Special Features of Tesco Plc - Essay Example

Tesco Plc Introduction: Tesco plc. is a UK based global supermarket chain with annual revenues of well over 20 billion. In 1998, Tesco plc. was ranked 18 in the top 100 retailers, with total sales of US $28,436 million from 821 stores in eight countries. An established presence with a huge bricks-and-mortar infrastructure, Tesco is also the world's most successful and profutable online grocer. The reasons that others failed in the grocery business, where Tesco has succeded is Tesco is competiting on customer loyalty and customer experience, although it keeps its own prices competitive in each local market. Equally important Tesco knows who its customers are and deepens its relationship with them over time. Special Features: Tesco plc is largect retailer in the UK and onw of the largest reatil firms in the world. The company operates four store formats :Tesco Express, Tesco Metro, Tesco Extra and Tesco Superstores.Tesco Express store are combinations of convenience and gasoline retailers. Tesco Metro locations are small urban stores designed to meet the needs of the local community. Tesco Extra stores are hypermarkets located in Asia. Tesco Superstores provide traditional grocery items as well as insurance, banking, telecommunications products, books, flowers, movie rentals and school uniforms. The firm has expanded all of its grocery stores to include non-food items, such as book, software, electronics and music. Tesco also operates on e-commerce site with over 500,000 registered users in the UK. This division makes nearly 300,000 CD, video and DVD titles. The firm also operates the Tesco Direct catalog and the Tesco Babyclub. Tesco is involved in the financial services business, serving nearly 1.5 million customers. Services offerde by the company in clude saving accounts, online banking, and travel, house and pet insurance policies. In early 2006, Tesco telecom began offering a cost effective, easy to use Internet phone. Also in 2006, Tesco introduced self-branded software. Its office suit retails for roughly $35, well below Microsoft's. The firm owns a 35% stake in Safeway Grocery works, a grocery store chain in the U.S.Tesco plans to open convenience stores on the West Coast of the U.S. in early 2007. Also in 2007, the company will begin running a dedicated green rail line between Scotland and the Midlands to improve its suppy chain Strategic review of Tesco Plc Environmental Analysis Organizations need to be in tune with their environment. In particular, they need to anticipate the sort of changes that will take place in their environment and make appropriate plans for these. Environmental auditing enables the organization to be proactive rather than reactive. The effective organization will put a lot of effort into the process of environmental auditing and scanning. The principal tools used to carry out the environmental analysis of Tesco Plc is: PEST Analysis Competitor Analysis/Audit (Porter's 5-force analysis) SWOT Analysis PEST Analysis PEST stands for political, economic, social and technological features of the business environment which might influence or even threaten the company. The acronym PEST suggests that these are all nuisance or hindrance factors to business development. New regulations to be compiled with, increased taxes or import tariffs, reductions in market size due to demographic changes or the threats of new technology rendering products obsolete - these are all stuff of the executive nightmares. Often, however, PEST factors can often be of considerable business value. This technique is, in truth, little more than four headings to stimulate thinking about broad aspects of the business environment that might otherwise go unnoticed. Political: Changes in law or regulations introduced by Governments or government agencies. Can also include political changes which may stabilize or de-stabilize national markets for products. Economic: Tesco needs to create plans and adopt strategies to deal with changes in the economic and market conditions. Important focus areas would be - managing finance, keeping costs under control, investing in market research and marketing activities, always being aware of current interest rates and exchange rates, keeping a close look at the competitors, always being prepared for unforeseen events and finally keeping the employees well informed about changes. Technological: Tesco was the first supermarket to offer a shopping and delivery service on the Internet for all the items it sells. At present, the service is available at selected stores only; customers register for the service and can browse through and select items from a range of 20,000 product lines. Each customer selects the method of payment and a suitable time for the goods to be delivered to their home. The internet business consultant for Tesco hopes that the internet shopping service will attract working people who dislike spending the little spare time they have in the supermarket. Thus with the advent of technology, there have been a rapid increase in adoption of different technological equipments and technologies which are proving to be highly beneficial. Tesco has also developed a strategic network of warehouses designed to improve its delivery system in United Kingdom. Similar strategy needs to be adopted and formulated in the United States market in order to gain control over the giant leader