Tesco PESTEL Framework
Tesco is the largest organization in the UK and one of the biggest supermarket chains in the world. Tesco is one of the top three supermarkets in the world, Tesco operating over 3700 stores globally and employing over 440,000 people. The company operates in 13 countries outside the UK. There are many factors which contribute directly to the success of this leading super market chain. Business Strategy plays a pivotal role in the success of Tesco.
Tesco was founded in 1920s by Sir Jack Cohen, to setup high street grocery stores in and around London. Tesco name used for the first time in Edgeware London in 1929. The name was drawn from the initials of the company's tea supplier (T.E Stockwell), and Cohen's own name. In 1930s when Mr. Cohen built a headquarters and warehouse in North London, its brand continually rises. In 1932 Tesco formally established as a private limited company. In 1947 Tesco stores (holdings) ltd floated on the stock exchange with a share price of 25p. In 1990s the company introduce a slogan 'Every Little Help', they also introduce Club card scheme in 1995. Tesco personal Finance was introduced in 1997, in order to provide its customers with a wide array of financial services, including visa card, and Tesco saving account in stores bank branches. Today it reported that group sales were £51.8bn in the year to February 23 2008. Pre-tax profit rose to £2.8bn.
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Company Analysis: PESTEL Framework
Tesco is operating in different countries, so due to its globalised operation its performance is highly affected by the Political and legislative conditions of these countries. According to Balchin, 1994 the Govt encourages the retailers to provide mix job from flexible and locally based jobs to highly skilled, higher-paid and centrally located jobs. (Balchin, 1994)
Tesco is also affected by economical factors, such as costs, demand, prices and profits. Unemployment is the most important influential factor which decreases the effective demand for many goods. Basically Tesco is affected indirectly by the economic factor, but their affect on performance and the marketing mix can be learned.
Due to the rapid change in trends, the company expand the amount of non food items available for sale. The UK customers have moved towards one stop and huge shopping, due to the variety of social changes. It also affected by Demographic changes such as population, female worker are increased, so the company will have to focusing added- value products and services.
Technology factors are affected the development of many of the Tesco products. Both customers and company are capitalized from the Technology, because customer satisfaction mount for goods readily available, services becomes more quick and shopping more convenient. The lunch of the efficient Consumer Response initiative provided the shift that is now apparent in management of food supply chains. (Data monitor Report, 2003) The company uses the following technologies:
- Wireless Devices
- Intelligent scale
- Electronic shelf labelling
- Self check-out machine
- Radio Frequency identification (RFID)
- Company's Analysis:
- Porter's Five Forces
Threat of New Entrants
The UK grocery market is primary henpecked by few competitors, including four major brands of Tesco, Asda, Sainsbury's and Morison's that process a market share of 70% and small chain of Somerfield, Waitrose, and lidle with further 10%. However, due to the large operation they built their power to operating efficiency, one-stop shopping and major marketing mix expenditure. Hence, nowadays it possesses a strong barrier for new companies who crave to enter the grocery market. To become a market leader Tesco invest huge money in large chain, advance technology for checkout and stock control system that impact the new entrants and existing ones.
Bargaining Power of Customers
According to Michael Porter, the more products that become standardised or undifferentiated, the lower the switching cost, and hence more power is yielded to buyers. Porters M. (1980). Tesco's famous loyalty card - Club card keep the most successful customer holding strategy that tremendously increases the profitability of Tesco's business. To fulfil customer's needs, custom-make service, ensure low prices, better choices, constant flow of in store promotions enables brands like Tesco to control and hold their customer base.
Bargaining Power of Supplier
Tesco has negotiating better promotional prices from supplier that small individual chains are unable to match. And this is company policy and company main approach to have unparallel relationships with suppliers.
Threat of Substitutes
According to the Porter's theory, General substitution is able to reduce demand for a particular product, as there is a threat of consumers switching to the alternatives (Porter M1980). However in the grocery market this can be seen in the form of product for product, new trends such as the way of small and convenient stores are emerging in the market.
Bargaining Power of Competitors
Tesco is operating in mature market, where growth is difficult, and consumer are extend demanding and advanced, large chains as company take place large amounts of consumer information that can be used to communicate with consumer. Therefore the preponderant market leaders have responded refocusing on price and value, whilst reinforcing the added value elements of their service.
Analysis of Resources, Competence and Culture
For the company, customer is first priorities, by the time of recession, a research shows that price are ranked as the most important margins not seen in twodecades. Therefore the company believe that their job is to help the customer with less spending. So the company launched value line, the famous blue stripes, the company would be able to provide the cheapest grocery shop in the country discounter included. The company maintain its position through a clear focus, well targeted product offer and excellent record both in product and format design.
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Core competence is the processes that critically underpin the company's competitive advantage. Tesco primary target is to recognise that competition between businesses is as much a race for competence as it is for market position and market power. Hence, the Company have to focus the attending on competencies that really influence competitive advantage.
