Assessing The Operational Envrionment Of Tesco
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Published: Mon, 5 Dec 2016
This report is designed in a way to analyse and assess the industrial and operational environment of Tesco and its competitive position within it. Tesco is one of the successful and the largest British retailer being set up in 1919. It is also the world’s third largest grocery retailer which outlets across Europe and Asia. In 1932 Tesco became a private limited company and worldwide it started to be known as Tesco Stores Limited. In recent years the foundation of Tesco’s success is determined as their implication of strategic tools, within which the major role is being played by their diversification strategy. Tesco is leading the market with having 1878 stores in United Kingdom and 4331 across the globe, employing around 326,000 people. It also provides the online services via its subsidiary Tesco.com. Tesco from the establishment is having well and consistent strategy for growth which helps Tesco in expanding its market from food market to non-food, financial services and telecom. It is also covering the abroad market started from Asia and central Europe and the most recently USA. In 1997 Tesco had adopted the strategy to diversify the business which was founded successful for the organisation in last 12 years; in fact, it resulted in making Tesco a market leader in many of the newly entered markets.
From the total business of Tesco’s, its 80% business is coming from United Kingdom which shows how much it is dependent on U.K. market. Within UK, it provides services under four banners- Superstore, Express, Metro and Extra. Presently, it sells around 40,000 food products, which includes clothing and other non-food lines. There are three levels at which the company is providing its own labelled products which are actually 50 percent out of the total sales- Normal, Value and Finest. Tesco is also known as one of the Britain’s largest independent retailer of petrol, as its many stores have gas stations so as to provide convenience to the customers. Its other retailing services include Tesco Personal Finance.
Within this research, we have made use of several methods and techniques so as to analyse and assess the working of the organisation. However, there were few limitations to this research analysis in relation to time and availability of resources. During this research, we have made use of several methods or techniques to gather the data which includes both the Primary data and Secondary data, within which there is more of secondary data as compared to Primary data. In Primary data, we have made use of available case studies as it was critical to collect data through interviews or questionnaires and within secondary data we have made use of Books, Journals, Online search engines, newspapers, company’s website, market reports, annual reports and magazines. Therefore, with the availability of limited resources we had to restrict the research and do analysis as per the data available.
Generic strategies are the strategies depicted by the response of an individual retailer towards the industry structure. In case of large retailer, such as Tesco, should follow one of the three generic strategies in order to achieve a sustainable competitive advantage.
According to the strategy of cost leadership, Tesco can afford to have the lowest costs within the industry and can provide its products and services at the lowest prices in the broader market. This achievement of this cost leadership strategy is based on the ability of Tesco, that how well they can control their operating costs so as to price their products competitively in the market and in turn achieving high profit margins. This brings the significant competitive advantage for the Tesco.
Within Tesco, the use of another strategy of differentiation, will lead to provide the products and services having unique features that the customers can value. In this way, Tesco will be capable of creating and achieving brand loyalty for its services or product offerings and finally on terms of buyers, it will be able to achieve price inelasticity. Within the differentiation strategy, the popular approaches are technology, customer service, breadth of product offerings or special features.
Finally, the strategy of focus can either be a cost leadership or differentiation strategy which aims towards a narrow, focused market. In leading the strategy of cost leadership, Tesco focuses on creating the efficiencies internally so as to resist the external pressure. Here it is acceptable to predict that Tesco will have recurrent dealings with the supplier sectors and the government. Therefore, as both the strategies are aimed towards the broader market, Tesco may also select to provide or offer a small line of products in the broader market or restrict their products to the specific market areas, leading with the niche or focus strategy or we can say that, it can lead with pursuing the cost leadership or differentiation strategy either with the specific products or in a specific market.
There are also some organisations which face risk as they try to follow all the three strategies and finally come out to be known as stuck in the middle. Whereas, in case of Tesco, this situation is not applicable, they have clearly defined market segments with a clear and appropriate business strategy.
