SWOT and PESTEL analysis of Tesco
One of the most successful grocery retailers food in the world(Fig 1), the company operating 2,672 stores, employing 325,000 people and profit to £39 bn . It provides online services through its subsidiary, Tesco.com. The UK biggest market where it operates under banners of Superstore, Extra, Metro and Express. The company sells about 40,000 food products, non-food lines, clothing and other. Tesco’s own-label products are at the levels, normal and finest, value,. As well as convenience produce, several gas stations, becoming largest of Britain's independent petrol retailers. and Other services Tesco Personal Finance. (Johnson,Schole,Whittingtion )
In 2004 retail accounted for 9% of (GDP) ( Figer2) gross domestic product (Datamonitor, 2003). In latest years UK supermarkets have come under increased analysis over their management of suppliers, yet the increase of strategic supply networks has been essential part of largely supermarket strategies for the past decade.
This report is provides Tesco, with highlighting on company's analysis of resources, external environment and, competence and culture strategic and the resources based on strategies.
Also the report aimed to critically analysing the business environment of Tesco, Strategic evaluation tools such as PESTEL, Porter’s Five Forces, SWOT and Value Chain analysis in order to achieve this aim.
The comparative positioning of Tesco’s market share with respect to other leading players in the market has been illustrated as follows (Euromonitor, 2010):
the company Operating in a globalized environment. Tesco has stores around the world now operates in the Republic of Ireland, Europe , Slovakia, Poland , Czech Republic, Hungary and Turkey. It also operates in Asia in Thailand Japan Taiwan, South Korea, and Malaysia it is performance is greatly influenced by the political and legislative situation of these countries, including the (EU).
For employment the regime encourages retailers to offer a mix flexible job opportunities, locally lower-paid based jobs to highly-skilled and centrally. Moreover to meet the demand of people categories like working parents senior citizens and Students.
This factors are of concern, because they are likely to influence demand, prices , and costs. the mainly significant factors on the economy is the high levels of unemployment, which decreases the effective demand for several goods. The economic factors are largely outside the control of the company, but their effects the marketing and performance can be deep. while international business is still increasing and is expected to contribute better amounts to Tesco's income , the company is highly dependent on the market. therefore, it would be poorly affected by slowdown exposed to the market concentration risks in the UK food market
Economic factors are a matter of concern for Tesco since they impact directly on the buying behaviour of customers. Although the UK economy was declared officially under recession in 2008, the government’s substantial reduction in interest rates helped to minimise further rises in unemployment during 2009
The economic downturn has been brought to light with the assistance of the following GDP growth graph since 1989 (Mintel, 2009):
present trends show that British customers have moved towards ‘bulk' shopping, which is due to a range of social changes. Tesco have, therefore, improved the quantity of non-food stuff for sale.
The change of Demographic such as aging of people, the increase and a decline in female workers are in preparation home meal that mean UK retailers are focusing on services and added-value products . adding, the focus is now towards; the share of the own-label in business mix, the operational improvements and supply chain , which can drive costs out of the business. National retailers are increasingly reticent to take on new suppliers
The sort of goods demanded by customers is a meaning of the resulting attitudes and beliefs of social conditioning . Customers are becoming more aware of their attitudes to the food are always changing and health issues. For instance to increased demand for organic products Tesco adapting the product mix, and also the first company to allow customers to pay in cash and cheques at the checkout.
Technology is a main macro-environmental changeable which has influenced the increase of several Tesco products. The new technologies benefit the company and customers satisfaction raises because services can become personalised and shopping convenient, goods are available. The launch of the Efficient Consumer Response initiative provided the change that is apparent in the management of food supply chains.
In 2003, there has been improved pressure on several companies and managers to admit their responsibility to society. (Johnson,Schole,Whittingtion )
The major societal concern the threat of the food retailers it has been environmental issues, a key region for companies to proceed in a socially responsible way. therefore, by recognizing this tendency in the broad ethical stance, the company corporate social responsibility is concerned through the ways in which an organization exceeds the obligations to stakeholders particular through regulation and business governance
PORTER'S FIVE FORCES
Threat of Entrants The UK grocery market is mainly dominated by competitors, including the major brands of Tesco ,Sainsbury's Safeway ,and Asda, that take a market share of 70% and small chains of Somerfield, Waitrose and Budgens with a further 10%. Over the last 30 years, Ritz (2005), the grocery market has been changed into the supermarket-dominated business. The popular of the big chains have built their control due to working efficiency, main marketing-mix expenditure and one-stop shopping. This power had a large impact on the traditional shops. therefore, these days it possesses a strong barrier for new companies who want to enter the grocery market. For example, it becomes difficult for new entrants to increase capital because of the big fixed costs and developed supply chains.
