Tesco Is Highly Concern To The Economical Factor Law Essay
Tesco is a successful retailer brand and operating in Europe and Asia. Due to the Globalised environment, Tesco’s performance is influenced by political and legal conditions of those countries. As Tesco is operating in Europe and Asia, labour laws and government regulations are totally different. Tesco abiding laws of both regions countries.
Tesco is highly concern to the economical factor because it’s probably to affect demand, costs, prices and profits. Tesco is mainly targeting middle and low class people and trying to as lower their prices as they can to make it affordable to anyone. Recessions leads to high unemployment and decrease the effective demand for many goods and badly affect the demand required of producing goods.
Tesco react well to the social changes, as the present trend shows the byers looking to buy everything from one store rather than buying from different stores. Therefore Tesco increased the number of non-food items for sale.
Increasing number of female workers, home meal preparation is decrease Tesco is also focused on value added food items. The customers are now becoming more conscious about health issues and Tesco is now increasing demand for organic products as well.
Tesco is become the first company to allow its customers to pay by checks and cash for their shopping.
The new technologies value both company and the customers. It save time, make the work faster and company can add values to their products and serve the customers effectively and efficiently. New technology adaptation has influenced developments of many of the Tesco products. Customers are satisfied because of the on-time availability of the products and improved customers services.
The launch of the Efficient Consumer Response (ECR) initiative provided the shift that is now apparent in the management of food supply chains.
Data monitor Report, 2003
Tesco stores use different technologies to enhance customer satisfaction, like Wireless Devices, Self-checkout machines, Radio frequency identification etc.
“Corporate social responsibility is concerned with the ways in which an organization exceeds the minimum obligations to stakeholders specified through regulation and corporate governance”.
Johnson and Scholes, 2003
Tesco works in the way overall benefit to the society. Since Tesco sells mainly food and drink items, so societal issues are more threatening to it.
“Leading by example Tesco successfully cut their carbon emissions per square foot of net sales area from 2006 to 2007 by 4.7%”.
A new CO2 refrigeration system has already been designed and installed helping reduce carbon emissions, because in stores and during transportation 19% of the Tesco’s carbon footprint leads to new technologies.
Tesco also working on reducing waste created during operations and product packaging.
Tesco has an automated recycling facility and it’s the first to have automated recycling units.
There are many government legislations which directly upset Tesco’s performance. As Tesco is a multi-national chain of the retail stores it is obliged to obey legislations of every country where it is operating. E.g. general food laws, the food standard act, European legislations, hygiene legislations and legislations against child labour etc.
Porter’s five forces
A model that describes the interaction of external influences (forces) within an industry that presents threats and opportunities for an organisation.
Phill Kelly 2008
Porter theorized that, the more products that become standardized or undifferentiated, the lower the switching cost, and hence, more power is yielded to buyers.
Porter. M 1980
As Tesco mainly is a FMCG’s retailer and has the strong competitors in the market like ASDA and Sainsbury. That’s why Tesco customers are in more power.
The only way to survive in the market is to ensure good customer service, low price, better choice, continuous stream of in-store promotions, value added products and innovation. From the past few years we have seen Tesco to sell non-food items like clothing and insurance.
Tesco having large number of suppliers all over the world which gives Tesco competitive advantage over its rivals. Supermarkets like Tesco and ASDA made purchases in bulk, so they are in better position to negotiate with their suppliers. There is numerous numbers of suppliers all around the globe, which leaves suppliers with less power.
Tesco is offering low price and high value products to its customers. As retail
Industry is matured and highly competitive; one has to be innovative in its approach to survive in the market. Tesco is now offering different types of products and services under one roof, ranging from food to medicines and mobile connections etc. Tesco has to face stiff competition from ASDA and Sainsbury as they are offering similar products. So in this case Tesco’s competitor’s power is high.
General substitution is able to reduce demand for a particular product, as there is a threat of consumers switching to the alternatives
Porter. M 1980
There is large number of substitutes available in retail industry and more small grocery shops are entering the industry. To cope up with this Tesco has opened express and metro stores in town centres and small towns. So the threat of substitute is high for Tesco.
New Entrants Threat
As Tesco has invested large sum of money in acquiring new technology and building infrastructure. It has firm control over supply chain and following economies of scale. So it is very difficult for the new entrants to follow these standards. Tesco, ASDA and Sainsbury has 70% shares of the retail market, so market become saturated and difficult for new entrants to survive.
Tesco adopted low cost (cost leadership) strategy. As the Tesco has a good control over its supply chain and get benefits from economies of scale which enable it to provide low priced products to its customers.
Tesco’s main competitors ASDA and Sainsbury fall in same strategic group as they are also following the low cast strategy. Sainsbury also following customer focused strategy.
“The subdividing of a market into distinct and increasingly homogeneous subgroups of customers, where any subgroup can conceivably be selected as a target market to be met with a distinct marketing mix”
Kotler et al 1999
Tesco is following psychographic as well as behavioural segmentation. Social class is widely used psychographic classification as it is targeting the middle and lower middle class. Tesco creating loyalty by creating new benefits sought. Benefit sought includes anything that the consumer value in a product or service. E.g. low price, speed, ease of purchase and time saved etc.
Tesco currently operates in 13 countries with 4811 stores. Tesco providing good services to its target market, and it’s very evident from its revenue 62.54 Billion in February 2010.
Tesco is operating much better than its competitors, as its stores are in big cities and small towns and convenient to everyone.
Critical Success Factor
Tesco’s critical success factor lies on branding and its reputation, IT integration and effective management of its supply chain.
Tesco has strong brand image, customer view Tesco as reliable and quality products provider. Tesco built a strong brand image to its customer’s mind by innovative way by proving paying in facility through checks and cash as well as introducing Tesco club card and loyalty card system.
