Tesco Business Analysis
Tesco Plc is a British based company, and is the largest food retailer in the UK. It is one of the largest British sellers and holds third rank in retail industry after USA based company Wal-Mart and France based company Carrefour. It sells around 4000 food products (Euromonitor, 2010). Tesco started with the business in grocery retailing, but now it also sell stationary, health and beauty, utensils, clothing, home entertainment, electrical goods, kitchen utensils and seasonal goods like barbeques and garden furniture in the summer. Annual profits of Tesco in year 2005 was announced as £2 billion and in 2006 it announced that it was going to open foreign stores very soon. Tesco operates in 13 countries with 3275 stores of which 2115 operates in UK; its largest geographical market (Euromonitor, 2010). It operates through different store formats which include Extra, Express, metro, hypermarket and superstore. Tesco has its own products ranging from value, normal and finest for different income group of consumers.
Tesco was founded by jack Cohen 1919. It gets its name from the combination of the founder of Tesco, Sir Jack Cohen and a partner in a firm of tea suppliers who Cohen worked with, T.E. Stockwell (Marketing (00253650)). One of the biggest investment of Tesco was in the 1980s, when Tesco invested £145m for a superstore development program and invested £500m in building 30 new stores (BSC). The company floated on the stock exchange in December 1947 with an initial share price of 25p (LSE).
Beyond the food, Tesco also sells non-food products including electrical goods, home entertainment, stationary, clothing, beauty and health, kitchen stuff, soft furnishing and season products as barbecues and garden furniture in the summer. The company has become as one of the UK’s biggest independent petrol retailer (Datamonitor, 2010). Moreover, the group provides financial services (Tesco Personal Finance) which was set in joint-venture with Royal Bank of Scotland and became one of the successful projects of the group. Tesco’s Core Purpose, as stated on their website is “to create value for customers and to earn their lifetime loyalty”.
Competition in Retail Market:
The market in which Tesco operates is a highly competitive field, where Tesco holds a disproportionate amount of power. Tesco has three major competitors – Sainsbury, Asda and Morrison. These giants of retail have many chains and a collective mass that can influence the food market as a whole. The figures below shows that Tesco holds over a third of the UK market share, and even double the amount of Asda’s market share which is the second largest supermarket chain. Following is a breakdown of the market share data published by TNS for the 12 weeks to June 15, 2008 (Reuters News, 2008):
However, the recent financial crisis put Tesco under the pressure when its customers by seeking reduce its expenses switched to cheaper alternative supermarkets as Lidl, Asda and Aldi. According to the latest TNS data Tesco, Sainsbury's and Waitrose are losing share of the UK grocery market. Tesco’s sales increased by 5.5%, Sainsbury's sales went up by 5.6% , sales of Waitrose just climbed by 1.6% while such hard discount retailers as Aldi saw its sales jump 22.1% over the 12-week period and Lidl posted sales growth of 9.8% (Just Food, 2008). . To maintain its market share, the company has tackled the problem by releasing 400 low -cost new ranges of food and products on their shelves.
Today Tesco has 273028 employees and it is the largest British retailer with profit exceeding £2bn, including global sales and domestic market share. In 2008, Tesco became the 4th largest retailer in the world.
There are rules and regulations which are set by the government so that there should be no monopolies and healthy competition in the market. Consumer law emphasis on protecting the consumer rights and make sure that the entrepreneurs have the chance to compete in the market. According to the EU law there is assumption that the companies with large market share are dominant, the problem with this is there may be compromise on the quality of the product and costumer may end up paying higher prices for the products. As Tesco has a large market share, it has not been assessed till now but Tesco should bear this in mind. Planning consent is highly regulated in UK therefore Tesco should take care of this regulation as expansion is one of the strategies which Tesco follows. Therefore, before setting up a new store Tesco should check all the planning permissions and look if there are any resistances on law grounds or local people’s opposition. In the recent downturn of economy many retailers were affected badly but Tesco was fortunate as it was not affected that much like others because it makes product for all, it offers a wide range of products from value to finest so it helped people to switch to value products in recession. Increase in tax or stock market fluctuation or change in currency can also affect Tesco. In the sociological aspect Tesco has focused on launching the products like meal for one and microwavable products to make life easy for the people migrate from the other parts of the world and are young professional. Tesco has made use of the technology fully by launching the site tesco.com which makes the life of people easy by order the products from their home and it also gives Tesco a competitive advantage. Tesco has supported the carbon reduction process and have raised 100 million pounds for sustainable technology fund; Tesco also encourages its customers to help in reducing the carbon emission by using the same plastic bag many times, another challenge for Tesco may the reducing the use of fossil fuel which is used in its transportation.
