Tesco Retail Business Analysis
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Published: Tue, 30 May 2017
Tesco is one of the largest food retailers in the world, operating around 2,318 stores and employing over 326,000 people.
As well as operating in the UK, it has stores in the rest of Europe and Asia. It also provides online services through its subsidiary, Tesco.com. The UK is the company’s largest market operating under four banners: Extra, Superstore, Metro and Express.
Tesco sells approximately 40,000 food products in its superstores, as well as clothing and other non-food lines. The company’s own-label products are at three levels, value, normal and finest. Own brand accounts for approximately 50% of sales.
As well as convenience produce, many stores have gas stations. The company has become one of Britain’s largest petrol independent retailers. Other retailing services offered in the UK include Tesco Personal Finance and Tesco.com. Tesco Personal Finance is a joint venture with the Royal Bank of Scotland. It has over 3.4 million customers, and provides various financial products and services.
The company has operations in the rest of Europe, including the Republic of Ireland, Hungary, Poland, Czech Republic, Slovakia, and Turkey. In Asia, the company operates in Japan, Malaysia, South Korea, Taiwan, and Thailand.
Tesco’s Republic of Ireland business operates in the region of 82 stores, and around 60 stores in the Hungarian market. Tesco’s Polish operations include former HIT operated stores. It operates around 66 hypermarkets and supermarkets in this country. In the Czech Republic and Slovakian markets, Tesco operates 22 and 23 hypermarkets respectively.
Tesco also operates stores in Asia, including Thailand, South Korea, Malaysia and Taiwan. The company operates 64 stores in Thailand and 28 stores in the South Korean Market, while in the Taiwanese and Malaysian markets it has three stores in each nation.
Tesco was originated in the markets of London’s East End, where in 1914, war veteran Jack Cohen began to sell groceries. The brand name of Tesco first appeared on packets of tea in the 1920s.
Tesco was an amalgamation of the initials of T.E. Stockwell, a partner in the firm of tea suppliers, and the first two letters of Cohen. The first Tesco store was founded in 1929 in Burnt Oak, Edgware.
Following the success of self service stores in the US, Mr. Cohen opened the first Tesco self-service store in St. Albans in 1948. Gradually the business expanded from stores to supermarkets, and by the early 1960s, Tesco had become a familiar household name, selling household goods and clothing.
In 1974, the company set up petrol stations at its major sites, selling fuel at competitive prices. In 1979, the company’s annual turnover reached £1 billion for the first time.
In the 1990s Tesco continued to tighten its grip on the UK with more store openings and an aggressive marketing campaign in an attempt to overtake Sainsbury’s as the UK’s leading grocer.
In 1992, the company launched is slogan ‘every little helps’, followed by the Tesco Value range in 1993. This was followed by the launch of the Tesco Club card scheme in 1995, helping Tesco to overtake rival Sainsbury’s as the UK’s largest food retailer.
1996 saw the retailer introduce its first 24-hour store while it also expanded overseas opening shops in Poland, the Czech Republic, and Slovakia. In 1997 Tesco appointed Sir Terry Leahy as chief executive.
Tesco.com was launched in 2000 and the supermarket continued to expand its range of products, which now includes clothes, electrical and personal finance products. In 2004 Tesco entered the broadband market.
Two years ago, in 2006, the retailer announced ambitious plans to open stores in the US under the name ‘Fresh and Easy’ and funded by existing resources. Tesco now operates in 13 countries.
Today it reported that group sales were £51.8bn in the year to February 23 2008. Pre-tax profit rose to £2.8bn.
In 2008 the retail giant took its conquest of the UK one step further by buying up some rival Somerfield stores on remote islands in Scotland, giving Tesco a presence in every single postcode area in the country. As it stands there is only one postcode in the UK – in Harrogate in North Yorkshire – which does not have a Tesco.
MAJOR PRODUCTS AND SERVICES:
Tesco is the largest food retailer in UK, operating around 2,318 stores worldwide. Its
Products and services include:
What Is an Environmental Analysis?
Environmental analysis is relatively qualitative and involves the identification of and analysis of environmental variables, which affect the business.
Definition: Environmental Analysis
Environmental analysis for a business looks at the factors inherent in a business’s environment that may have some impact thereof. This type of analysis is relatively qualitative and involves the identifying, scanning, analyzing and forecasting of the environmental variables. Some frameworks of environmental analysis have received large amounts of attention in the world of business management literature, such as SWOT analysis and PESTEL analysis.
Why Environmental Analysis?
Environmental analysis will help you understand what is happening both inside and outside your organization and to increase the probability that the organizational strategies you develop will appropriately reflect your organizational environment.
Three Levels of Organizational Environment
In order to perform an environmental analysis, you must thoroughly understand how organizational environments are structured. For purposes of environmental analysis, you can divide the environment of your organization into three distinct levels: internal environment, operating environment, and general environment.
What Is a Competitors Analysis?
