factors like recessions reduce the purchasing power of the customers and eventually hamper the revenue of the company. Although Tesco operates globally, still its major revenue generation is still dependent on the UK market. Hence, any change in the UK food market will proportionately affect the business of Tesco. Currency exchange rate fluctuations also impact the profit margin of the company. In 2009, Tesco reported that it had incurred a loss of £142 million the Fresh and Easy business in US (UK BBC, 2009). Social The change in trend from ‘one stop’ to ‘bulk shopping’ has led customers to rush to superstores like Tesco. Certain demographic factors like the aging population, the rise in number of female workers, the decline in homemade meals result in introduction of value added products and easy to serve foods. Technological Technology acts as a major macro economical factor which influences the operations and supply chain of the company. The use of internet for online grocery retailing is lucrative for Tesco, since the trend of online shopping is growing every day (Hall, 2011). Smartphone apps enable users to directly buy selected Wines from Tesco. Environmental Use of environmental friendly packaging is promoted by the government. Due to increase of environmental awareness, Tesco has decided to add carbon foot print data on their dairy products and vegetables. Customers who recycle packaging material and old electronics are rewarded with Clubcard points (Tescoplc, 2014). Legal Legal factors like VAT affect the pricing of Tesco’s products. Government legislations, for instance the Food Retail Commission suggested for an enforceable code of practice which demands the banning of payment from suppliers and changing agreed prices without notice (Stevenson, 2014). 2.0 Strategic Issues faced by Tesco 2.1 Internal Issues BlackRock, the second largest stakeholder of Tesco has sold a large amount of stake, because of the £250 million scandal, reported by Standard and Poor. BlackRock now controls less than 5% of Tesco’s stocks. Tesco’s credit worthiness was put on review and is currently under investigation. This has led a panic wave among the stakeholders (Butler & Treanor, 2014). Recently, on September 24, 2014 Tesco has faced a severe downfall in its stock price. The key investor said that, it was due to governance problems in business and the board lacks retail experience (Ahmed, 2014). 2.2 External Issues The external issues can be best described by Porter’s five forces analysis of the company. In the food retail business, the small chain convenience stores and other organic stores act as a substitute for Tesco (Chiraldi, Smith, & Takahashi, 2012). To eliminate this risk of substitution Tesco has established Tesco Express in local towns. Threat of New entrant: The threat of new entrant in the retail industry is high, because entry barrier is low and customer’s switching cost is also very low. But specifically in food retail this threat is not there, because it requires huge capital investment in order to be competitive in the market and for establishing a brand name. Bargaining Power of Buyers: The buyer’s bargaining power is quite high. In the retail industry the products are all standardized and differentiation is very low, as a result, buyers can switch easily from one brand to the other. Bargaining Power of Suppliers: The suppliers have very low bargaining power, because their business is dependent on the contracts with the retail giants. Tesco position can be strengthened by negotiating with suppliers for supplying at a lower price. Rivalry among competitors: The competitive rivalry among retail giants is fairly high. Tesco faces steep competition from its direct rivals like Asda, Sainsbury and Morrison’s. They compete with each other over price and promotion. Also, small scale retailers pose a competition to the retail giants (Wood & McCarthy, 2014). Conclusion and Recommendation It can be stated that, Tesco has built a strong presence both in food and non-food retail business. In order to reduce procurement cost, the company can go for vertical integration. The entire business operation should be integrated vertically; this will allow the company to have a firm control on the entire business operation. For expansion, it can start acquiring small retail firms in markets where Tesco does not operate. The entry in to the technology and electronics business will be more profitable if Tesco ties up with an existing brand in the industry. The diversified product portfolio is likely to increase customer’s reliability on the brand. Overall, it can be concluded that creating business sustainability in the competitive scenario with the help of appropriate strategic decisions and activities are essential for Tesco. Reference list Ahmed, K., 2014. Tesco investors put Sir Richard Broadbent in the frame. [Online] Available at [Accessed 12 October 2014] BBC. 2013. Horsemeat scandal: Tesco reveals 60% content in dish. [Online] Available at [Accessed 12 October 2014] UK BBC. 2009. Tesco achieves £3bn annual profit. [Online] Available at [Accessed 12 October 2014] Brand Finance. 2014. UK Most Valuable Brands. Available at http://www.rankingthebrands.com/The-Brand-Rankings.aspx?rankingID=152&year=808 [Accessed on 12 October 2014] Bunn, P., and Ellis, C., 2012. Examining the behaviour of individual UK consumer prices. The Economic Journal, 122(558), pp.35-55. Butler, S., and Treanor, J., 2014. Pressure mounts on Tesco chief as second-largest shareholder cuts stake. [Online] Available at [Accessed on 12 October 2014] Chiraldi, P., Smith, H., and Takahashi, Y., 2012. Estimating a dynamic game of spatial competition: The case of the UK supermarket industry. LSE Working Paper. Clarke, I., 2012. Consumer satisfaction with local retail diversity in the UK: Effects of supermarket access, brand variety and social deprivation. Doctoral dissertation, Department of Marketing, Faculty of Business and Economics, Monash University, Australia. Euromonitor. 2013. Tesco Plc in Retailing. [Online] Available at [Accessed 12 October 2014] Hall, J., 2011. Tesco to offer video-on-demand services. Daily Telegraph, 21st April 2011. ICAEW. 2012. WHY IS AUDIT IMPORTANT? [Online] Available at [Accessed 12 October 2014] Ruddick, G., 2014. Tesco’s new chief executive handed £700m war chest. Daily Telegraph, 29th August 2014. Stevenson, T., 2014. Tesco share slide has investors catching a falling knife. Daily Telegraph, 29th August 2014 Tescoplc. 2014. Our businesses. [Online] Available at [Accessed 12 October 2014] Tescoplc. 2014. Preliminary Results 2013/14. [Online] Available at [Accessed 12 October 2014] Tomlinson, H., and Evans, R., 2010. Tesco stocks up on inside knowledge of shoppers’ live. [Online] Available at [Accessed 12 October 2014] Wood, S., and McCarthy, D., 2014. The UK food retail ‘race for space’ and market saturation. A contemporary review. The International Review of Retail, Distribution and Consumer Research, 24(2), pp.121-144. Read More