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I N T ROD U CTIO N
Tesco is a United Kingdom based multinational grocery retailer. Tesco is the third largest retailer on the global level after Wal-Mart and Carrefour. The expanse of the business is in fourteen countries in three continents. The company was started in the year 1919 and has grown tremendously in less than a hundred years to reach the level of third largest retail chain in the world. The Tesco brand name was formed in the year 1924. Tesco sells roughly 40,000 food products in its superstores. The major product portfolio consists of clothing and food products. Tesco has also strengthened its own brands over the years and they account for almost half of the companys sales. The paper assesses the strategic development of Tesco since its formation. Significant attention is paid on the strategic development of the company during the previous twenty five years. The paper carries out an analysis of the past strategies of the organization along with current strategic situation. Two tools of strategic management are utilized to appraise current strategic situation of Tesco. The first one is SWO T analysis and the second one is Porters Five Forces Model. The last part of the paper talks about the future strategic direction for Tesco based on the analysis of current strategic situation.
P A S T S TR A TE G IE S D E PLO YE D
The section discusses the strategies adopted by Tesco in its recent path. Some of these strategies have proved to be highly successful and many of them are continued even to this day. Several strategic initiatives have been adopted by Tesco over the course of its history. The organization has started operations as a supplier of food and drinks, and continued its growth to become the third largest retailer in the world. Diversification The first strategic move of the organization was to diversity its business into fast moving sectors. These sectors included clothing, consumer electronics and automobiles. The next round of diversification strategy changed the outlook of the organization to service sectors. Tesco initiated offering DVD rental services, healthcare services, financial services and even music downloads (Corporate Watch, 2004). The fundamental strategy of Tesco has remained to OLUKAYODE OMOSEBI A4032655 Page 3
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C U R RE NT S TR A TE GI C S ITU A TIO N
Current strategic situation evaluates competitive positioning of Tesco. Two models of strategic management are utilized in this analysis along with special attention attached to macro OLUKAYODE OMOSEBI A4032655 Page 6
the key strength of Tesco is the huge market share commanded by the organization in
its various territories. For instance, Current market share Tesco for United Kingdom stands at thirteen percent of the overall retail market. The multi-format strategy followed by Tesco can created leadership of the brand in food category. The continued growth of Tescos has given it huge financial strength which can be utilized for any initiative deemed fit by the organization. Insurance business provides a steady stream of cash inflow to the business. Tescos online success in retailing has created another channel for brand supremacy of Tesco (Vignali, 2001). Loyal customer base and brand value of Tescos name ensures that the clients are loyal to the brand. Tesco.com is the largest online supermarket round the globe and revenues from this channel are growing steadily for the organization. The brand image of the Tesco stands for excellent quality and inspires trust of customers (Clive, Hunt and Philips, 2003). Products from Tesco represent excellent customer value due to emphasis of the company on low prices. Tescos innovative ways of enhancing the shopping experience of the customers has created a loyal following of the store among the target market. Unlike other retailers, Tesco has a highly successful strategy of having different versions of its retail outlets. The risk for Tesco of losing market share is low because its retail strategy is multiformat. Even if fall in demand for a particular format of its store occurs, it will compensated by the business from other formats of retail chains. The large size of procurements allows Tesco to get highly favourable terms and competitive prices (Powell, 1991). The organization can directly source from factories in lowest cost regions of the world like Shenzhen and Kenya. Management of Tesco is considerably experienced, which has given the organization a competitive edge over other retailers in UK market. Efficient distribution system of Tesco which has been perfected over years of operation is a unique strength of the retail chain. Logistical operations of Tesco are superior to those of other retailers in UK market.
Weaknesses
weakness. Almost three quarters of the revenue of Tesco is associated with UK market. This OLUKAYODE OMOSEBI A4032655 Page 7
major opportunity for Tesco is to create leadership in non-food retail segment. The
hypermarket format of Tesco means in the company has a strong likelihood of increasing its sales and market share in non-food retail segments. The key to taking advantage of this opportunity is to improve its merchandising skills. In non-food retail segments, it is all about discovering lowest cost suppliers of products and putting in place a run-time inventory mechanism. The global trend is towards growth in non-food retail as compared to food retail. Pharmacy retail is yet another segment of retail which is forecasted to exhibit extraordinary growth in coming years. Pharmaceutical retail is, therefore, another key opportunity for Tesco. Emerging economies with growing middle-income groups represent another major opportunity for Tesco. For instance, Asian economies like India and Indonesia are a lucrative opportunity for retail business due to comparatively lower competition and new-found purchasing power among masses. The use of Club card database by the company to get to know demographics of its regions more closely and to develop customized strategy for each one of its market, is the key opportunity for Tesco. Rather than using a uniform strategy for its entire business, Tesco can create a separate strategy for each one of its regions to gain sustainable competitive advantage. OLUKAYODE OMOSEBI A4032655 Page 8
growing competition in UK retail market and a likely price war is a major threat for
Tesco. Safeway and Sainsbury are two retailers in UK market which have become highly aggressive in recent years and they are fuelled by the passion of new management and ownership. Morrison is another retailer which is utilizing lower prices as the strategy for gaining market share. The growing opposition to the idea of strong supermarkets is another threat for Tesco. PESTEL Framework Analysis PESTEL framework analysis is a tool of strategic management which is used for environmental scanning. The framework is used in the process of strategic analysis to get an overview of different macro-environmental factors which the organization has to take into consideration for choosing a strategic direction. The strategy for future is designed in accordance with the current standing of the organization. It is a highly useful tool for determining areas of growth and decline within the environment in which the business operates.
