The company that our group has chosen to analyse is Tesco. Tesco was founded in 1919 by Jack Cohen who began his new venture by selling surplus groceries from a stall in the east end of London; One his first day he made £1 profit and £4 of sales (Tescoplc.com [history]). Tesco has come a long way since then and is now one of the largest food retailers in the world, operating around 2,318 stores and employing over 326,000 people. Not only has Tesco managed to monopolise the food sector, they have also diversified into a number of other sectors, some of which being insurance, mobile networks, clothing, and electronics. However, this report shall have a focus of the food sector in the United Kingdom.
Albeit that Tesco has 2,200 stores locally, it is categorised as operating in a globalised environment. Currently Tesco has stores in seven European countries; the United Kingdom, Poland, Hungary, Turkey, Slovakia, Czech Republic, and the Republic of Ireland. Furthermore also operates in Asia, stores can be found in China, Malaysia, Japan, Korea, Thailand, and Taiwan (Tescoplc.com [community plan]; Tescoplc.com [core UK]).
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The long term business strategy of Tesco is currently fivefold; to be a successful international retailer; to grow the core UK business; to be as strong in the non-food arena as the food arena; to develop retailing services- such as tesco.com, Telecoms, and Tesco personal finance; and to put community at the heart of what they do (Tescopl.com [long term strategy]).
How Tesco chose to implement the corporate strategy is via a steering wheel model; that all of the key elements of the business, customers, operations, people, finance, and community, are dealt with an equal and balanced scorecard (Tescoplc.com [CR strategy]). It has been stated by Tesco that the steering wheel has been implemented to place emphasis on the fact that corporate responsibility is not a specialist function in Tesco, it is a part of everybody's job every day (Tescoplc.com [CR strategy]).
Tesco works off the business value that their "core purpose is to create value for customers to earn their lifetime loyalty" (Tescoplc.com [our values]). Great emphasis is placed within "people", without their customers and employees Tesco's success would not have been possible.
This report shall investigate the variables that can affect Tesco's competitive advantage. The macro and micro environmental factors shall be considered, for this a PESTEL analysis and a SWOT analysis shall be carried out. An in depth evaluation into the perceived competitors of Tescos shall looked at and how they affect Tescos position shall be considered. Finally, how Tesco manages their employee relations shall be evaluated. Due to Tesco placing great emphasis on their customers and employees and investing much time and effort into these areas, we believed that this was worth discussing as it give Tescos a competitive advantage over their competitors as it facilitates loyalty.
PESTEL analysis for Tesco
There are a number of macro-environmental factors that affect the running of Tesco and can affect their competitive position; these factors cannot be controlled, however, by compiling the possible factors that could have a detrimental effect on Tescos allows them to prepare for any eventuality thus giving them their competitive edge back.
Due to operating in a global environment, Tesco is largely influenced by the political and legislative conditions of these countries, as well as the European Union enforcing governing rules. The government legislation for employment encourages retailers to provide work for a variant of people, ranging from flexible, lowered paid, and locally based jobs to highly skilled, highly paid, and centrally-located jobs (Balchin, 1994). This piece of legislation also allows for the various demographics to be given work opportunities, such as students, senior citizens, disabled people, people from various ethnic backgrounds, and working parents. This gives Tesco a competitive advantage as it produces loyal employees.
The current economic climate has been a cause for concern. The recession has caused the unemployment level in the United Kingdom to soar over 28.93 million (Office for national statistics), this is one of the highest figures known one record. As economical factors are likely to influence demand, cost, price, and profits, these figures should make Tesco's management feel particularly apprehensive. Although Tescos international business does bring in a high amount of profit, they are still largely dependent on the UK market. If the unemployment rates continue to soar, the slowdown of the UK food market could have a severely detrimental effect on Tescos.
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Presently it has been noted that British customers have become "one stop" shoppers. Due to this movement, Tesco has been able to successfully diversify their company into a range of different markets. One can now not only buy their weekly shop but can purchase personal insurance, electronic goods, clothing, and a range of other products from Tesco.com. This gives Tesco an advantage over their competitors as customers may chose to go to Tescos over another because they now cover almost all bases of consumer needs.
Other social trends include being more "eco-friendly" and the want for organic food products. Tesco have acknowledged these needs and adapted the food selection to include cede products and are working on becoming a "zero-carbon" business by 2050 (Tescoplc.com [press release, 2009]).
In the modern would where the technology has reached immense heights, it seems only natural that Tesco should also be a part of it. This particular variable of the macro-environment has helped to develop many of Tesco's products and has not only been indicative of the company's satisfaction but also that of the customer's. Due to services such as Tesco.com, the self checkout service and the Tesco Clubcard, the customer satisfaction levels have increased due to more personalised shopping, goods that are readily available, and convenience. However, due to the modern use of technology, it does allow for job cuts as face to face services have been replaced.