Power of Suppliers This force is influenced by the main grocery chains, that fear of losing their business to the large supermarkets. Therefore, this consolidates is leading positions of stores like Tesco and Asda in negotiating good prices from suppliers that small individual chains are unable to match. UK based suppliers are threatened by the rising ability of retailers to source their products from abroad at cheaper deals. The relationship with sellers can effects in constraining the strategic liberty of the company and in influencing its margins. The forces of competitive have reduced the profit margins for suppliers and supermarket chains.
Power of Customers more products that become standardized, the lower the switching cost, and therefore, more power is yielded to buyers. Tesco's famous loyalty card – Club card remains the successful customer retention strategy that increases the profitability of Tesco. In customer needs, better choices, customizing service, low prices, stable flow of in-store promotions Tesco enables brands to manage and keep their customer base. In recent years the food retailing has changed due to the demand of consumers doing the majority of their shopping in supermarkets that shows the need of supermarkets to sell non food things. in addition it has provided supermarkets with a new strategic growth into the markets . moreover Consumers have become aware of the issues surrounding trade and the influence of consumers on the aspirations of The World producers. Ethically benign sound production of consumer produce.
Threat of Substitutes in the specially product substitution is able to decrease demand, as there is a threat of consumers switching to the alternatives . In the grocery manufacturing this in the form of the substitute of need or for product . Tesco is trying to get existing scale operations and opening Express and Metro stores in city centres and local towns.
Power of Competitors The grocery has seen a growth in the market supremacy and improved retailer concentration, and larger store . the power of purchasing food retailing manufacturing is intense in small number of retail . Operating in a mature, flat market where growth is difficult and consumers are increasingly sophisticated and demanding, Tesco has a great chains that accruing amounts of consumer information that can be used to communicate with the consumer . This is a competitive market has accelerated level of expansion, resulting in which UK retailers have had to be modern to build and maintain market share . The main market leader has responded by refocusing on price , whereas reinforcing the added value of their service.
SWOT analysis of Tesco is explores the relationship between the environmental influences and strategy capabilities compared with the competitors , including resources, that are mainly impact on strategy development
Core UK business Tesco is the one of the top leading retailer in the market of the UK sales performance core business and invested in all parts of the customer offer . Pitched at the broad middle mass-market, it has maintained its ( Gerry )position through focusing ,in product offer and good record in advance product and format. moreover Tesco leads the world in online retailing services . the company concentrates on operation superstores, and an online service
Giving customers what they want the range of Tesco appreciate that customer have difference test and needs . the company work hard to give customer abroad variety of leading product a really excellent choice of Tesco product from best to value lines and lot of new idea for feeding the family .Instead of offering a standard project range every where they put a lot off effort for local customers . for instance new extra store in Slough Berkshire features over 900 specially Asian product from new vegetarian and Halal ready meals to extensive rages of bulk-pack rice and even Bollywood DVDs (Johnson,Schole,Whittingtion )
Non-Food offering great quality ,range price and services . more people are choosing to buy not just their household essentials but also bigger ticket items at Tesco from clothing to TVs and fridges and from sports equipment to toys. They appreciate the convenience of being able to do all their shopping under one roof in their extra store.
International ;Tesco delivered excellent growth like sales ,profit and returns the largest ever new store development 5.4 million sq of sale area with a further 6.6 million sq planned in the current year . The company planned to enter the US market with a a completely new local format for the American consumer modelled on Express. What was most interesting was the way that each development reflected local market conditions rather than working to standard entry model. (Johnson,Schole,Whittingtion )
Increasing market share: Tesco holds 30% market it has double groups sales and profits to £39 bn . It has multi-format capability it will continue to raise share in food, while growing in the gap contribution from hypermarkets will allow it to drive a higher share in non-food. (Johnson,Schole,Whittingtion )
Tesco Personal Finance is offer 21 financial product and services from loans and savings accounts to creadit cards and insurance Tesco Britain’s third largest on line car insurance with over 1.4 million active car insurance polices
Tesco.com is the most successful on line grocery shopping services in the word , had sales of over £577 million, raise of 29% on last year. Tesco online business is a diversity of customer using it from busy urban families to people in rural communities . it has also allowed many house bound people to shop properly for the first time , covering 96% of the UK. With over a million households nationwide having used the company's online services, the company has a strong platform to further develop this revenue stream. (Johnson,Scholes,Whittington)
Weaknesses; despite all these good things not everyone was convinced that Tesco was yet a majer word player . the obvious comparison was with the world biggest retailer . the US company Wal-Mart ,whose turnover $312bn =£250bn was more than four times that of Tesco .although Wal-Mart’s US sales where flatting out it had a presence in some 70 countries with 2,285 stories out side the USA- this was almost three times Tesco international footprint . importantly Wal-Mart own the race to enter India in 2006 leaving Tesco with difficult in finding a suitable local partner crucial in that market . . (Johnson,Scholes,Whittington)
dependence upon the UK market: Although global business is still growing, and is expected to give better amounts to Tesco's profit, Tesco is still highly dependent on the UK market (73.8% of 2003 revenues). whereas this isn't a main weakness in the short term, any changes in the UK grocery retire supermarket over the next year for example, like the Morrison's group successfully purchasing the Safeway chain might change the balance of UK supermarket power, and affect share.
