The contents in this reports says about a multinational business organisation and its environmental basics, strategic and future corporate strategy. The data, figures used in this report are sourced from extensive secondary research from books, journals, own experiences Internet and with the help and guidelines of our Module Leader Dr. Shampa Roy-Mukherjee.
Tesco was founded by Jack Cohen in 1919 when he began to sell surplus groceries from a stall in the East End of London from which he earned a profit of £1 from sales of £4 on his first day. After 10 years, in 1929, Jack Cohen opened his first Tesco Store in Burnt Oak, Edgware, North London. (http://www.tescoplc.com)
Tesco is the leading retailer in the UK. The company sells around forty thousand food products including clothing and other non-food products. With sales from UK shops a year or more old surging by 5.7% in the seven weeks to 7 January 2009, Tesco had been the strong sellers, adding that its 'non-food' sales in the home entertainment, electronics, clothing, toys and gifts sectors performed strongly.
Tesco is the third largest retailer in the world based on revenue, but second largest based on profit and operating around 2,026 stores and generating £17.9 billion sales and over £700 million profit. Over half of Tesco's selling space is now outside the UK. (http://www.tescoplc.com)
With Tesco already taking one in every eight pounds spent on Britain's High Streets, a host of local pressure groups are now joining to campaign against its growth. Tesco has been pushing hard to expand overseas in its quest for sales. International revenues jumped 16.1% in the Christmas and New Year periods. TESCO today proved it reigned supreme over all rivals in the supermarket wars. Internet sales delivered more than a million orders in the fourweek run-up to Christmas, reasserting its dominance of the home delivery grocery market.
Tesco's record figures came in at the top end of City expectations and beat its already-strong performance in the previous quarter. It outperformed all its main rivals, even Sainsbury's, whose creditable 5.2% sales came against relatively weak comparisons for the previous year.
Meanwhile, new stores, many of which are on smaller sites in City centres, added 2.9% to the sales growth in the period. Tesco's biggest fear is of the backlash against its impact on Britain's towns and cities, where it is accused of putting smaller shops out of business.
Its move into convenience stores has only exacerbated the rising negative sentiment. Only yesterday it stood accused of using its financial muscle to bully local authorities into granting planning consent. Analysts said Tesco's Christmas performance was especially impressive given that it was comparing with nearly 8% sales growth a year earlier. Among the many implications of Tesco's strong growth has been tough times for specialist retailers attempting to compete against its out-of-town superstores.
Dixons, known as DSG, is expected this week to report sales from mature stores down nearly 2% over Christmas. ( Source: http://www.thisismoney.co.uk/news/article.html?in_article_id=406286&in_page_id=2)
a) Political Factors:
Tesco is now operating in seven countries in the Europe including the UK, the Republic of Ireland, Czech Republic, Hungary, Slovakia, Poland and Turkey. It also operates in the South East Asia including China, Japan, South Korea, Malaysia and Thailand. Tesco perform according to the political and legislative rules of all of these countries. With the influence of the Government's employment legislation Tesco employs following the equal opportunity employment policy. For employment legislations, 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).
b) Economical Factors:
The economic environment includes interest rates, inflation, business cycles, unemployment, disposable income and energy availability and cost (Kaplan, 2007). Keeping these factors in mind Tesco implemented the strategy of marketing mix to continue the steady growth in the UK local market and in the International business. In the recent credit crunch due the high unemployment levels Tesco tried to keep the price of the most of the products in the range of the customers by lowering the cost and the profit.
c) Social or Cultural Factors:
Social factors change the buying behaviour of the customers. Like the British customers moved towards bulk shopping to get cheaper unit price. Due to female workers in the city areas the big retail shops increases ready meal to the office going customers. They may also include changes in the demographic make-up of a population (Kaplan, 2007). In Thailand, customers are used to shopping at traditional wet markets, interacting with vendors and rummaging through piles of produce to choose what they want. Rather than adopting the Western approach of neatly packaged, convenient portions, Tesco's Rama IV store in Bangkok tries to meet local customers' expectations. (http://www.tescoplc.com/plc/about_us/strategy/international/)
d) Technological Factors:
Technological factors changed the retailing methods, like direct selling through cash or Debit/Credit card from in-store and/ via internet. Tesco stores use the following technologies all over the world:
- Integrated link-up computers within the stores
- Electronic shelf labelling
- Self check-out to reduce the queue of the customers
- Barcode reader for every products
- Electronic point of sale
- Electronic Funds Transfer Systems
e) Environmental/ Ecological Factors:
Tesco encourages re-using the shopping bags, plastic bottles, paper boxes and other recyclable products by gaining more and more club card points. This include product stewardship, which considers all raw materials, components and energy sources used in the product and how more environmentally friendly substitutes could be used (Kaplan, 2007). Tesco also like to sell the organic foods to the customers in their affordable price range.