Core competence is basically the process to develop the key area of a business in which the company expert, which bring a distinctive advantage over the competitors, and also critically connected with company long term growth. However, it will be important for Tesco to look at the generic level. Therefore in this case, Tesco's expertise are most likely to mature central area of business where the most value added to its services and its devilries. For example, trust on Tesco brand prevarication at the heart of these services
In addition, Core competencies of a Tesco have rather rigid, but a research shows that core competencies have to elastic, and it should be change in response to change in company's environment over the time. Therefore the company need to accommodate and create new idea and also new opportunity in the market. For example, Tesco launched its loyalty card and went into banking.
Tesco able to enter into retailing of food and non food products was a clear distinctive brand proposition that had a focus on a properly define market section. The company also provide a strong and efficient customer service, based on a good customer relationship.
Tesco Strategic Options: Generic Strategies
According to Porter (1985), competitive advantage arises from selection of the generic strategy that best fits the organisation's competitive environment and then organizing activities to support the chosen strategy.
These strategies are characterised by the company in response to their structure and environment of the organization. However to obtain a competitive advantage Tesco should follow one of the three strategies, which is developed by Porter.
Tesco accommodate the first strategy of cost leadership in which can endeavour the lowest costs in the market and offer its products and services to broad market at the lowest prices. The company are more focusing on the effective saving programme call Step-Change.
By this programme the company delivered £540 million of productivity and other saving in the year, which mostly reinvested in improving the shopping trip for customers. To reducing the amount of energy the company introduce better ways of working to improve the efficiency by making things better for customers, simpler for stop and cheaper for company. For example, according to a report, in the last year the company saved 52,000 deliveries to company's stores by using larger-fill-double-decked vehicles, which in turn have also 12 million road miles.
Some other example of these projects which delivered substantial savings in the year includes:
Saving in the Supply Chain-the company using more shelf-ready packaging and reconfiguring the depot network to increased vehicle utilisation and more productive work methods in depots and stores. For example the distribution cost more held in cash terms and reduced in percentage of sales terms. By this method the company achieved despite higher fuel costs.
Installed Energy Saving-the company significantly invest in energy-saving projects across the business- such as new refrigeration, store lobbies and lighting, its helping the company to absorb utility costs. From the energy consumption the company fell by 8% last year despite business growth.
Low wage employees- the company have around 31000 employees working in India as Global Support Centre, which provides IT and administrative support to UK and International operations--from software development to management accounting and payroll.
If the company use another strategy of differentiation, the company then tries to offer a good services and product with unequal features that customer's value. With the differentiation strategy the company created a brand loyalty for their offering, and price inelasticity on the parts of buyers. For example to achieve a better and more efficient service provide by the company to checkouts, many more customers didn't have to queue last year and customer continue to rank the company for speed of services at the checkout.
Another example of this approach, the company have different brand product according to their feature, speciality, and reliability.
Such as Tesco value, Finest, Organic etc
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According to Alex Laffey, "we choose G-Log's logistics and transportation technology because their solution will support and enhance our low-cost, high quality approach to growth in the retail market". "Major factors in our decision to select G-Log were the close and demonstrable fit of their software to our requirements, and their ability to rapidly deploy the solution in phases to meet our aggressive project time frame."
G-log is providing visibility, optimization, and execution will enable the company to integrate their supplier, partners and logistics service providers, delivering real-time visibility of in transit orders, whilst optimising the transportation resources by both consolidating loads and selecting the most cost effective carrier. The G-log continues to shows to deliver significant result, and to provide value to its customers, in terms of improved customer services, reduced costs and enhanced competitive advantage.
Outbound logistics is concerned with the delivering the product to the customer. The company adds value to its home delivery services. Tesco also trying to improve other tangible that have to be improved, such as parking facilities, trolley collectors, staff on self service checkout, and also to saying to customer hello hey and thank you with smiling face. The company making small improvements in everything with Every Little Help is about the company work together on the little things, its amount to a great deal. It keeps the focused on what matters most to customers. The company do not sacrifice all the other things that are so important to customers, such as not having to queue and being able to get everything that they want.
The company introduce software Real Time Integrator (RTI) which provides retailer with faster access to critical business information, through the provision and use of accurate, detailed, point-of-sale (POS) information. Sale data from individual store database will be routed to head office in XML to Microsoft server and Microsoft SQL. The solution handles 1500 sales transactions a second at peak times, which each have an average of between 50 and 100 items. To reduce the number not the on file items the first application for RTI will pilot for 120 stores, which improve the customer experience.
Human Resources Management
Tesco introduce a high commitment model which offers training and development to all employees. In addition the company extend their logo through their culture to prove their commitment to employees as well as to customers. The company continue to invest in customer services where training is also directly linked to pay, therefore the staff is motivated to learn and encourage their approach to customers and services and the provision of qualities.
With the research carried out, the company shows how the branding and effective service delivery can come in moving beyond splashing one's logo on billboard. The company made their market leader due to their successful and dynamic strategies. The company also made a powerful brand and powerful identities making their retailing concept into various and spending it out into the culture via a variety of channels. Such culture sponsorship, political controversy, consumer experience and brand extensions.
The company change their culture and business environment very rapidly due to the high competitor's pressure. The company also have to diversify the product and expand their strategies in order to sustain in its leading market position. This is already established by the company.
Tesco need to make sure, to have the combination of good customer services, competitive pricing and efficiency when they launching a new product. Tesco has definitely has the potential and can compete with other store if the company get the above combination right.
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