It has strong brand image and market leadership. Tesco is the largest retail group in the UK, which has about 30% of the UK grocery market as of June 2008, at the same time; it has successful business which operates in 14 worldwide markets beyond the UK. The company built up a good reputation enables the group to launch new products and services, and makes easier entering in new markets. One of the best examples was entering into financial services market with Tesco Personal Finance project (Datamonitor, 2010).
The group has a stronger market presence in South Korea as compared its main rivals as Wal-Mart and Carrefour. These two Tesco’s competitors sold all of its stores and divest its operation in 2006 in South Korean, due to inability to meet consumer’s demand (Datamonitor, 2010). This success encourages the company on making investments in order to sustain market leadership and generate more profit. As the result, company is spending 958million pounds on expanding and acquisition new stores in South Korea (FT, 2008a).
‘Tesco.com is the largest online grocery shopping service in the world; it is the fourth biggest online retailer in the UK, behind Amazon, Dell and Argos.’ (Datamonitor, 2010). In 2008 Tesco.com sales continue to growth constantly. Sales from Tesco.com grew by 20% in the first half of 2008, reaching 902million pounds (Tesco, 2010). Taking into consideration the online sales are forecasted to increase from 10.9 billion pounds in 2006 to 28 billion pounds in 2011 (Datamonitor, 2010), Tesco can get considerable benefits from strong foothold in online services.
Notwithstanding on company’s big plans to extent or open new stores in the UK, it becomes difficult to realize as not all expand projects satisfy local community’s requirements and finally have been frozen in waiting for government’s decision.
There are some negative event influences, patent infringement claims, for example, in 2007, “Franks International filed suit against the company in US District Court for the Eastern District of Texas, Marsheall Division alleging that Tesco’s CDS infringes two patents held by Franks” (Datamonitor, 2010).
Tesco do not have the small convenience store to service customer who the small areas, while the Sainsbury has the small store in the local small town , it is convenience for customer, they do not want by a lot of things, maybe just some daily consumable.
There are lots of opportunities in other international markets for Tesco; the Euro zone retailing sales has shown a growth of 33% as of August 2008 to compare as of August 2007, which comprised 4,732mllion pounds and 3,558million pounds respectively. While sales in Asia increased by 11% at the same period from 2, 862million pounds of as August 2007 to 3,151million pounds of August 2008, despite of a small loss in the first half as a result of establishing operations and supply hubs in China (Tesco, 2010). About 80% of group’s capital is being invested in international growth (FT, 2008b). For instance, investment in markets of rapidly growing economy such as India with planned investment around $114 m to set up the business, in China where Tesco has spent 180million pounds in 2007 to increase its stake in its local partner (FT, 2008b). This provides a good opportunity to cover consumer’s demand of these markets which can add value to the Group’s assets and significantly contribute to maintain its strong international performance. Notwithstanding on only 9 month of running business in the US, the Group has obtained sales result ($11 per square per foot per week) which is also encouraging. Successful experience of operation on international markets enables the company’s to embody its plans of further overseas expands.
Tesco has opportunities in non-food and services markets also, total UK non-food sales increased to 4.1billion pounds and 1.7billion pounds from international market as of August 2008, which in total led to 7.3% sales grew (Tesco, 2010). However, Tesco has poor results in this market segment, while with skills in sourcing and supply chain management the company has opportunity to improve its position. Tesco Personal Finance made profit 71million pounds, where Tesco’s share was 35.5million pounds, up 34% compared to 2007 (Tesco, 2010). The Company completed the acquisition of 50% of TPF from the Royal Bank of Scotland by the end of 2008 (Tesco, 2010).
Threat to Tesco is high competition as the result of financial crisis and consumer’s budget tightness such discount competitor as Alsi and Lidlrs are eaten away Tesco’s sales by offering high quality goods for the lowest price. The group faced risk of losing its customers who switched to the other retails in order to reduce its living costs and had to revise its strategy in order to remain its customers.
McKenzie’s 7s Analysis:
McKenzie 7 S’ includes shared values, Strategy, Structure, System, Staff, Style, Skill. Accordingly Tesco applied the 7 S’ of McKenzie as well to increase its market share and profits which are described as follows:
Shared Value: Shared Value of the company states the objectives of the company and it’s believes. Tesco believes in increasing its sophisticated management techniques from simple manufacturing companies to the value of higher standards and marched northward on their value chain.