f) Legal Factors:
"Various government legislations and policies have a direct impact on the performance of Tesco. For instance, the Food Retailing Commission (FRC) suggested an enforceable Code of Practice should be set up banning many of the current practices, such as demanding payments from suppliers and changing agreed prices retrospectively or without notice (Mintel Report, 2004). The presence of powerful competitors with established brands creates a threat of intense price wars and strong requirements for product differentiation. The government's policies for monopoly controls and reduction of buyers' power can limit entry to this sector with such controls as license requirements and limits on access to raw materials (Mintel Report, 2004; Myers, 2004). In order to implement politically correct pricing policies, Tesco offers consumers a price reduction on fuel purchases based on the amount spent on groceries at its stores. While prices are lowered on promoted goods, prices elsewhere in the store are raised to compensate." (http://www.ivoryresearch.com/sample5.php)
PORTER'S FIVE FORCE MODEL:
a) Threat of New Entrants:
The threat from new entrants will depend upon the strength of the barriers to entry and the likely response of existing competitors to a new entrant (Kaplan, 2007). Major sources of barriers to entry are:
- Economic of scale
- Product differentiation
- Capital requirement
- Switching costs
- Access to distribution channels
- Cost advantages of existing producers
UK grocery market is basically dominated by Tesco, Asda, Sainsbury's And Morrison. These four chain retailers controlling more than 75% of the whole grocery market (TNS Worldpanel). After taking over of Asda by the world's leading retailer Wal mart in 1999 Tesco faces huge competition for price cutting of the brand products. (http://findarticles.com/p/articles/mi_m0DQA/is_1999_June_17/ai_55041044/)
b) Bargaining power of Suppliers:
A group of supplier firms has more bargaining power when the input is, in one way or another, important to the buyer and when the supplier industry is dominated by a few large producers who enjoy reasonably secure market positions and who are not beleaguered by intensely competitive conditions (Davies & Lam 2001). Giant retail industry like Tesco, it is easy for them to dominate the power of suppliers. Whenever they realise any threat from the current suppliers they trend to switch to another company. To keep the price of the products low with competition with another retail stores Tesco dictate the suppliers, if not possible in the country Tesco purchase from the third world countries. For best product Tesco imports from different parts of the world.
c) Bargaining power of Customers:
Powerful customers can force price cuts. As Tesco is competing with other strong chain super markets like Wal-Mart, Asda and Sainsbury's to keep the price of the products lower than others. In grocery retail industry the number of customers is very large and they do not purchase in bulk amount. From this point we can say that the bargaining power of Customers is weak. But in another point of view the customer can choose same type of products from different retailers. Tesco is marketing most of consumer products food, non-food and even they are also involve in selling financial products like insurances, credit cards etc. Due to these all in one service Tesco win the choice number one most of the customers of the area Tesco are operating business.
d) Threat of Substitutes:
Porter explains that 'substitutes limit the potential returns ... by placing a ceiling on the price which firms in the industry can profitably charge'. The better the price-performance alternative offered by substitutes, the more readily will customers switch (Kaplan,2007). In retail industry there is a large number of competitors and various types of substitutes available. This drives the price of the product fall down in order to compete in the market. Customer will switch to lower priced and better valued substitutes if available. Tesco is improving its quality of the products as well as keeping the price low.
e) Bargaining power of Competitors:
Today the retail grocery industry is competing with the big rivals. In UK Tesco is facing Asda, Sainsbury's and Morrison majorly with most of the products. Each of these companies produces similar types of product, providing better services and competing to keep the price lower and lower. Compete to expand the size of the stores, services in verity of choices and trying to serve all services under one roof.
Analysing one or more Competitor in depth:
Asda is one of the largest retail industry in the UK and competing most of the products with Tesco for food, non-food, clothing, electronics, mobile networks etc. In the summer of 2005, Asda launched a complaint about Tesco to the UK regulator OFT (the Office of Fair Trading). It claimed that 30% of the grocery market, Tesco had in fact become a monopolist (Munir, 2005).
