Ocado is an independent and distinctive online grocery store that focuses entirely on delivering premium food, drink and household goods right at its customer’s door step. Ocado claims that they are different from the traditional grocery stores in the market for they provide customer’s with easy, quick, convenient, precise and enjoyable shopping with just a click of the mouse. In order for Ocado to accomplish its mission, the company has four goals to live by; great value, great service, great choice, and green way to shop. By employing advanced technology to continue sharpening its efficient delivery model, Ocado enables to lower its prices and at the same time guarantee excellent value for money. Ocado offers great service through prompt delivery of superior groceries and by caring and showing sincerity to their customers. Ocado also offers a wide variety of choice and they show concern towards our environment by providing a greener way to shop. On the contrary, Tesco is considered one of the biggest retailers in the world. According to Tesco, their success depends on their customers and their employees. The company’s main purpose is to create value for customers to earn their lifetime loyalty (Tesco website, 2010a). In order to make this happen, Tesco is adapting the following values; “No-one tries harder for customers” and “Treat people as we like to be treated”. Tesco is giving importance to understanding and meeting their customers’ needs, doing something good for the community, working as a team, trusting and respecting each other, listening and supporting team members, and sharing knowledge and experiences with them. Both companies are putting their customers first by providing quality products and superior customer service.
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Analysis and Conclusion
Ocado’s strategy for increasing revenues is well thought of. Ocado attempts to increase turnover by providing customers with primary commodities at the lowest price possible; by offering delivery of grocery products that are taken from a high-tech and computerized warehouse; and by selling a variety of products, most of which are supplied by Waitrose. Ocado has also raised its gross sales at a Compound Annual Growth Rate of 31 per cent between FYE 2007 and FYE 2009 (Ocado website, 2010a). And its earnings before interest, taxes, depreciation, and amortization (EBITDA) are also growing. Ocado is planning to go on with the strategy that is focusing on increasing revenue, improving EBITDA margins, and exploring supplementary growth opportunities by constantly improving consumer products through maintaining and improving the customer experience; increasing its core product range; and continuing to offer value to customers (Ocado website, 2010a). Another means of increasing revenue is improving cost efficiency and expanding CFC capacity and the Spoke network (Ocado website, 2010a). Searching for more growth opportunities by adding non-grocery products and including the prospect of reproducing the same business model abroad is also another way of growing Ocado’s revenues.
On the other hand, Tesco’s strategy is centered on growth. Widening of the business reach is one of the underlying principles of Tesco’s strategy. Providing customers with growing markets at home and expanding markets overseas such as countries in Central Europe, Asia and United States, would allow Tesco to have a continuous existence and growth. Diversification is one of the main goals of Tesco’s strategy and this has been the basis and reason for the company’s success in the past years. As a highlight of Tesco’s diversification, it has established and developed new businesses and these businesses are becoming competitive and profitable and are also growing in size. Tesco’s strategy has five objectives and these are as follows: (1) To be a successful international retailer, (2) To grow the core UK business, (3) To be as strong in non-food as in food, (4) To develop retailing services – such as Tesco Personal Finance, Telecoms and Tesco.com, (5) To put community at the heart of what we do (Tesco website, 2010b). These objectives reflect the company’s four well-known areas of focus and their continuing commitment on community and environment. These objectives have also permitted the company to keep on growing and sustaining even during times of economic recession. Tesco’s core Uk business is the most important business of the company for it employs more than 285,000 employees and has more than 2,200 stores. The UK business contributes to approximately 70% of the total sales and profits of Tesco. New space, expansion of existing stores and a multi-format approach are the main reasons for the growth of the UK business. The UK business has four different store formats, namely Express (up to 3,000 sq ft), Metro (approx. 7,000-15,000 sq ft), Superstore (approx. 20,000-50,000 sq ft) and Extra (approx. 60,000 sq ft and above) that are each tailored to their customers’ needs. Aside from providing a wide range of formats, the UK business guarantees an extensive appeal by constantly giving customers innovative and new kinds of products and merchandise, thus costumers have a variety of choices. The store also has an assortment of own brands that allows customers to purchase products that fits their way of life. Last year, they also launched about 500 new products as part of their ‘Discount Brands at Tesco’ initiative. These products are priced low and are very affordable so that customers can buy products without compromising quality and choice. With regards to understanding its customers, Tesco created Tesco Clubcard. This loyalty card provides Tesco with information that they will need in understanding their customers better. The card also provides customers with offerings that are suited to their needs and lifestyle. Tesco is not only trying to understand customers but they are also looking after their employees by offering package of pay and different benefits that are appropriate for their workers.
