Tesco is the one of the largest retail food store in the world and biggest in the U.K. it has more than 1700 stores in the U.K alone and has about 2318 stores in the whole world. It also sells its products through online Tesco.com. Tesco is the U.Ks largest retailers which operate under the banners of Extra, Metro, superstore and Express. Tesco performance is highly influenced by political and legislative conditions of U.K and European Union. Tesco employs a large number of students and disable people and elderly people and pays them in most cases lower wages. Consumers are becoming more and more aware of health issues and their approach in choosing the food product is increasingly changing. That's why Tesco is adapting a product mix to meet the increased demand of organic products.
The company sells more than 40,000 food products including non food items and clothing. The company's own products which contribute about 50% of its sales are categorized in three different types Value, normal and finest. As a convenience produce most of Tesco store have gas store and filling stations. It is becoming one of U.K biggest independent filling outlets. Tesco is operating others business as well which includes retail banking, Tesco insurance, Tesco mobile as well. (bized, 2009)
The company is also the first in U.K which allows their customer to pay or cash their cheques at the tills. For many years Tesco has been supporting the British jobs and expertise by allowing the branded product supplier to develop elusive production facilities. But recently company realized to look for some other products which are not available in U.K market.
Recently Tesco has been facing stiff competitions from Sainsbury and Asda food giants. The goal of Tesco management is to focus on the competencies that really affect competitive advantage by adding more value in its products like Tesco has starts giving delivery services to its customers as well.
Tesco has a well established and a comprehensive consistent strategy for growths which has let the Tesco to strengthen its core U.K business and has help the Tesco to drive expansion into new markets. The rationale for the strategy is to broad the scope of the business by following the customer at their home in order to get a strong sustainable growth in the business. These services includes providing the financial services like offering Credit cards, loans, insurance and banking services. There is also a strategy to find the potential market to enhance the market share of the company in Asia, Europe and in United States.
The strategy to explore new market has started in 1997and it has been the foundation of success of Tesco business. The new businesses that have been created and developed over the last 12 years has been the part of this strategy are having a scale now, they are having competitive edge over other businesses and are profitable. In fact Tesco is market leader not even in U.K but also outside the U.K as well. (tesco plc, 2009)
STRATEGY OF TESCO:
The company floated on Stock Exchange in 1947 with share price 27 pence initially. Tesco has become the popular name on the High street of the U.K. Tesco strategy up to this time is encapsulated by the Cohen's biography which is "Pile it high and sell it cheap" but with the passage of time due to the high demand of customers and their influence has force the Tesco to change its approach and moved out of town stores with a more attractive interiors. Such refurbishment also carried onto the town store and with the onsets of selling petrol.
In 1980's Tesco has seen a continuation of growth rate and in 1985 Tesco has introduced its Healthy Eating Product with introduction of nutritional descriptions and advice on its branded products. In 1990s, the move to overtake the other stores continues and Tesco has started to think how to satisfy the customer's needs and get their loyalty more efficiently.
STRATEGY:
Tesco has continued to make strong progress with all four parts of its strategy
A strong UK core business ,
Non food
Retailing services
International
The objectives of this strategy are:
To be a successful retailers in the world.
To grow the core UK business.
To be as strong in the non-food items as in food items.
To develop retailing services- such as Tesco personal Finance, Telecoms and Tesco.com.
To put the community in the heart whatever we do.
Tesco has taken considerable steps to attract customer with advent of Tesco Extra, Tesco Metro, Tesco Super stores and Tesco Express at town with filling stations. These stores provide all essentials food and non food items at very competitive prices. These stores give a direct challenge to other stores like ASDA, Sainsbury etc.
Tesco has introduced a loyalty club card. Customer gets points from every purchase they made and then they can use them in exchange of goods. It also gives a massive amount of information to Tesco about their customers like who has visited, what is customers buying behavior and how they respond to the sales promotions carried on in the store.
Apart from the product it sells it has worked on the other services as well. It has start providing the Loans, credit cards and online sale of products.
Tesco has taken to expand in other countries like India, Japan, and U.S.A and in Europe as well. It has continuing working on the improvements of services to its customers. In USA it has made a partnership with Safeway Group. (articlebase,
ENVIRONMENTAL ANALYSIS:
PESTEL FRAMEWORK:
Political Factors:
Tesco is operating in globalized world with stores around the globe. It has stores in six other countries apart from U.K. These countries include Slovakia, Republic of Ireland, Hungary, Czech Republic, Turkey and Poland. It also has stores in Taiwan, Japan and India as well. Tesco is heavily influenced by the political and legislative environment of these countries including the European Union. From employment legislative government encourages to these stores to hire people for different position in the company. These people include the students, disables and senior citizens as well. As local business in the Tesco suffers heavily because of competitions, in order to survive these local stores cuts the jobs so Tesco has hire a large number of People to accommodate them. Tesco usually pays them low wages.