Competitive analysis is the practice of analyzing the competitive environment in which your business operates (or wishes to operate), including strengths and weaknesses of the businesses with which you compete, strengths and weaknesses of your own company, demographics and desires of marketplace customers, strategies that can improve your position in the marketplace, impediments that prevent you from entering new markets, and barriers that you can erect to prevent others from eroding your own place in the market.
Definition: Competitors Analysis
Competitor’s Analysis also called competitive analysis, the process of identifying the performance and marketing strategy of competitive brands or products in the marketplace. In order to plan an effective marketing strategy, marketers need to know about the competitive environment and to find out all they can about competitors’ products, prices, communication channels quality, and service so as to determine areas of competitive advantage and disadvantage.
Why Competitors Analysis?
Some businesses think it is best to get on with their own plans and ignore the competition. Others become obsessed with tracking the actions of competitors (often using underhand or illegal methods). Many businesses are happy simply to track the competition, copying their moves and reacting to changes.
Competitor analysis has several important roles in strategic planning:
- To help management understand their competitive advantages/disadvantages relative to competitors
- To generate understanding of competitors’ past, present (and most importantly) future strategies
- To provide an informed basis to develop strategies to achieve competitive advantage in the future
- To help forecast the returns that may be made from future investments (e.g. how will competitors respond to a new product or pricing strategy?
Questions to ask
What questions should be asked when undertaking competitor analysis? The following is a useful list to bear in mind:
- Who are our competitors?
- What threats do they pose?
- What is the profile of our competitors?
- What are the objectives of our competitors?
- What strategies are our competitors pursuing and how successful are these strategies?
- What are the strengths and weaknesses of our competitors?
- How are our competitors likely to respond to any changes to the way we do business?
ANALYSIS OF THE MARKETING OPERATION
What Is an Analysis OF THE MARKETING OPERATION?
Marketing Operations is the function responsible for marketing performance measurement, strategic planning and budgeting, process development, professional development, and marketing systems and data.
Definition: Analysis OF THE MARKETING OPERATION
The purpose of the Marketing Operations function is both to increase marketing efficiency and to build a foundation for excellence by reinforcing marketing with processes, technology, metrics, and best practices. Marketing operations enables an organization to run the marketing function as a fully accountable business. Marketing operations is about performance, financial management, strategic planning, marketing resource, and skills assessment and management.
Why Analysis OF THE MARKETING OPERATION?
The marketing operations plan is designed to identify where we are as a district now and where we are going. It is a usable planning document that reviews the past year’s production and identifies strong points and problem areas. The operations plan is designed to accomplish the following:
- Stimulates thinking to make better use of available resources
- Reduces crisis management
- Assigns responsibilities and schedules work
- Improves communications within the command
- Coordinates and unifies efforts
- Facilitates control, monitoring, and evaluation of results
- Provides source marketing information for current and future reference
- Facilitates progressive advancement toward a goal
ANALYSIS OF THE MARKETING STRATEGIES
What Is an ANALYSIS OF THE MARKETING STRATEGIES?
Marketing strategy is a method of focusing an organization’s energies and resources on a course of action which can lead to increased sales and dominance of a targeted market niche. A marketing strategy combines product development, promotion, distribution, pricing, relationship management and other elements; identifies the firm’s marketing goals, and explains how they will be achieved, ideally within a stated timeframe. Marketing strategy determines the choice of target market segments, positioning, marketing mix, and allocation of resources. It is most effective when it is an integral component of overall firm strategy, defining how the organization will successfully engage customers, prospects, and competitors in the market arena.
Definition: ANALYSIS OF THE MARKETING STRATEGIES
Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should be centred on the key concept that customer satisfaction is the main goal.
Why ANALYSIS OF THE MARKETING STRATEGIES?
A marketing strategy can serve as the foundation of a marketing plan. A marketing plan contains a set of specific actions required to successfully implement a marketing strategy. For example: “Use a low cost product to attract consumers. Once our organization, via our low cost product, has established a relationship with consumers, our organization will sell additional, higher-margin products and services that enhance the consumer’s interaction with the low-cost product or service.”
A strategy consists of a well thought out series of tactics to make a marketing plan more effective. Marketing strategies serve as the fundamental underpinning of marketing plans designed to fill market needs and reach marketing objectives. Plans and objectives are generally tested for measurable results.
A marketing strategy often integrates an organization’s marketing goals, policies, and action sequences (tactics) into a cohesive whole. Similarly, the various strands of the strategy , which might include advertising, channel marketing, internet marketing, promotion and public relations can be orchestrated. Many companies cascade a strategy throughout an organization, by creating strategy tactics that then become strategy goals for the next level or group. Each one group is expected to take that strategy goal and develop a set of tactics to achieve that goal. This is why it is important to make each strategy goal measurable. Marketing strategies are dynamic and interactive. They are partially planned and partially unplanned.
PESTLE ANALYSIS OF TESCO:
POLITICAL – Following the European Integration and Free Trade Agreements, the market has opened up for British Companies to invest in Eastern Europe. Tesco already has 60 Hypermarket store in Hungary. Lidl is uncompromisingly fighting to maintain its market share with an aggressive pricing strategy.