The frameworks of strategy and structuring tools are the tools that help to tell the growth and the position of the organisation within the market and shows in which market they are dealing. Within Tesco, as the alternative to the strategy, they need to develop clearly defined plans for putting into action followed by an effective planning. From the discussion made above regarding the generic strategies, within Tesco, it is likely to follow two strategic options as the primary market objectives which include diversification through new product development and focus on market development through partnerships or alliances.
MARKET DEVELOPMENT: STRATEGIC ALLIANCES & JOINT DEVELOPMENTS
The Tesco’s entry to new markets like Japan & China is serving as a key or a growth driver of the company’s revenues and expansion strategy. The interest of Tesco in Asian markets is growing as in these markets the consumer spending is increased and also the trend towards retailing is increased. Also, these are the demographically high opportunity markets.
One of the strategic options to be suggested for Tesco is international alliances in the Asian markets with the local retailers. This will be taken as the one of the development method and may be formed to take advantage of current resources and competence. In order to achieve a larger market presence and economy of scale, Tesco’s entrance into partnerships or joint ventures will help it have operating expertise of the partner and massive local knowledge while adding its own product development, store operations and supply chain skills so as to facilitate customers with better shopping experience. The success of these joint ventures will be dependent on three important success criteria i.e. acceptability, sustainability and feasibility. The acceptability is related to the estimated return from the strategy, stakeholder’s reaction and risk level. Sustainability relates to analysing the strategy whether it indicates the situations in which the company is dealing and also about the principle (market development strategy) of the expansion. Finally, Feasibility is measured as the availability of resources and competences with Tesco so as to deliver the strategy.
PRODUCT DEVELOPMENT: DIVERSIFICATION
According to Johnson and Scholes (2003) “The Changes in the business environment creates demand for new products and services at the expense of established provision.” While diversifying and expanding the product mix of Tesco, it is imperative to look for internal development as new products are developed. The extent and nature of diversification must be taken into account in relation to the principles of corporate strategy and portfolio diversity. Tesco can introduce new product lines by following the changing needs of the customers, within which there is a need of more attention towards R&D, in turn spending more.
Within the retail industry, the major competitive advantage is overcapacity, innovative products and services, which it is experiencing now. Therefore, for Tesco’s product development, innovation should to be a major tool such as developing a portfolio of different store types in Far Eastern outlets and Eastern Europe as the majority of them are hypermarkets. Whereas, the same can be done for the UK store types, where each store is designed to provide a better and different shopping experience. Therefore, the value which will be added by offering this uniqueness will help Tesco to command a premium price. Also, there is a need for Tesco’s to take advantage of its internal strengths and reduce their internal weaknesses so as to achieve sustainable competitive advantage.
VALUE CHAIN ANALYSIS
The cultural web theory is a theory which depicts the assumptions related to symbolic, structural and political aspect of the company and is effective for the management. Within Tesco, it is considered as a useful tool to consider the cultural context in its business. The term “Culture” generally consists of certain layers such as beliefs, values, actions which are taken for granted and ways of operating business within and outside of the company. The concept of cultural web, therefore, is related to understanding how these actions which are taken for granted, are connected and influence the strategy (Johnson & Scholes, 2003). It also helps in adapting future strategies by understanding and characterising the culture and sub-cultures of the company.
There are various ways by which we can analyse the culture of the company, such as making the observations regarding the company behaviour which further includes stories, routines, rituals, systems and structures, in turn providing the hints regarding the actions taken for granted. In its routine ways, Tesco implies a friendly and supporting approach in relation to the behaviour of staff towards each other and also towards those who are not inside the company but can make out how people do things. The management in Tesco constantly reviews the control systems and measurements so as to keep an eye on the staff’s efficiency and mangers decision. The Tesco’s main emphasis is on corporate gatherings and special events, which are also known as the rituals of the company’s life. Within Tesco, the role played by communication and on-going meetings at every level of hierarchy of company represents the strong internal environment of the company.
Market Share in December 2009
+/- from December
In 1919 Tesco was founded by Jack Cohen in East End of London, where he began to sell the surplus groceries from a stall. On the day of commencement itself their profit generated was £1 out of sales of £4.