Economical Factors:
Tesco is very much concern to the economic factors because these are usually influences the demand, cost, profit and prices. One of the most influncential factors in economic factors is high unemployment level which causes the reduction in the demand of goods and services and affecting the demand required to produce these products and services.
These economic factors are not in the control of the company. Although international business are growing but Tesco is still dependent on the U.K food market and if the demand for UK food market get slow down then it will badly affect the Tesco performance.
Social/Cultural Factors:
Currently the U.K people trend shows that they have moved to one stop and bulk shopping due to many social changes. That's reasons Tesco has increased the number of non food items available for sale in its stores.
There has been huge demographics changes in the UK population happened i-e ageing people, increase in the number of female workers and declining in the preparations of food in the home, which has force Tesco to focus on added value products and services as well.
Customer's demands of services and products are created by the change of their social and cultural changes, their beliefs. People are becoming more and more aware of the health issues and their attitude toward the food is changing as well because of this health conscious.
Tesco is adopting a product mix in order to meet the demand of organic products. It has start mentioning the product with labels on it for people who strictly want to use product which are free from animal's ingredients. U.K has a diverse population from different cultural background people. Areas which are densely populated with Asian people prefer to go for their traditional foods so keep this thing in mind Tesco management have introduced mostly those products which are in demand in those areas. (321books, 2009)
Technological factors:
Technology is another major factor which has influenced the Tesco to the development of its products. Technological improvement has benefited both the company and customers. Goods are readily available in the store which has increased the customer satisfaction and it has become easier to manage the ordering system. Customers get served more quickly than before.
Tesco stores are utilizing the following technologies in their outlets:
Wireless devices
Intelligent scale
Electronic shelves labeling
Self check out machine
Radio frequency identification.
The adoption of electronic point of sale, electronic funds transfer systems and electronic scanner has increased the efficiency of the distribution and stocking activities.(Finch, 2004).
Environmental factors:
Starting from 2003, there has been an increased pressure on the managers and on many companies to acknowledge their responsibility towards society and a policy which benefits for both the society and for the company. (Lind green and Hingley, 2003). In order to prove that company care about society, they need to clearly work about environmental issues. By recognizing this trend Tesco has been working on the environmental issue to prove that it is a socially responsible organization which cares about the environment.
Graiser and Scott (2004) mentioned that Government has launched a new strategy for companies to cut wastes, reduce the consumption of resources and minimize the environmental damages. Recently a new legislation has been created in which a heavy tax has been imposed on those products which are not environment friendly. This tax has been directly affecting the Tesco's products and damaging the relations with suppliers and customers.
Legislative factors:
Tesco performance has been affected by various government policies and legislation. For example the Food Retailing Commission has issued an enforceable code of conduct which as banned many Tesco's practices such as demanding payments from suppliers and changing agreed practices without a notice. The presence of strong competitors has created a demand of stiff competitions in prices of branded products and a strong demand for product diversification. Government policies to control the monopoly and reduction of buyer's powers can reduce the chances to enter in this sector with such controls. (Mintel Report, 2004: Myers, 2004). Tesco has been giving discount on buying the petrol to its customers based on amount it spends on the purchase of groceries at the stores. Tesco's keep the prices on the promotions low while it increase the prices on other products in the store in order to compensate.
PORTER'S FIVE FORCES FRAMEWORK:
Threats of new entrants:
The UK retail market of grocery is dominated by four brands of Tesco, ASDA, Sainsbury and Safeway which makes up to 70% of the whole market and Waitrose, Somerfield and Budgens makes about 10% percent of total market. According to Ritz (2005) majority of grocery market has been transformed into supermarket dominated business due the one stop shopping and marketing mix expenditures. The powerful supermarkets have a huge impact on small local stores such as butchers, bakers and etc. Hence it has made very hard for new business to enter into the grocery market. Because it has become very difficult for new entrants to raise such a high amount of capital because of huge fixed asset capital cost. Tesco had made a huge investment in advanced technology for checkouts and stock control system. Tesco has achieved a target of large economy of scale and differentiation in the provision of goods and services.
