This report focuses on the UK grocery market with great emphasis on Tesco plc, the largest grocery supermarket in the UK. Highlighted in this report is Tesco’s connection with some strategic planning and implementation, its vision and mission. Further discussed in this report is Tesco’s diversified culture with some social factors, brand value, and its innovativeness with the current environmental circumstances. Also in this report are strategic models which illustrate Tesco’s business environment and other market situations in terms of the stability and core competence. The models used are SWOT analysis and the Porters Five Forces. Finally, in this report is the strategic development of Tesco with some recommendations including a suggested implementation plan to carry out the identified strategies with the monitoring and evaluation process.
1.1 BRIEF INTRODUCTION OF TESCO PLC
Tesco plc is one of British largest retail grocery currently the first in terms of the top 10 retail grocery in the United Kingdom. It was the first UK business to make £2 billion in profits when it announced the feat early in 2005, (Tesco Annual Review, 2005) and the third largest global retailer based on revenue. Over the years, retail grocery sector represents the largest industry in UK providing employment for millions of people in UK either in manufacturing or in retailing. In 2003 retail accounted for 9% of domestic product (Datamonitor, 2003).
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The name TESCO was derived from the combination of a tea supplier’s name T.E.Stockwell and Jack Cohen the founder of Tesco plc. Tesco was founded by Jack Cohen when he began to sell surplus groceries from a stall in the East End of London in 1919 and in 1924 Jack Cohen made a new label by combining the first three letters of the supplier’s name (TES), and the first two letters of his surname (CO) to form TESCO. It was a typical of Cohen’s eye for a bargain of his unshakeable lifetime conviction that it was low prices and nothing else that moved business fastest. By the mid-1950’s Tesco have 150 small and physically unimpressive stores, most of them on self-service formats. As the supermarket revolution arrived, Cohen opened his first Tesco supermarket in 1956. But in all conscience Cohen was singularly ill-equipped in either visionary or operating terms as a leader to handle this level of radical change (Seth & Randall, 1999).
In UK, Tesco plc operates under four banners namely Tesco Extra, Superstore, Metro and Express. The first Tesco store was opened in 1929 in Burnt Oak, Edgware, and Middlesex and in 1947; Tesco was floated on London Stock Exchange as Tesco Stores Holdings Limited. Fifty percent of sales in Tesco are gotten from Tesco’s own-label products which are in three levels, values, normal and finest. Tesco plc is also becoming one Britain’s largest independent petrol retailer because as well as convenience produce, many stores have gas stations and other retailing services rendered by Tesco also include Tesco personal finance.
2.0 EXTERNAL (ENVINRONMENTAL) ANALYSIS OF TESCO
As noted by Johnson, Scholes, Whittington, (2008) “The environment is what gives organisation their means of survival and there are five different layers of a business environment namely: the macro environment, industry or sector, competitors, the organisation and the market” Business environment is a set of political, economic, social, technology, environmental and legal forces that can potentially have both positive and negative impact on the business. (Johnson, Scholes, Whittington, 2008).
2.1 EXTERNAL OPERATING ENVINRONMENT
The constant change in market demands has made the economy so complex. Therefore analysing TESCO’s eternal operating environment, the following tools will be applied to ensuring that TESCO meets the changes in market demands: the PEST tools, the SWOT tools and porters 5 forces. these tools will be to examine TESCO’s operating environment.
The PEST framework provides a comprehensive list of influences on the possible success or failure of particular strategies (Johnson, Scholes, Whittington, 2008). This framework categorises environmental influences into political, economic, social and technological.