In 1929 the 1st Tesco store was opened by Jack Cohen in Burnt Oak, Edgware & North London & with the commencement of 1932 Tesco Stores Limited became a private limited company.
In 1960 it took over a chain of 212 stores in the North of England providing it a unique image, whereas, in 1961 Tesco Leicester became successful to be known as the largest store in Europe and got their name entered in the Guinness Book of Records.
In 1974 Tesco opened its first petrol stations at its most of business sites and by the end of 1979 their annual sales reached £1 billion whereas it exceeded to £2 billion in 1982 making them Tesco PLC.
In1985 they came up with a programme of “Healthy Eating Initiative” and became the first major retailer to emphasise the nutritional value of its own brand to the customers.
In 1991 Tesco captured the retail market of petroleum and became the biggest independent provider of petroleum in Britain.
In 1994 Tesco started the trend of opening the variety of stores i.e. Tesco Express store in 1994, Tesco Extra in 1997 & finally Tesco Direct in 2006.
In 1999 it started an online book store and online banking as well addition to this it also offered online comparison of prices of supermarket product.
In the year 2000 it launched its official website www.tesco.com & www.tesco.com/clothing in 2009
After launching Tesco.com it also entered in many of the Asian markets like India and china and finally opened fresh & Easy in the United States in 2007.
Recently, In 2010 Tesco has launched the world’s first zero-carbon supermarket in Ramsey, Cambridgeshire and also opened the first ‘Lifespace’ mall in Qingdao in China.
Tesco’s internal environment analysis:
Tesco is operating in global market by having stores around the world therefore it is highly influenced by political statements and legislative position of the countries where Tesco is practising its business. Being a business, it globally engage itself with the government and gives complete focus to its staff, customers and business in short to its stakeholders
In February 20102009 the issues are environment, health, alcohol etc which in result tesco will become zero carbon business by 2050.
for employment legislations the government encourages retailer and tesco plays an important role in it by providing jobs to highly trained and part tome jobs to the students and working parents.
This is one of the main factor for tesco because this factor influences the price and cost of the product and service as tesco being an giant retailer depends a lot on the economy of the country as the highly influencing sector due to economical factor is unemployment level, if the economical situation is no good than it will lead to increase the level of unemployment which in result decrease the demand of goods and this effects on the production of that goods.
This factor is not in control or can be eased by the company but it have a large impact on the performance and progress of the company and wich have deep and extreme effect on the marketing mix.
As tesco is highly influenced and depend on the uk market In recent recession period which hits most of the world’s economy and have greater and large effect on the economy of u.k. due to this where many big company are struggling to survive Tesco showed an remarkable growth of 8.3% in sales
Now it’s trend to do the shopping in bulk or on stop shopping that’s why Tesco is increasing its number of non food items for sale in order to catch the trend and fulfil the demand of the customer and Tesco also increasing the no number of stores so that customer can easily reach to store.
As there is decline in making food at home so Tesco is adding value to the food product to meet the necessity of the customer
As now a day’s people are getting aware about their health and which results in diversion of the consumer towards healthy food due to this change in taste Tesco had launched its healthy range of foods.
As there is an high increase of students and carrier oriented people most of them singles coming to uk to study and make their career respectively so there is an gr8 demand of microwaveable food which can be easily and fast cooked
This is one of major factor which have high effect on macro environment of a company or organisation. As this factor changes as the technology upgrades and its gives convenience to both the consumer and the seller, it benefits the customer as they get the goods quickly and easily as its packed and increases the satisfaction of the customer and with the help of technology they had taken the initiative of Efficient Consumer Response(ECR) in 2003 and they are the first in retail industry to do this. And they are 1st to open online grocery shop and following are some technology which are utilize by Tesco.
Tesco is the first to use self checkout machine in u.k.
As Tesco being an socially responsible its is using technology make the environment and the economy carbon free and it’s also started using electronic radio chip its helps the staff to track the product complete information with computing magazine and also prevent the product from the shoplifters
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