Wal-Mart. Competitive Audit/Analysis The competitive audit is one of the best ways of evaluating the marketing performance of a company and its competitors. The major competitor for Tesco in United States is Wal Mart. The main strength of Wal Mart lies in its competitive strategies which are not only well formulated but also effectively implemented which means it is well positioned to take advantage of current and future market opportunities. The company aims to maintain and leverage its core strengths and develop new opportunities for growth. The most influential analytical model to be used for assessing the nature of competition in the market would be Michael Porter's Five Forces Model. Using this model, it would be possible to determine the industry attractiveness and long-run industry profitability. Porter's 5-force analysis: Michael Porter has argued that 'the key aspect of [an organization's] environment is the industry or industries in which it competes'. He refers to five basic forces which he calls 'the structural determinants of the intensity of competition'. These, he believes, determine the profit potential of the industry. The five forces are: 1) rivalry among existing competitors 2) the bargaining power of buyers 3) the bargaining power of suppliers 4) the threat of new competitors entering the industry 5) the threat of substitute products. 1) Rivalry among existing competitors: The strength of competition arrives between different markets. Some markets have several rival companies competing for customers. Other markets are dominated by a single company, although there may be small and weak competitors. Tesco Plc falls in the first category in the United Kingdom whereas it falls in the second category in the US market which is dominated by Wal - Mart. Looking at the strong competition, it is advisable for Tesco to pursue active competitive strategies to retain existing customers and win new customers from their rivals. This could be done by offering lower prices, a wider range of products or products with a superior design or quality. 2) The bargaining power of buyers: The bargaining power of buyers is high when buyers are able to switch between suppliers easily so that they can seek discounts or additional services in return for continuing their custom. Buyers may be powerful if there are relatively few buyers and a large number of suppliers. Buyers may be powerful if they have strong brands. An example of this is Tesco Plc whose own brands are strong enough to make them independent of the manufacturer's brand reputation. 3) The bargaining power of suppliers: Similarly, the bargaining power of suppliers is high if it is hard to switch from one supplier to another or if the total supply to this industry is only a small part of the suppliers total output. Procurement using the internet tends to raise bargaining power over suppliers, though it can also give suppliers access to more customers. 4) The threat of new competitors entering the industry: In some markets like this, it is difficult for new competitors to enter the market. (The 'barriers to entry' are high). This may be because entry to the market would require a large capital investment, and any company entering the market would therefore be taking a big risk. The strength of the threat from new entrants depends on the strength of the barriers to entry. Barriers to entry may not prevent competitors entering the market eventually, but they can delay the entry of new competitors. 5) The threat of substitute products: A substitute can be regarded as something that meets the same needs as the product of the industry. These products appear to be different but they are not. They can satisfy the same need as another product and hence pose a threat to the existing producers and providers of the services. SWOT Analysis: In order to keep constant eye on the market position, it is essential to carry out SWOT analysis. A SWOT analysis is a review of strengths, weaknesses, opportunities and threats for an organization. Strengths and weaknesses are internal - they are factors relating to the product, or to the firm itself. In contrast, opportunities and threats are external - they relate to factors in the market, or to what the competition is doing. STRENGTHS WEAKNESSES Increasing market share Insurance Tesco online Brand value UK market leadership reinforced Reliance upon the UK market Debt reduction Signs points to serial acquisitions OPPORTUNITIES THREATS Non-food retail Health and beauty Further international growth UK structural change can spark a price war Overseas returns could fall Wal-Mart/ASDA challenge International expansion Tesco's Resource Capability Analysis The internal analysis assesses relevant areas involving the product/service offering and the firm itself. Internal analysis can be accessed by taking a functional approach, first taking into consideration the organization's top management and its corporate - and business level objectives and strategies, and then moving on to analyze each of the company's functional level objectives and strategies. Analysis of the internal environment was, for the most part, concerned with issues of strategy implementation - the design of structure, control systems, and management style - all of which were viewed as consequences of the strategy adopted. On a positive note few of the most effective strategies formulated and implemented so far by Tesco Plc are the sole