Political Factors
regions under European Union. Governments in European Union encourage retailers to create job opportunities because retailing is the business sector which contains job opportunities for a highly diverse group for instance, retail business employ people from young students to senior citizens. Tesco get favourable concessions from its operations in European countries by providing employment to disabled, elderly and working parents. Political factors are, therefore, quite favourable for Tesco (Tesco Plc, 2011).
Economic Factors
positive. UK and European markets of Tesco are under significant economic distress with widespread reforms is likely to create major redistribution in income and consumers will be cautious about spending money (Tesco Plc, 2011). The demand for electronics and consumer durables is not anticipated to grow significantly in the next decade for European markets. On the other hand, Malaysia, Japan and China are the markets with significant potential for growth and increase in purchasing power.
Social and Cultural Factors
the social and cultural factors are favourable for Tesco. Consumers
purchasing habits are shifting towards one-stop and bulk purchases of products. For hypermarkets discount stores, like Tesco, this is a positive trend. The second trend is purchase OLUKAYODE OMOSEBI A4032655 Page 9
technology plays are decisive role in creation of several of innovative product and service offerings of Tesco (Clive, Hunt and Philips, 2003). Technological development benefits both customers and Tesco. Technology in retail sector is improving at a steady pace, which is a favourable aspect for Tesco. For instance, the launch of the Efficient Consumer Response (ECR) system will improve the fit of Tescos offering with the demand of customers. The retail chain will be able to respond much more quickly to changes in consumer demand.
Environmental Factors
their conscientiousness towards society, and to invest towards social causes. Tesco already possesses reputation as a philanthropic organization aligned with several causes of social good (Finch, 2010). For this reason, this factor of external environment is also favourable for Tesco. Tesco product ranges have also been adapted with healthier technologies and this is affecting relationships with customers in a positive manner.
Legal Factors
legal and legislative factors have a direct impact on the performance of Tesco.
Some of the recent legal changes include banning of competitive pricing by retailer to drive out new competition from market. Awareness about monopoly control is gaining strength in several organizations round the globe (Finch, 2010). Tesco has not been involved with monopolistic practices in any of the markets in which it operates. For this reason, this factor of macroenvironment does not have any negative outcome for Tesco. The above mentioned analyses are highly useful in mapping the strategic positioning of Tesco in relation to its environment. It shows that Tesco operates in a fairly strong industry with a favourable competitive positioning in relation to its competitors. Certain weaknesses of the organization are also identified. The analysis is not going to be used to determine appropriate strategic direction for Tesco.
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C O NCL US IO N
The paper has evaluated the strategic history of Tesco and current strategic positioning of the retail chain. It is found that the Tesco possess a consolidated position in its core markets as an established retailer. Some of the weaknesses of the business were also identified along with changes in external environment. Several alternative strategies are proposed for Tesco based on the findings of the analysis.
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R E FE RE NCE S
Clive, H., Hunt, T. and Philips, T. (2003) Scoring Points: How Tesco Continues to Win Customer Loyalty, London: Kogan Page Limited. Corporate Watch (2004) International , [Online], Available:
http://www.corporatewatch.org.uk/?lid=252 [20 Oct 2011]. Finch, J. (2010) Tesco opens its first zero carbon store, 2 Feb, [Online], Available: http://www.guardian.co.uk/business/2010/feb/02/tesco-carbon-neutral-green-building [20 Oct 2011]. Margarate, W. (2008) 'Linking risk management to strategic controls: a case study of Tesco plc', InternationalJournal of Risk Assessment & Management, vol. 7, no. 8, pp. 74-88. Miller, F., Agnes, V. and McBrewster, J. (2010) Tesco, New Jersey: VDM Publishers. Neil, W. (1997) 'Exporting the British model of food retailing to the US: implications for the EU-US food systems convergence debate', Agribusiness, vol. 13, pp. 137-52. Powell, D. (1991) Counter revolution: The Tesco story, London: Grafton Books. Tesco PLC (2011) Tesco Official Website, [Online], Available:
http://www.tescoplc.com/#footer_about-tesco_7 [20 Oct 2011]. Tesco Plc (2011) Tesco: Our History, [Online], Available: http://www.tescoplc.com/abouttesco/our-history/ [20 Oct 2011]. Vignali, C. (2001) 'Tesco's Adaptation to Irish Market', British Food Journal, vol. 103, no. 2, pp. 146-183.
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