New technology adoption minimise cost and saves time. Technological changes force companies to innovate at extraordinary speed of continuous improving the products, services and processes. Through IT integration Tesco control stock and keep all the stock and deliveries record. Tesco also installed self-check-out machines to ease its customers and electronic shelf labelling, intelligent scales and radio frequency identification system, which enables Tesco to be market oriented and innovative. Tesco improve long term relationship with the suppliers. Tesco manage its suppliers in and outside UK to become more competitive on price and volume.
Tesco’s Internal Analysis
Supplier performance has to be determined by the way in which company's resources are deployed to create competence in the organisational activities.
Johnson and Scholes 2003
Tesco’s core competency lies in its operational and management level. Tesco is performing better than its competitors in operational level. The most value added to Tesco service and its deliveries is at critical and central areas. Tesco has a flexible business environment and adopted rapidly changing technologies as it has introduced loyalty cards.
Tesco clearly defined its targeted segments and then successfully formulated strategy to serve those targets. Tesco is providing its customers, customised and efficient services based on excellent customer relationship management.
Tesco’s culture is another important aspect of its core competencies. Tesco has developed a culture of friendly environment among staff members and those outside who are associated with Tesco, e.g. suppliers and customers.
One of the Tesco’s unique resources is its friendly and well trained staff as Tesco invests a lot of money in training the staff. Tesco has firm control on suppliers which allows Tesco to have better control over its prices. The infrastructure is another unique resource of Tesco as have massive building where they can offer everything under one roof, both foods to non-food item. Tesco always adopt new technologies manage its business processes in more effective and efficient way.
Porter’s Value Chain Analysis
“Internal and external factors lead to the value chain of an organisation. Porter argues that organisation can achieve competitive advantage by performing key activities in value chain better than competitors. These key activities are divided into primary and secondary activities”.
Johnson et al
Tesco follows economy of scales and using its market reputation well and influences its suppliers in order to offer its products at low prices.
At operational level Tesco fully utilizes its IT advancement to facilitate company’s overall cost leadership strategy.
Tesco has a wide range of store according to targeted population in big cities and small towns to serve maximum number of customers.
With technological advancement Tesco introduced club card to their customers, to remain loyal and satisfied.
Tesco has been able to manage its primary and secondary activities in effective and efficient manner to enhance its profitability through its suppliers, Tesco itself and its customers in primary and secondary activities. This integration of primary and secondary activities leads Tesco to sustainable competitive advantage and cost saver.
Tesco hold most of the UK’s grocery market share and ranked 3rd largest grocery retailer of the world. Tesco serving in 13 countries with 4811 stores. The company held 30.7% share of the UK grocery retail market in 2010.
Tesco is a good brand name and has a strong reputation of quality products and excellent services and adopted innovative ways for improving customer’s shopping experience. As Tesco has suppliers all around the globe and have dominant position over its suppliers is another strength factor of Tesco which enable it to offer products and services on low price to their targeted segments. Tesco has a clear customer retention policy and introduce Tesco’s club card, this is another strength factor which allows Tesco to retain their customers from switching to other substitute retailers like ASDA and Sainsbury’s.
According to Mintel (2010), a number of products were recalled by Tesco in 2009 that has resulted in a financial loss as well as damage to its brand image. As Tesco is basically a grocery retailer, it overburden by selling non-food items as well. Tesco is still relying on the UK market and there is a lack of geographic diversification as it is subjected risk to the UK market.
Food is one of the basic need of the human being so there are always been opportunities in this sector. According to Euromonitor, 2010, it has been predicted there will be rise in the food retail segment from £125b in 2009 to £145b in 2014.
The popularity of Tesco.com is growing rapidly, accounting for over 1 million customers in 2010.
This is an opportunity for the Tesco to attract more customers and earn more profit.
A limited franchise agreement has been signed by Tesco with Trent, retailer of Tata group, which is one of the largest industrial corporations of India Daily Mail, 2010
Tesco is now looking for geographic extension and strengthen their position in the retail market all around the globe.
Non-food items are another open opportunities for Tesco like telecommunication, Banking and insurance etc.
Rise in unemployment and inflation and decline in income level affects the buying behaviour of the customers. Company sales are badly affected, especially non-food items.
Competition is the biggest threat to the Tesco as the three other retail giants, ASDA, Sainsbury and Morrison are gaining strength. ASDA is the perfect competitor of Tesco, and compete well on price and variety of goods and services. Tesco well aware of it and maintain the leading position by keeping their prices lower and through special offers on products. Another potential threat is entering new markets for expansion is expensive and requires heavy investment. It may cause in increasing debts of Tesco.
Critical Evaluation of Tesco’s current strategy
Porter’s Generic Strategy
According to Porter there are three different generic strategies.
Cost leadership is the strategy in which a firm lowering their cost of production and distribution from its competitor to win the market shares.
In this strategy a firm offer unique products and services with additional values to their targeted customers.
In focus strategy a company is specialized in one segment and serve them with better quality.
According to porter if a company follow more than one strategy at a time, it might “stuck in the middle” and could easily be substituted by competitors.
Porter said, a company should avoid to be “stuck in the middle” because there is always be a possibility of being excelled by the company following the same strategy. But Tesco, at the same time following the cost leadership and differentiation strategy at the same time.
Tesco’s business strategy can be defined through Bowman’s strategic clock.
Bowman’s Strategic Clock
Considering at Porter's strategies in a different way, in 1996, Cliff Bowman and David Faulkner developed Bowman’s Strategy Clock.
Figure: Bowman strategic clock
Considering Bowman’s strategic clock, Tesco follows the Hybrid strategy which in between the low price and differentiation.
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