2.1.0 POLITICAL FACTORS
This factor highlights the role of government institutions. Take for stance in UK when the business environment was hit by credit crunch which lead to great unemployment. This trend actually helped TESCO because of their dominance in UK and as one of the fastest growing retailer they tried as much as possible to reduce the level of unemployment caused by these changes thereby creating employment. “For employment legislation, the government encourages retailers to provide a mix of job opportunities from flexible, lower-paid and locally -based jobs to highly-skilled, higher-paid and centrally located jobs” (Balchin, 1994). Also the strong government restriction against monopoly which is one of the threats TESCO’s are faced with because within the customer law, it is very critical to note that protecting consumers and ensuring that entrepreneurs have the opportunity to compete in the market economy is very important. Also TESCO need to look critically in the aspect of government policies on taxation because high taxation is one the major problems businesses face in the UK because it is never stable. The issues of government policies on trade restriction and implementation of new regulations could also affect in a way especially when there is free trade between the European Union which will be of TESCO benefit.
2.1.1 ECONOMIC FACTORS
This is another environmental factor which can make a huge impact in TESCO. Take for stance the economic down turn faced in UK due to the unemployment which drastically reduced the demand of so many good more so affecting the demand required to produce such goods which is a major concern to TESCO since they are highly dependent on the UK market. In addition if TESCO had known the economy was heading for a recession, with the use of PEST framework analysis it would have helped plan ahead. It is good to note that this factor can influence demand, cost, price and profits.
2.1.2 SOCIAL/ CULTURAL FACTOR
TESCO plc is one of the retail groceries in UK who has successfully address people’s social and cultural needs, and as it involves the reflection of the increasing immigrants and visitors from all over the world who have different food preference, and clothing variations with different beauty products choices, this have sort of encouraged customer to move towards bulk shopping. The demographic changes like life style that is, the customers’ belief and attitudes have made TESCO to concentrate on added-value products and services. Another factor is population which has forced TESCO to have more interest in customers increased demand for organic products and this has in many ways help TESCO to strategies ways to drive cost out of the market. Wilson and Gilligan (2005), states that a variety of other equally important and far-reaching changes in social, cultural and demographic environments are currently taking place.
2.1.3 TECHNOLOGICAL FACTORS
The use of technology in marketing is one of TESCO’s expansion strategies. It has enabled customers to pay their bills electronically thereby reducing long queues. Online marketing has also influenced the development of many TESCO products and this benefits both the company and its customers. This personalised service makes shopping more convenient for the customers and has positively affects the growth of TESCO plc.
3.0 PORTER’S FIVE FORCES
Porter (1980) argues that the most significant influence in an organisation’s environment is represented by the nature of the industry in which the particular company operates in.
3.1 Threat of New Entrants
The UK grocery market is so saturated with very few competitors dominating the market. There are five major key players in the UK grocery market namely Tesco, Asda, Sainsbury, Iceland and Safeway, all sharing the highest market share.” Threat of entry depends on the extent and height of barriers to entry” (Scholes, et al, 2008). With Tesco on top coupled with its huge investment and aggressive operational tactics in product development, it is difficult in all ramifications for a new entrant in the market to pose a threat the business of Tesco.
3.2 Suppliers Bargaining Power
Understanding that the suppliers bargaining power is very low, Tesco will not give room for a small chain to dictate prises in the market. The cost of raw materials and components can have a major bearing on a firm’s profitability. The higher is the bargaining power of suppliers; the higher the costs of the goods. (Svend Hollensen, 2003). The ability of Tesco as a huge grocery in UK to source for cheaper supplies abroad ,has enabled them to negotiate prices being brought forward by supplier which other small chains are not capable of meeting. For the fact that most of the major suppliers are scared of losing business to foreign supplier has influenced Tesco positively.
3.3 Bargaining Power of Consumers
When Tesco introduced Loyalty card and branded Clubcard in 1995, it did not succumb to other grocery that it was Tesco’s strategy of customizing service to gain dominance when it comes to meeting customers’ needs. This strategy not only made much profit for Tesco but also enabled Tesco to get a comprehensive database of all its consumers. This initiative actually won lots of customers for Tesco and has become standardized. It is amazing to the customers that they can get two clubcard points for every £1 they spend in Tesco which means the more you spend in Tesco, the more clubcard points you make and these points can also be converted to coupons which can be redeemed for cash. “The more the products that become standardized or undifferentiated, the lower the switching cost, and hence, more power is yielded to buyers.” As theorized by Porter M. (1980).