Bargaining Power of Supplier:
This force represents the power of suppliers that can be influenced by the major food chains of big supermarkets and the fear of losing their business to these large supermarkets. Stores like Tesco and Asda negotiate their prices with suppliers and get a better price as compared to small food chains. The UK small food chains also threatened from this big supermarket as they get cheap goods from abroad for their promotional activities. So the relations with the suppliers can have affects on the freedom and margin of the company. These forces of competitive rivalry can reduce the profit margin of supermarket chains stores and suppliers. (321books, 2009)
Figure 1.2
Bargaining Power of Customers:
Tesco club card scheme is very successful in order to retain the customers with Tesco which has increase the profit margin of the Tesco significantly. In order to fulfill the customers needs, the customized services such as lower prices, better choices, constant flow of promotional products and availability of all the product which customers demands enables Tesco to retain its customers. In recent years a huge changes has occurred in the food chain stores due to a change of behavior of customers, So Tesco has started keeping more non food items as well in its stores. It has also provides a strategic expansion of its business into new markets such as retail banking, pharmacies, phone shops.
Threats of substitutes:
A demand for a particular product can be reduce due to a general substitution because there is always a threat that customer will switch to alternatives (Porter, 1980). Substitute for needs and product for product has been observed in the grocery industry. It is more affected with the new trend. Small chain of convenience stores is emerging in the industry. In this case supermarket like Tesco is trying to taking over the small stores and opening up big stores in town centers. (Ritz, 2005).
Bargaining Power of Competitors:
Tesco is getting lot of customer information through its loyalty club card and trying to improve its relations with the consumers. In UK food industry, because of high competitive expansions, most of these big stores are taking further steps to be more innovative to maintain and build market share.
CRITICAL SUCCESS FACTORS:
After a close evaluation of the Tesco industry it has become an important to identify the success factors to consider the effectiveness of Tesco.
Branding and Reputation:
Tesco is a brand and it serves a core strategic advantage. The company is expanding rapidly by working hard on its packaging and spending every penny on promotions which contribute to the environment as well.
The company is also very successful because of its loyalty clubcard system which ahs helped the Tesco to get a valuable data about customer's behaviors about their spending, choices and etc.
IT integration:
Tesco is always step ahead in applying the new technology and it has become a necessity rather luxury in Tesco's operations. A system that controls stocks, helping to serves the customers; keeping valuable record of customer's transactions and ordering system is the lifeline of the Tesco.
Supplier Management:
Tesco like other supplier also get most of its products from overseas suppliers who are more competitive on price and quality. Tesco has been supporting British companies for its branded products but recently it has start importing products which are not manufacturing in the UK.
To keep a better communication to get its products on time Tesco has adopted a advance communication system which enables the suppliers to delivers products on time.
MARKET OBJECTIVES AND STRATEGIES IMPLEMENTATIONS:
Tesco is likely to employ two types of strategies, first one will going to focus on the market development through making partnerships and second one is on the diversifications of products.
Joint development and joint ventures:
By entering new markets like china and Japan it can act as a major source of company's revenue. Tesco's has a long term strategy to focus on the Japan market. In making possible Tesco is making partnerships with local business to enter into the market. By doing joint ventures Tesco will have a economy of scale and larger market presence. (Andrew, 2009)
By doing joint ventures Tesco will get a wider local knowledge and market tactics of the partners beside adding its own chain, market development and better store's operations skills to deliver better services to customers. However with this huge market which has potential, economy of scale and knowledge of the market,
Product Diversification:
UK is diverse population which comprises of different ethnic people from different countries. Tesco can do more development expansion by opening up new stores in those areas where people strictly go for their traditional food, so Tesco can add whole range of products which is in demand in these areas.
CRITICAL EVALUATION:
In order to obtain a sustainable competitive advantage Tesco should apply following strategies:
Firstly Tesco should adopt a strategy of cost leadership by offering goods and services to its customers at low prices in a broad market. This strategy will help the Tesco to control their operating cost so well that Tesco will be able to sell its products competitively and thus generate huge profit. If Tesco has to adopt another strategy then It has to offers it products and services with a unique features which customers value it. Then Tesco has to gives some other value added services in technology, competitive price, special features and customer service improvements.
Last strategy of niche is from either cost leadership strategy or product differentiation but focus on narrow market. In order to perform cost leadership strategy Tesco has to work on internal efficiencies that will help Tesco to cope with external pressure. As these both strategies are aimed at broader market, it may be possible than Tesco focus on small market or with a limited range of product. In other words, Tesco may be pursuing the strategy of cost leadership and product differentiation either in a specific market or with specific product.
The problem which many of organizations face is that they try to implement all these strategies one time and most of them stuck in middle. But in Tesco there is no such kind of issue as they have a clear strategy with a clearly defined market segments. (wringley, 1988)
CONCLUSION
Tesco is a very well established organization in the UK. Tesco apply different strategy in the organization to make the business grows. Its primary focus is to attract the customers and keep the loyal customers attached with the organization. In order to evaluate the customers it has apply different technology process in order to know the customers needs, their attitude and likes and dislikes.