factors of the growth in the firm. Tesco's management team is focused on delivering additional sales growth and improving operating margins by: expansion of business by developing existing stores and opening new stores; effectively implementing trading and complementary marketing practices leveraging its brands into new product and service categories improving and increasing product sourcing channels increasing operational efficiency. Michael Porter also has popularized value chain analysis, which views a business as a "collection of activities that are performed to design, produce, market, deliver and support its product". Value chain analysis is relevant for most businesses, but especially those engaged in two key types of activities: Vertically integrated activities: Vertically integrated businesses engage in all the activities necessary to convert raw materials into a final product. Value chain analysis helps identify which activities a company performs relatively efficiently. This analysis is especially useful when a company can substantially improve or outsource low-return activities. Activities susceptible to technological change: Technology causes value chains to disintegrate, and allows companies to specialize in a narrow set of activities. Vertically integrated companies that rely on a handful of activities for their profitability are at risk from specialized companies that perform that activity better. Adrian Slywotzky suggests starting the value chain analysis with the customer, which underscores that the world is becoming more and more customer centric and requires greater corporate responsiveness and flexibility than ever. In his view, the "modern value chain" comprises five activities: customer priorities, channels, offering, inputs/raw materials, and assets/core competencies. In order to identify where does Tesco Plc fits within the industry's value system, it is mandatory to identify and analyze its primary and support activities. Porter (1985) divides the internal activities of a company into primary activities and support activities. These are: Primary activities 1. Inbound logistics: It is concerned with receiving, storing and then distributing those inputs that are required by the company in producing its products and services. Tesco adopts techniques like JIT which has resulted in the efficiency of its inbound logistics. 2. Outbound logistics: It deals with collection, storage and distribution of the final product to the company's customer. The same technique JIT applies here, and has been proving good for the firm. 3. Operations: Operational activities deal with the transformation of inputs into the final product. The smooth functioning of the operational activities is clearly evident by the growth of this firm. 4. Marketing and Sales: A large number of effective strategies have been formulated and implemented by Tesco Plc; these have resulted in overall boosting the profit of the company in UK market. Similar strategies need to be adopted in US market. 5. Service: There is often a need to provide services like pre-installation or after-sales service before or after the sale of the product or service. Different measures are being taken to provide customer with the utmost satisfaction level. Support activities 1. Procurement: These activities relates to the purchasing of raw materials which are required for the company's operations. Tesco Plc's procuring department could be considered as the most efficient as they aim at obtaining highest quality goods at the lowest possible prices. 2. Human Resource Management: It deals with the workforce of the company. Needless to mention Tesco Plc's HRM management is considered to be the best in the industry. 3. Technology development: This deals with technological innovation. training and knowledge that is crucial for most companies today in order to survive. 4. Firm infrastructure: Tesco has the largest number of outlets throughout the UK. Source: Porter (1985) It is to be noted that the ability of a firm to understand its own capabilities and the needs of customers is crucial for a competitive strategy to be successful. Strategic Fit Analysis Considering the opportunities lying for Tesco Plc, it is concluded that implementation along with the formulation of cost-effective strategies to expand the business in new location like US would prove to be highly beneficial. Tesco is the market leader in UK, similar strategies if adopted and followed after considering the environmental factors in US, it would prove to be successful. Strategic fit assessment requires an evaluation of major enhancements in the product line and the commercialization of the new technology. This helps to evaluate changes in the speed to market and the company's position in the industry. Review of customer satisfaction data and evaluation of input and feedback identify changes in customer's perception of the products and services offered by the combined entity. It is also important to determine expected shareholder value creation in the business case, which amounts to comparing current with expected net present value to judge financial success. Furthermore, identifying the sources of and measuring the creation of sustainable competitive advantage to nurture those sources helps determine how the company can maintain a unique position in the market place. REFERENCES: Sadler, Philip. (2003): Strategic Management. Kogan Page Publishers. Read More