3.4 Threat of Substitute
This threat can make great impact on Tesco plc when it comes to a product being substituted for another product which can make a customer switch to the alternative. This is mostly caused by the introduction of other small-scaled operations in the market. The demand of a particular product can be reduced if a customer sees an alternative in another market and for these reasons, Tesco are trying reduction of prices and modification of such products in the other banners they are operating on example Tesco Metro to avoid such threat.
3.5 Bargaining Power of Competitors
There are wide range and variety of competitions in the grocery business either on the small and large scale. Tesco in the grocery business has long witnessed a significant growth in size since its establishment in 1924, though not the first to be establish in UK but currently the first of the top 10 grocery in operation in UK and the third largest global retailer based on revenue. Over the years, grocery business has remained so competitive that it triggered a high level of development by major competitors like Asda, Sainsbury, Iceland and Safeway which has made Tesco to be more innovative thereby making them the largest grocery business providing employment for millions of people in UK either in manufacturing or in retailing and since been known for their market dominance.
4.0 SWOT ANALYSIS
SWOT analysis is a tool which could be used to audit an organisation and its internal and external environment. Tesco is the first of the top 10 grocery in UK with an excellent record in product and format innovation. And with the introduction of online shopping, Tesco became the only food retailer to make online shopping profitable which puts them ahead of other competitors.
Products with range of Prices: Tesco has several kinds of product in the market. These products range from food, non-food products, home appliances, medicines and so with different prices on all the products. In Tesco you can get whatever product you want at an affordable price. The prices vary anyway, the higher the quality, the higher the price and vice versa and this depend on the choice of the customer.
Growing supermarket space: Tesco in the grocery business has long witnessed a significant growth in size since its establishment in 1924 and this is as a result of the growing population of consumers patronising the company and their increasing demand of several products.
Strong brand image: Tesco is a household name in UK known for their market dominance in good quality and trustworthy product. It is because of Tesco strong brand image that most customers see great value in their services and this has earned the company lots of profits.
Tesco Online: Online marketing has also influenced the development of many TESCO products and this benefits both the company and its customers. This personalised service makes shopping more convenient for the customers and currently being used by over one million customers in UK. The use Tesco Online in marketing is one of TESCO’s expansion strategies. It has enabled customers to pay their bills electronically thereby reducing long queues thus bringing simplicity and value to the market.
Prices: Their price of goods poses lots of problem for Tesco plc. Trying to satisfy their customers’ needs by cutting cost of their products even their services can lead to a reduced profit margin for their business.
High reliance on UK market: Tesco’s reliance on UK market is also one major weakness because if at any time the economy faces any challenges, this will definitely affects the business of Tesco, so it very much advisable for Tesco to look beyond UK and increase its foreign outlets and selling other commercial items.
Internet: Tesco’s online successes is one great opportunities. Since the introduction of Tesco online, the use of technology in shopping has grown in quite a short space and moved into profitable status. Their website is so fully packaged totally different from all other grocery site and since there are no matches in terms of comparisons, it remains an advantage on the side of Tesco.
Intervention in Asian market: Tesco’s intervention in the Asian market has serious positive implications in their growth internationally and this in no doubt will give Tesco an opportunity to develop its brand more so make Tesco much larger than they were due to Asia’s massive economies with huge growth forecast.
Growth of non-food sales: Tesco known for their cut-cost structure can initiate same strategy to non-food retail and it is evident that Tesco capitalising on these opportunities are opening new store basically for the sales of non-food items which has given Tesco a tremendous result in increased market share in UK
Economic instability: The unstable, unpredictable nature of the economy and political changes in UK pose lots of threat to Tesco and one critical example of these changes is the credit crunch which strokes the UK. This impacted on the consumers’ a lot because going by their low income, they had to go for products with low prices thereby paying less attention to higher priced brands and this can force a switch in Tesco’s price structure.