Tesco has increased business profile, (according to the Johnson Schnson Whittingtion fundamentals strategic book p 259) the business has large increase is portfolio by open more stores in UK and moving business abroad. By moving to different countries will enable the company maximise profits, helping creates jobs in develop countries which will boost the size of economic etc ( Mintle2010)
Tesco business network portfolio is on the rise . They opened 620 stores in 2009 of which 435 were international (Mintel, 2010). This geographic will help the company in improvising the size of economy, whereas minimising its systemic risk exposure
whereas minimising its Tesco .com popularity is growing rapidly, accounting for over 1 million customers in 2010 (Guardian, 2010), which has offered an opportunity to the company to create a centre of attention for new customers and minimise the overall The Company is focusing on the global expansion as is evident by its entry into the Indian market. This entry will make the company stronger on international market position. A limited permit agreement has been signed by Tesco with Trent, retailer of Tata group, which is one of the main manufacturing corporations of India (Daily Mail, 2010). there will be a increase from £125 billion in 2009 to £145 billion in 2014 in the food retail market sector (Euromonitor, 2010). This is largely due to the fact that even through recession times, food retail is the toughest segment since having enough to eat is the priority. Threat
The beginning of a global financial crisis has effected the reduction of the UK’s economy by 2.4% in 2009 which is approximate to contract more by 4.2% by the International Monetary Fund. Tesco’s focus in the UK market can therefore have a detrimental impact on its financial standings. (Poulter, 2009).
• The increase in unemployment and the decline in income have influenced the optional buying behaviour of consumers which has negatively impact the company’s sales, especially in the non-food stuff.
• In the UK grocery retailer market . There has been fierce competition while Tesco has been top of this sector for 15 years, but is now faced with strong competition from its competitors which are achieve in market share. These which is comprise with the rest of the ‘ big four’ i.e., Asda, Sainsbury’s and Morrisons respectively. (Mintel, 2010)
In light of the above key points, the abridged SWOT analysis of Tesco can be summarised in the following illustration:
In light of the above key points, the abridged SWOT analysis of Tesco can be summarised in the following illustration:
Tesco has been praised by a number of supply chain management critics for its effective use of IT systems that facilitate the company’s low cost leadership strategy. According to Tesco (2010), the company has invested over £76 million in streamlining its operations through their Tesco Digital program, which is a third generation ERP solution for the company. The company has achieved £550 million in increased profitability during 2009 alone due to the introduction of this system. This company -wide ERP system has also facilitated the minimisation of stock holdings within the company.
Value Chain Analysis
According to Jonson ,Scholes, Whittington , value chain is describe of activates within and an organisation which together create a product or services. . The value chain of Tesco has been demonstrated in the following diagram by :
in general Tesco’s cost leadership strategic management of is show in its lean and agile inbound logistics role. Drawing upon Abeysinghe (2010), the company use it’s the top market position and economies of range powers to get low costs from its suppliers. The analysts have also highlighted the constant upgrading of their ordering system, approved vendor lists, and in-store processes to induce effectiveness and efficiency into the company’s inbound logistics operations.
The achievement of the Tesco shows how the branding and successful service delivery can come in moving beyond splashing one's logo on a billboard. It had promote powerful identities by making their deal idea into a virus and spending it out into the culture via a range of channels: political controversy cultural sponsorship, , consumer experience and brand extensions.
Tesco must always adapt to the fast altering circumstances. Strategy formulation should be regarded as a method of continuous learning, which includes knowledge about the goals, the result of possible actions towards these goals. As a large organizations Tesco strategy should be evaluate and implement in a different levels within the hierarchy. These different levels of strategy should be connected.
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