Becoming a "greener" company is vital for our planets survival. Honourably Tesco has put in place measures to ensure that their company helps in the fight to lower carbon emissions. Their challenge is to achieve a 30% reduction of the carbon impact of the Tesco's supply chain by 2020 and to become a zero carbon business by 2050 (Tescoplc.com [Press release, 2009]). Recently there have been certain implementations in the forms of using green clubcard points in order to encourage environmentally friendly, carbon conscious purchasing; the "buy one get one free later" scheme, that allows customers to acquire their free product at a later date to reduce waste; and are striving to reduce packaging, reduced carrier bag use, and increase recycling, this year alone they have reduced carrier bag usage by 53% (Tescopl.com [Press release, 2009]). This major issue has provoked Tesco to act upon the responsibilities they have to society.
There are certain government legislatives and policies that Tescos have to abide by and have a direct impact on their performance. Bodies such as the Food Retailing Commission (FRC), who prevent companies from demanding payments from suppliers and changing agreed prices without notice. Government policies for monopoly and the reduction of the buyer's power can limit entry into the sector (Mintel report, 2004).
Each of these variables can affect the performance of Tescos within the market, however, Tesco have appeared to have accounted for all eventualities and implemented new strategies and techniques that allows them to keep their competitive advantage.
Recommendations for tesco for their future strategies with examples and supporting evidences.
Tesco's future growth largely depends on non foods and it holds the key for the success and therefore the main emphasis of Tesco should be on the development of new and innovative strategies for the future growth plans of non food as the current sales account for over 25% of its sales mix which does not include petrol.
Expansion in Tesco's non-food offerings, provides the company with significant opportunities for growth in high margin electrical, clothes, and health & beauty
Tesco's preliminary results for 2006/2007 demonstrate how non-food offerings are becoming integral to the company's growth plans
Electricals have shown significant growth for Tesco and the company is now the largest electrical player among grocers
Tesco's investment in its clothing range is paying off with market share increasing, and clothing as a percentage of total sales increasing
Tesco's clothing range faces stiff competition from rival supermarkets, Asda and Saisnbury's
Tesco's health and beauty sales are second only to Boots
Tesco is facing increasing criticism about its apparent dominance of the UK grocery market, from both consumers and the Competition Commission authorities
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The development of Tesco Direct has the potential to reach customers who do not do their grocery shopping at Tesco stores
The Tesco has launched Tesco Direct and this is stepping as a huge challenge for its competitors.
A wider range of non-food products has been offered by Tesco for its customers to choose from than its individual retail stores.
Tesco Direct has a competitive advantages over its non-foods competitors
Tesco Direct will face strong competition from rival Asda, it needs to be more innovative and for innovation to be achieved more actions are needed than formulating strategies only.
There are different types of activities that can be primary or support which adds value, losses value or has the potential to add value to the firm is known as value chain of that firm and we are focusing on primary activities which have to be taken in account for creating and developing value chain in the firm.
(Adds value (+), losses value (-), Potential to add value (P+))
The inbound logistics has immense importance in creation of value chain as they provide the earliest opportunity to create value and therefore the elements related to Logistics in Tesco tries to achieve and maintain the level of consumer choice in store (+), the efficiency of distribution system of the Tesco needed to be improved(+), the quality control system should be managed by the company in an effective manner so that cost of losses are not passes to consumer(P+).
The operations in Tesco comes after inbound logistics because its core activities are service oriented and various tasks such as opening and closing, shelves maintenance and replenishment of stock(+). It can prove to be competitive advantage in future where it does not occur or opening new stores (P+) but can fatal and restricted by law (-)which takes away the competitive advantage.
The third stage of value chain is outbound logistics and its main emphasis is delivering the product to the customer and Tesco is providing this service and adding value to its delivery service (+), customer service(+)and implementation of trolley system which saves time and available readily (P+).
Marketing and Sales
The Club cards which gives further discount and loyalty for the customers (+), the customer sophistication and awareness of business practices that are ethical may prove constraint in the selling of environmental friendly products (-) and this can be helpful for Tesco as well because their advertisements will educate the customers in adding the value to the Tesco as it is helping the environment by using recycled products (P+).
Effective Planning and control can be beneficial for the company as it helps in accounting of all costs and cash incurred in company's operations(+), the technology that reduces the chance of internal thefts and the customer need not to cover in the price of their purchases(+).
Human Resource Management
The main emphasis of recruiting talented workforce is to pass on the benefits to the customer in a more efficient manner and training is given to the recruited individuals in major activities for the development of management as well (+) and Tesco is continuously investing in customer service and satisfaction(+).
The customer needs and wants grow and changes at a regular interval, therefore there is a need to innovate new product and solutions to their existing problem that fulfill customer needs. It adds value to the brand Tesco and gives the product vitality which proves to be key competitive advantage (+), the installation and investment of capital is high, the dedication and commitment from the staff is needed but who will responsible for the service provided to the customer and the floor management(-).
Datamonitor Report (2003) Food retail industry profile: United Kingdom, January;