Competition: This has also been a persistent threat and this one major reason why Tesco will keep up with the price cuts so as not to lose their customers to major competitors like Asda and Sainsbury.
High price of raw material: The upsurge in cost of raw materials from both food and non-food could trigger poor production and this can impact Tesco overall profit margin.
5.0 VISION AND MISSION STATEMENT FOR TESCO
The study of mission statement stated in the early 1970 s, and Drucker (1971) referred to them as a precursor to “clear and realistic business objectives”. As stated by Harrison and Enz(2005), “An organization’s mission statement provides an important vehicle for communicating ideals and a sense of directions and purpose to internal and external stakeholders. It can inspire employees and managers. It can also help organizational managers in resource-allocation decisions”. With these definitions, it can be further explained that mission is what the organization is and its reason for existing whereas a vision is a forward-looking view of what the organization wants to become. Drummond and Ensor (1999) defined the mission of an organization as the unique purpose that distinguishes it from other companies and defines the boundaries of its operations.
Tesco’s vision is concentrated basically on their customers. They see themselves in many years to come as being the only grocery business in UK due their market development strategy.
5.2 Mission statement
“To ensure continued income streams to the business from our key customers in all segments by removing the impediments which prevents them from the optimal enjoyment of our product and services”.
With the above mission statement, it is assumed that Tesco’s mission is to permanently dominate the market giving no room for any competitors or competition.
6.0 CRITICAL SUCCCESS FACTORS
The objectives of an organization govern the potentials value of the organisation and it also shows the platform on which the organisation is built in terms of profitability. The following describes Tesco’s objective:
Tesco aims to minimize the cost of products and at the same time aim to earn high. Profit maximization is one major reason why a business will stand and Tesco sees selling at low price will attracts more customers thereby giving customers better chances of making choice in the quality and quantity of products at a valued price.
Tesco need to ensure 100% customers satisfaction by offering good customers services and excellent Value for their money which differentiates them from their competitors.
Dedication to their employees as well as to customers, ensuring that all their wants and needs are met
7.0 KEY PERFORMANCES INDICATOR
For Tesco to remain on top rather to maintain its position in the top 10, the following measures need to be critically evaluated:
Tesco employees need have sound knowledge of their products so as to make shopping not too complex for their customers. This can also give customers ideas of some products they are not aware of more so forcing out a change of choice in their decision to buy more.
Customer’s satisfaction is one vital key to business success. If a customer is not satisfied with either the product or the service then it will be difficult for such business to exceed. In other words, Tesco actually need to improve more in their customer service.
Tesco at all time need to assure customers quality brands and also services by investing more in employee training.
8.0 CORPARATE AND BUSINESS STRATEGIES
Tesco is an organization more voluminous in terms of revenue acquisition and customers than any other grocery market in UK and for it to maintain its current standard or create a wide margin in the market, a lot need to be done to achieve it objectives.
Firstly, Tesco need to divert the attention of customer from non-food products to food products. To do this, they need not to concentrate their advertisement more on non-food products but also encourage their customers to eat more sea foods, fruits as well as vegetables. They should also emphasis more on sales promotion of their own-labelled products on advert thus re-directing the customer’s usual orientation of branded products.
The management need to put the quality of staffs into consideration not only the quality and quantity of their products. Arranging training programs will be appropriate to evaluate their employees quality, such programs will enable them gather vast knowledge of their products more so keeping the goals of the organization alive in the employees.
Theoretically Tesco’s strategic development can also be analysed using Ansoffs matrix and BCG matrix.
For Tesco to achieve high sales level, they need to penetrate the market and this will surely maximize profit level. Penetrating the market could be in two ways from my point of view: Tesco due to its voluminous structure can choose to merge with another grocery in the UK to expand its market and increase its market share. Another method of development suggested for Tesco is to look into international alliances especially with the Asian market like china for this strategy can be used to exploit current recourses.