In contrast, Ocado aspires to have a market leading customer proposition. In fact, they garnered different awards like Online Retailer of the Year for 2005, 2007, 2009 and 2010 Grocer Gold Awards (Ocado website, 2010b). They strive to have the best customer service by providing high accuracy and availability of products; convenient and on-time delivery service; and user friendly interfaces or websites. Another means of providing a market leading proposition is through an emporium of quality of food; they now offer about 20, 000 versions or stock keeping units (skus) and is planning to add more or less 3,000 skus in 2010. High quality and fresh products are also made available in their online store. They also introduced their own branded products and priced these products at a lower cost to counterpart Tesco’s discounted products. Some delivery slots are offered for free by Ocado and is also offering delivery pass to facilitate limitless free deliveries for a fixed amount.
When it comes to corporate responsibility, Ocado and Tesco are both going green. Ocado was nominated Green Retailer of the Year 2009 in The Grocer Gold Awards, Large Retailer of the Year 2008 in the Online Green Awards and was awarded as Ethical/Green Practice 2009 at the IMRG E-Commerce Awards for Excellence (Ocado website, 2010c). Ocado delivers its commodities directly from the CFC to the customer’s door step, reducing and getting rid of the carbon emissions usually produced by the conventional supermarkets and their stores. The amount of vehicles on the road is also minimized. To reduce its carbon usage and its environmental impact, Ocado have also implemented the following actions: closed-loop grocery bag recycling, whereby when making a delivery, drivers offer to collect used bags from customers which are recycled within the UK to make new Ocado grocery bags; wasting significantly less food as a percentage of gross sales than any of its competitors; and signing up to the Climate Change Agreement (with the Carbon Trust), which places certain obligations on management to monitor and lower carbon usage (Ocado website, 2010c). Meanwhile, Tesco plays an important role in minimizing climate change. In doing so, the company committed to becoming a zero-carbon business by 2050; reducing the emissions of the products they sell by 30% by 2020; helping their customers to reduce their carbon footprint by 50% by 2020; halve emissions from their 2006/7 baseline portfolio of buildings by 2020; new stores built between 2007 and 2020 to emit half the CO2 of a 2006 new store; and reduce emissions per case delivered by 50% by 2012 (Tesco website, 2010c).
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With regards to the financial aspect, Tesco’s website provided a more organized investor centre section wherein more information such as financial highlights, annual reviews, financial calendar, etc. can be gathered and access directly by the customers and investors. In their website (Tesco website, 2010d), they stated that in 2009 to February 2010 their group sales is 6.8% and their group profit before tax is 10.4%, indicating that the company’s growth is increasing amidst the economic downturn. Their Group sales (£m) (including VAT) and Group trading profit (£m) from February 2009 to 2010 amounted to 62,537 and 3,412 respectively. Whereas, Ocado’s gross sales increased 29.5% to £126.5m for the 12 weeks to 8 August 2010 (2009: £97.7m), its average orders per week for the 12 weeks to 8 August 2010: 92,834 (70,968 in equivalent period in 2009) and at 8 August the Group had cash and cash equivalents, including monies on deposit, of £205.9m, borrowings of £119.9m and undrawn available facilities of £110.0m (Ocado website, 2010d).
From the above comparison and analysis, we can say that both groceries stores have excellent strategies. Ocado’s strategy for increasing revenues is being realized through the provision and delivery of new and various products at lower prices while Tesco’s plan for diversification is also being materialized by adding additional businesses to their existing business model. Both companies are also giving customers high quality offerings but when it comes to a variation of products Tesco has more products to offer than Ocado. Tesco is selling electronic gadgets like personal computers (PC), mobiles phones, games and gaming accessories. They also have furniture, appliances, car accessories, sports and leisure products that are yet unavailable to Ocado. This wide range of products that Tesco have can be attributed to their existence of more than 90 years in the business whereas Ocado has just been in the market for 10 years. In caring for the environment, I can say that Ocado’s efforts in going green are more successful than Tesco and this is evident in the awards that they recently received. And when it comes to gross sales, Ocado has higher revenues than Tesco and their strong sales drive as confirmed in the first half of the year is continuing to increase since then. In August 8, 2010, sales for the previous 36 weeks reached £372.2m, having a 29.8% increase. Ocado is already planning to diversify by adding non-grocery products to their line and by doing so they are trying to counter Tesco’s existing products. So if I were to recommend what company to invest in, I would say it has to be Ocado.
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