Asda was formed in 1965 by a group of farmers from Yorkshire, and its activities are still mainly based in the north of the UK. It expanded south in the seventies and eighties, in 1989 buying rival chain Gateway's superstores for 705m. This move overstretched the company and it found itself in deep trouble trying to sell too many different products. It came close to going bust and had to raise money from shareholders in both 1991 and 1993. Since 1999 Asda has been wholly owned by Wal-Mart - the largest company and arguably 'the most ruthless employer' in the world. (http://www.corporatewatch.org)
Market share and importance
Owned by Wal-Mart Stores, the biggest company in the world by value, ASDA is the second biggest supermarket chain in the UK with 17% of the market share. This includes sales of non-food items. As of June 2004 Asda operated 259 stores and 19 depots, mainly in Scotland and northern England, and employed 122,000 staff or 'colleagues'.
Asda already had one piece of the jigsaw in place - owning larger stores than its rivals. The next step was to copy the 'everyday low price' strategy, concentrating on continuing low prices rather than a series of promotions backed by expensive advertising. That has developed with the 'Roll-back' campaign, again borrowed from Wal-Mart. (http://www.corporatewatch.org)
Although the takeover is relatively recent, Asda was following and copying Wal-Mart practice through most of the nineties. So to understand the changes Asda is going through and their consequences we must take a look at Wal-Mart. Planning laws currently make it difficult to develop hypermarkets and Wal-Mart style supercenters in the UK. However, with businesses continually lobbying the government and finding loopholes in planning law, they are not out of the question. (http://www.corporatewatch.org)
According Taylor Nelson Sofres, Asda's share of market has declined by nearly ten percentage points from 26.6% to 16.7%. A suddenly decline ranked Tesco the price leader within the UK since 2001 (Munir,2005).
Asda is developing their own strong brand and performing well while bonding with the customers but not like Tesco. Asda finds harder to fight on price. It is clear that Tesco gets better deals from supplier which helps them to keep the prices cheaper to the customers. Tesco attract the customers who are functionally but not emotionally bonded to Asda.
Summery and Recommendations:
Over more than ten years of experience overseas, Tesco has evolved a strategy based on six elements:
* Be flexible - each market is unique and requires a different approach.
According to (Heizer and Barry. 2006), proximity to competitors (clustering) is important to get the customer base. In Tokyo, customers like to shop for small amounts of extremely fresh food, every day. Existing hypermarket formats don't meet the needs of local customers, so Tesco's entry into the Japanese market was through the acquisition of a discount supermarket operator.
* Act local - local customers, local cultures, local supply chains and local regulations require a tailored offer delivered by local staff.
Locating a company in a different country need to deal its local cultures, and local staff. In that case company need to be ware about the local government policies, and labour productivity. Employees with poor training, poor education, or poor work habits may not be a good buy even at low wages. In Thailand, customers are used to shopping at traditional wet markets, interacting with vendors and rummaging through piles of produce to choose what they want. Rather than adopting the Western approach of neatly packaged, convenient portions. So Tesco tries to meet local customers' expectations.
* Use multi-formats - no single format can reach the whole of the market. A whole spectrum from convenience to hypermarkets is essential and company need to take a discounter approach throughout
Tesco have a wide range of business all over the world, for diversify demand in various location. They are growing their non-food product business in different locations.
* Develop capability - It's not about scale, it's about skill - so Tesco make sure they have capability through people, processes & systems.
Proximity of suppliers is another important issue for new location. For that when Tesco open new retail outlets they consider perish ability, transportation costs of a new location. They also train their stuff and improve their competence.
* Build brands - brands enable the building of important lasting relationships with customers. Brand image among the new location customers is very helpful to setup new location for any business. Tesco have an emerging brand image, so most of the customer in the probable location already knows about Tesco products. That's how Tesco easily get a strong customer base for new location.( http://www.tescoplc.com)
To be a global retail leader Tesco is going ahead. Their successful management team implementing their total organisational strategy worldwide and maintaining steady growth every year. Though Tesco is an establish brand in but it needs to spend some more money in marketing to promote their brand outside UK. Especially the big market like USA they need to create their own brand rather than using some other name or brand. They enter in US market by using other name but it is also a part of their strategy.
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Balchin, A. (1994). Part-time workers in the multiple retail sector: small change from employment protection legislation?, Employee Relations, Vol. 16 Issue 7, pp.43-57
Davies, H & Lam, P (2001). Managerial Economics, New Jersey : Pearson Education.
Heizer, J and Render, B (2006) Operation Management (8th edition), New jersey : Pearson Education.
Mintel Report (2004). Food Retailing - UK, Retail Intelligence, November.
Myers H. (2004). Trends in the food retail sector across Europe, European Retail Digest, Spring, Issue 41, pp.1-3.
Munir, D (2005). Is Asda stuck in a growth cul-de-sac? BandZ the WPP Brand Equity Study.
John, M. Ivancevich and Michael, T. Mattson (2002). Organisational Behaviour and management (6th Ed), Berkshire: McGraw Hill Higher Education