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Market development of Tesco can be achieved if they concentrate in developing new markets by creating more portfolios which is one major success secrets of an organization. More so, their alliance with this Asian market can introduce a new business in the area of high technology. Another development is their freight service. TESCO Freight services in every Tesco stores also boost the company’s sales. The services include free pick-up and sealing of the box.
Tesco has focused their attention now on non-food products and as such developed new products in the grocery market. It is also evident that the high demand for these new products is as a result of these changes in the market and has differentiated Tesco from other grocery market. Since Tesco non-food products are developed for existing markets, it has forced other grocery market to consider this product development strategy.
Tesco’s ability to offer a value added services, cost advantage s and high value products than the competitors is said it be their diversification strategy
The power of Tesco brand name generate a wealth of good consumer products and its market sales for clothing and grocery items are doing well which is the star product of the company. And this is because these products have competitive pricing which gives higher profits so, Tesco Obviously has to do more advertisement and produce more to meet up with the consumers demand.
The electrical and electronic products like mp3 players, I-touch, I-pod, and other appliances are considered as the cash cow in the market since the market share is high and the industry sales is not because of its quality. Although Tesco is producing cheaper electrical supplies but when it comes to safety, the consumers go for value and quality. The dog products of Tesco’s are the CD’s and DVD’s, these products are expensive in any way. Although these are original copies, low income and budgeting consumers still opt to watch movies over the net or download music instead. Promote the buy-one take-one free for every CD or DVD a customer may buy. If sales for the dog products are still stagnant, the store may resort for CD & DVD movie rentals. And the problem child of Tesco’s business is the own-labelled products and this caused by its inability to compete successfully with the competitiveness in the UK grocery market.
“Strategic development is the identification and leverage of the resources and competences of the organisation which yield new opportunities or provide competitive advantage”. (Johnson & Scholes 1999, p.25.)
There is need for new strategy development and new strategy implementation which is essential for a highly competitive business like Tesco with the current market situation.
There is a need to consider the external and internal factors of Tesco to set the structure of the implementation and guidelines for its new strategy. For a huge market like Tesco, we need to evaluate the market opportunities for market development, product development and integration
Another very important influential factor of Tesco new strategy development is their innovative and diversified culture which is responsible for the implementations in the market.
Feasibility Analysis: To implement the proposed strategy, one need to do the feasibility studies of the subject. This study will look at how Tesco projects in terms of funds and will also help Tesco identify potential target areas for the products. Tesco funding requirements and profitability in the future can also be illustrated using Feasibility Analysis.
Evaluation of opportunities: if a big grocery like Tesco wants to enter a new market within the country or other countries considering its dominance in UK grocery market, there will lots of opportunities and growth prospect thus the market attractiveness can be evaluated
Resource allocation: product market penetration and Implementation of cost leadership strategy will involve lots of resources. It is essential for Tesco to allocate these resources appropriately. These resources will include financial, human resource, material and time resources.
9.1 Monitoring and evaluation
Monitoring measures the effectiveness and efficiency of the desired outcome of the strategic plan of an organization and it is a regular, ongoing management activity which through reliable record-keeping provides information to managers. It is essential that Tesco monitor and evaluate the progress of the implementation process to enable them identify gaps and areas of improvement. The gap analysis is logical framework which Tesco can use to review progress and enable them identify the progress of the strategy according to the specific time duration.
Tesco, as Britain’s largest grocery market should maintain its position on the top and to support this, I recommend the company must open additional 24/7 Tesco Express on high streets but with additional self-service facilities for this will increase market sales. To boost the company’s sales profit and image more, recommended promotions should be done every season. Like raffle draws with corresponding prices. Tesco can also increase their sales by providing free health services like free medical check-up for the aged, nutritionist and medical practitioners to conduct blood-pressure monitoring and free eye test. The customers will benefit the free consultation and at the same time will gain points for their clubcards. Also for Tesco to improve its position, they will need to add new products more so improve on the quality of product they provide to their customers
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