Strategy: Strategy describes about the methods adopted by the company to achieve its goals. Tesco applied various strategies usually using Balanced Scoreboard (BSC) method.
Structure: It depends on the companies infra structure like top to down management. Tesco CEO thinks that they don’t need of one leader, they a whole group of employees from top to down to work on strategies.
System: System is based on how to finish a work like how important is the wok and how smartly it has to been done. Tesco used a steering wheel to achieve its pre determined strategies smartly simply used to help the employees in future.
Staff: Staff states about the number of staff in the organization. All over the world Tesco recruited more than 400,000 employees.
Style: It the style of the organization in which it works to achieve its objectives. Tesco used steering wheel to achieve its objectives. It has 90 degree arcs, in which four main areas are considered which are, financial, customers, operations and employee performance.
Skill: It describes the capabilities of the organization or the employees to a particular task. Tesco provides full knowledge to its employees to work effectively and efficiently within the organization. It provides skills to the employees to work according to the standards of Tesco (Kaplan R. and Norton D., 2008).
Micro Environment analysis and Marketing Strategy:
Position of offering the best value for the most competitive prices contributed to be Tesco number one retail in the UK. Smart Supply Chain Management and Development strategy, constantly research, seeking in order to meet customers’ needs, introducing new innovation, product quality and price, offering huge product range, store facilities and services, working closely with suppliers, developing and motivating its staff, participating in the formulation of national food industry and environment protection - makes possible to keep strong competitive position within market even through time. Terry Leahy, CEO of Tesco plc states “there are many opportunities for business like Tesco as long as you stay close to customer and adapt to the changing circumstance” (ICSC Research Review, 2008).
The group provides online services through its subsidiary Tesco.com, broadband internet connection (Tesco Broadband) and telecommunications services (Tesco Mobile and Home Phone). “Tesco.com is the largest online grocery shopping service in the world; it is the fourth biggest online retailer in the UK, behind Amazon, Dell and Argos. Tesco.com serves 850,000 regular customers in the UK and gets more than 250,000 orders every week” (Datamonitor, 2010). Significant advantages of buying online, such as comparatively low price, large product range and the ability to shop around the clock — enable retailers to draw shoppers’ interest (Gladding, 2005). “Tesco, the United Kingdom's biggest grocer, has attracted considerable attention because of its ambitious overseas strategy and its successful on-line home delivery service” (Child, 2002). “Since establishing an MVNO with 02 in 2003, Tesco has built up 1.5m mobile subscribers and 250,000 of these visits the mobile portal every month” (New Media Age, 2008). Hence, Tesco makes possible to carry into effect purchasing by using mobile phones and brings new life in m-commerce shopping (New Media Age, 2008).
According to company’s recent press release information Tesco.com sales up 20.5%, profit up 21.4%, including Tesco Direct (Tesco, 2010). Datamonitor (2010) in its “Tesco, PLC SWOT Analysis” states that “With a strong foothold in online services, Tesco is well placed to benefit from growing online spending. A strong online presence enables the group to serve new customer segments, avoid investments in physical infrastructure and earn better margins”.
The company has an impressive brand image, which is associated with high quality goods and services, huge range of assortments and at the time the best prices. Credible brand name enables the company to launch more new products and new market lines; to go through new markets much easier and quickly, and become successful in this field as well, as it was its entry into the Personal Finance market (Datamonitor, 2010). Through the diversification process, Tesco has increased the range of its operation by entering to new markets of distribution and service supply, such as petrol distribution, banking and insurance, real estate and communications. Such changes and strategy improvements have further reinforced company’s market power above its main competitors.
Since the mid-90s, Tesco has been investing in overseas markets, by looking for new opportunities to expand and opening new ways of generating long term growth of shareholders value. Today the Group operates in 12 markets outside the UK, in Europe, Asia and North America. The half of the retail shops are represented beyond the UK (Tesco.com). As a part of international expansion, now Tesco is planning to open wholesale grocery store in India by investing up to $114 million over two years. “It complements our entries into China and the United States, giving us access to another important economy in the world” commented this decision the company’s chief executed (World Trade, 2008). At the same time, Tesco announced that it has set up a South China headquarters office in Guangzhou in order to maintain its’ presence in this country, where the company already has 47 stores and has been running the business over three years long (World Trade, 2008).