ECONOMIC – the Retail sector is fairly recession prawn and also very sensitive to changes in interest rates. Since the events of September 11th the world economies have suffered heavily, stocks plummeted and prices are at all time lows. The world economy is however, now on the up post September 11th. Consumers are optimistic and the retail industry is once again booming.
SOCIAL – changes in consumer taste and lifestyle represent both opportunities and threats for the industry. Opportunities in terms of new market and consumers, however, there are added threats in terms of alternative established Swedish national retailers (foreign company bias).
TECHNICAL – Changes in retailing methods as such clothes sales via the Internet is now a common place in retailing. Paperless operation, the management and administration of the company are undertaken on IT systems, which are accessed through secure servers; provide flexibility in the running of the business. As Sweden is at the forefront of technological advancement with national companies like Ericsson, Tesco would enjoy the comprehensive logistics and distribution channels already in place.
LEGAL – National legislation for health and safety both in terms of consumer rights and also in terms of production of own natural renewable resources for making clothes.
ENVIRONMENTAL – The renewable source of resources used in production, namely cotton and wool are environmentally friendly. The threats are in terms of legal consequences for livestock’s in terms of health and safety.
TESCO’S STRATEGIC OPTIONS:
Generic Strategies are characterised by an individual retailer’s response to the industry structure. For a giant retailer, such as Tesco, to obtain a sustainable competitive advantage they should follow either one of three generic strategies, developed by Porter.
The first strategy of cost leadership is one in which Tesco can strive to have the lowest costs in the industry and offer its products and services to a broad market at the lowest prices. This strategy will be based on the Tesco’s ability to control their operating costs so well that they are able to price their products competitively and be able to generate high profit margins, thus having a significant competitive advantage. If Tesco uses another strategy of differentiation, than it has to try to offer services and products with unique features that customer’s value. Tesco will be able to create brand loyalty for their offerings, and thus, price inelasticity on the part of buyers. Breadth of product offerings, technology, special features, or customer service are popular approaches to differentiation.
The last strategy of focus can be either a cost leadership or differentiation strategy aimed toward a narrow, focused market. In pursuing a cost leadership strategy Tesco focuses on the creation of internal efficiencies that will help them withstand external pressures. Therefore, it appears reasonable to think that Tesco will have frequent interactions with the governmental/regulatory and supplier sectors of the environment
MARKET OBJECTIVES AND STRATEGIES IMPLEMENTATION
Strategy frameworks and structuring tools are key to assessing the business situation. Risk and value trade-offs are made explicit, leading to concrete proposals to add value and reduce risk. Explicit plans for action, including effective planning need to be developed by Tesco as the strategic alternative.
From the generic strategies discussed above, Tesco is likely to employ two strategic options that are also likely to be primary market objectives of focus on market development though partnerships and diversification through new product development.
Market Development Strategy: Joint Developments and Strategic Alliances By entering new markets like China and Japan it can serve as a key growth driver of the company’s revenues and expansion strategy. Tesco’s interests in Japan are likely to continue growing in due course, as Asian markets are showing an increase in consumer spending and increased trend towards retailing. These new markets are also demographically high opportunity markets.
In the case of Tesco, one of the suggested strategic options is in international alliances with the local retailers in Asian markets. It will be considered as a method of development and may be formed to exploit current resources and competence. By entering into joint ventures or partnerships, in order to gain a larger economy of scale and larger market presence, Tesco will draw on the extensive local knowledge and operating expertise of the partner whilst adding its own supply chain, product development and stores operations skills to deliver a better shopping experience to customers. However, given the huge scale, potential and complexities of these markets, Tesco may feel that being the first mover is not necessarily an advantage. The success of the partnership will be related to three main success criteria: sustainability, acceptability and feasibility. Sustainability will be concerned with whether a strategy addresses the circumstances in which the company is operating. It is about the rationale of this expansion-market development strategy. The acceptability relates to the expected return from the strategy, the level of risk and the likely reaction of stakeholders. Feasibility will be regarded to whether Tesco has the resources and competence to deliver the strategy.
The success of the Tesco shows how far the branding and effective service delivery can come in moving beyond splashing one’s logo on a billboard. It had fostered powerful identities by making their retailing concept into a virus and spending it out into the culture via a variety of channels: cultural sponsorship, political controversy, consumer experience and brand extensions.
In a rapidly changing business environment with a high competitors’ pressure Tesco have to adopt new expansion strategies or diversified the existing in order to sustain its leading market position in an already established retailing market. The company must constantly adapt to the fast changing circumstances. Strategy formulation should therefore be regarded as a process of continuous learning, which includes learning about the goals, the effect of possible actions towards these goals and how to implement and execute these actions. The quality of a formulated strategy and the speed of its implementation will therefore directly depend on the quality of Tesco’s cognitive and behavioural learning processes.
In large organizations as Tesco strategy should be analysed and implemented at various levels within the hierarchy. These different levels of strategy should be related and mutually supporting. Tesco’s strategy at a corporate level defines the businesses in which Tesco will compete, in a way that focuses resources to convert distinctive competence into competitive advantage.
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