As a part of supporting its global expansion programme, the company plans to centralise all its overseas business after signing a 100million pounds network and voice contract. Through this network upgrade, Nick Folkes, Tesco’s IT director, commented, that the company will be able to standardise key finance, human resources, data warehouse and sales applications across the whole worldwide operations. The Cable & Wireless network will connect 1,800 Tesco sites in the UK, stores in more than 14 countries and 440,000 employees worldwide, hence, significantly contribute expenditure reduction from reducing call costs to savings on staff travel expenses. He remarked “Our aim is to have a common technology platform in tandem with common business processes so that we remain competitive as we continue our expansion abroad” (Kamath, J. 2008).
Smart human resource management is also important key of Tesco’s business performance. The company has selected Red Prairie’s workforce management solution to manage its global store staff, which will enable Tesco to improve customer service by aligning customer traffic with employee schedule. “Ultimately, it will improve our business by increasing store productivity, and supporting revenue growth” said Dave Briggs, programme manager for Tesco (Apparel Magazine, 2008).
Tesco has been proved a very good innovator as bachelor’s placement’s in Tesco yet further proved its innovation temperament which has seen in Tesco as they have the ability to mold according to the trend whatever are the market need as it become the first who protect the convenience outlets in UK, it’s one of the biggest innovation of all is the Clubcard Loyalty Program, Another great innovation done by Tesco was in supply chain management in which it partitioned the loaders according to the delivery like 1 chamber of frozen foods, another ambient products in only one truck, another innovation is the collection of data from customers on every purchase to use this information to offer the draw on product range, Voucher mailing to the customers according to the purchasing behavior of the consumer so that it can return to Tesco. Continuous analysis on the data gathered from the market it innovates its products like once Tesco got to know that nappies does not have market share so they researched on it and introduced the club offering baby advice on pregnancy and motherhood. With this around one fourth mother and baby market was captured by the company (Strategic Direction, 2008).
Company has that much strength that it wanted to collaborate with the US grocery market where other European companies fear to stand. US market is known as typical market as it produces very luxury products at one end and cheaper products on the other end, but Tesco is the only one who can stand with this giant market as it is UK’s biggest market which ability to attract customers of all social groups. Normally, people in US live near a big supermarket but Tesco bet that it will provide small stores with all needful products which are preferred by the people of US. Tesco look forward to launch Tesco Fresh and Easy Stores in US. These stores will be much spacious to provide all the necessary products under one roof, not like US outlets which does not provide alcohol, pizza’s, snacks etc. Healthy eating is also one of the major fields where Tesco thought to capitalize its money. One of the biggest hurdles is to persuade the US people to behave likewise of the Tesco trend in UK where transportation facility and easy convenience helps people to buy more products especially in the case of perishable goods. Tesco has one more worry in front of it as its credit rating in respect of measuring quality of goods and services has been slumped where rivals were resurgent in this process (Strategic Direction, 2008). So Tesco is proved to be a good innovator which makes it in building strong reputation and brand name in the UK market providing all the necessary products under one roof. Tesco strategies makes it possible to compete it in the market like its brand strategy, price strategy and its thorough analysis of the market like Product life cycle analysis etc. making Tesco a competitive brand. According to the Product Life Cycle when a new product is launched or old product is launched in new market generally there is no competition expected at this stage and a high expenditure is needed in market research, launch cost and market test so the product may incur financial losses in early stage. The same situation was there when Fresh & Easy chain of Tesco incur a loss of $106.8 million. It is clear that there were very low sales of these products so the weakness of the sales raises questions about the expandability of this format, what Tesco is into these days. So Tesco should limit the expandability at such a large scale in new market.
In 1998 Tesco’s balanced scorecard was introduced and now it is known as Steering Wheel and it is the main driving tool for the business. It has helped Tesco to achieve a lot and it is followed from the board room to the shop floor. The steering wheel is annually reviewed and it ensures that Tesco is achieving its goal and also it ensures that Tesco meet the demands of organizational strategy. Although customers are not much aware of the balanced scorecard but the staff follows it strictly on the data which is collected weekly. Store level scorecard is given to the manager of the stores in which contains the quarterly corporate scorecard. However a strong link is there between the corporate level scorecard and the corporate level scorecard because of this whole data is collected by various systems and mechanism. Top management monitor the performance and look for the problem areas, after identifying the problems local management are asked to resolve and seek the improvement.
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Other Essays on Tesco
Other essays available on the Tesco organisations are:
- Tesco Changing Business Environment
- Tesco is one of the leading supermarkets
- Tesco Strategy analysis
- Tesco SWOT analysis
- Tesco Fresh Veg Supply Chain Management