Strategic Management of TESCO supermarket: PESTLE analysis, Porter's 5 Forces analysis, Critical success factors, SWOT Analysis, VALUE

CHAIN analysis, TESCO'S strategic options, Core Competences & Cultural Web.

I INTRODUCTION The food and drink retail sector represents the largest industry in the UK, providing employment for over three million people in primary production, manufacturing and retailing. In 2003 retail accounted for 9% of gross domestic product (Datamonitor, 2003). In recent years UK supermarkets have come under increased scrutiny over their treatment of suppliers, particularly of own-label products, yet the development of strategic supply networks has been an integral part of most supermarket strategies for the past decade.

The report below provides an insight into the supermarket company, Tesco, with emphasis on its external environment analysis and company's analysis of resources, competence and culture. Two future strategic options are suggested in regards to the resources based strategies.

Tesco is one of the largest food retailers in the world, operating around 2,318 stores and employing over 326,000 people. It provides online services through its subsidiary, The UK is the company's largest market, where it operates under four banners of Extra, Superstore, Metro and Express. The company sells almost 40,000 food products, including clothing and other non-food lines. The company's own-label products (50 percent of sales) are at three levels, value, normal and finest. As well as convenience produce, many stores have gas stations, becoming one of Britain's largest independent petrol retailers. Other retailing services offered include Tesco Personal Finance.

2.0 INDUSTRY ANALYSIS: PESTEL FRAMEWORK 2.1 Political Factors Operating in a globalized environment with stores around the globe (Tesco now operates in six countries in Europe in addition to the UK; the Republic of Ireland, Hungary, Czech Republic, Slovakia, Turkey and Poland. It also operates in Asia: in South Korea, Thailand, Malaysia, Japan and Taiwan), Tesco's performance is highly influenced by the political and legislative conditions of these countries, including the European Union (EU).

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). Also to meet the demand from population categories such as students, working parents and senior citizens. Tesco understands that retailing has a great impact on jobs and people factors (new store developments are often seen as destroying other jobs in the retail sector as traditional stores go out of business or are forced to cut costs to compete), being an inherently local and labour-intensive sector. Tesco employs large numbers of; student, disabled and elderly workers, often paying them lower rates. In an industry with a typically high staff turnover, these workers offer a higher level of loyalty and therefore represent desirable employees.

2.2 Economical Factors Economic factors are of concern to Tesco, because they are likely to influence demand, costs, prices and profits. One of the most influential factors on the economy is high unemployment levels, which decreases the effective demand for many goods, adversely affecting the demand required to produce such goods.

These economic factors are largely outside the control of the company, but their effects on performance and the marketing mix can be profound. Although international business is still growing (Appendix A), and is expected to contribute greater amounts to Tesco's profits over the next few years, the company is still highly dependent on the UK market. Hence, Tesco would be badly affected by any slowdown in the UK food market and are exposed to market concentration risks.

2.3 Social/Cultural Factors Current trends indicate that British customers have moved towards one-stop' and bulk' shopping, which is due to a variety of social changes. Tesco have, therefore, increased the amount of non-food items available for sale.

Demographic changes such as the aging population, an increase in female workers and a decline in home meal preparation mean that UK retailers are also focusing on added-value products and services. In addition, the focus is now towards; the own-label share of the business mix, the supply chain and other operational improvements, which can drive costs out of the business. National retailers are increasingly reticent to take on new suppliers (Clarke, Bennison and Guy,1994; Datamonitor Report, 2003).

by recognizing this trend within the broad ethical stance. and act in a way which benefits society overall (Lindgreen and Hingley. Tesco's corporate social responsibility is concerned with the ways in which an organization exceeds the minimum . The company was also the first to allow customers to pay in cheques and cash at the checkout.The type of goods and services demanded by consumers is a function of their social conditioning and their consequent attitudes and beliefs. 2. Tesco stores utilise the following technologies: Wireless devices Intelligent scale Electronic shelf labelling Self check-out machine Radio Frequency Identification (RFID). and their attitudes towards food are constantly changing.5 Environmental Factors In 2003. The new technologies benefit both customers and the company: customer satisfaction rises because goods are readily available. with needs being communicated almost in real time to the supplier (Finch. The major societal issue threatening food retailers has been environmental issues. Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities.4 Technological Factors Technology is a major macro-environmental variable which has influenced the development of many of the Tesco products. 2003). a key area for companies to act in a socially responsible way. 2004). 2. Consumers are becoming more and more aware of health issues. The adoption of Electronic Point of Sale (EPoS). Hence.The launch of the Efficient Consumer Response (ECR) initiative provided the shift that is now apparent in the management of food supply chains (Datamonitor Report. 2003). One example of Tesco adapting its product mix is to accommodate an increased demand for organic products. there has been increased pressure on many companies and managers to acknowledge their responsibility to society. services can become more personalised and shopping more convenient.

nowadays it possesses a strong barrier for new companies who desire to enter the grocery market. (Johnson and Scholes. For instance. the Food Retailing Commission (FRC) suggested an enforceable Code of Practice should be set up banning many of the current practices. Waitrose and Budgens with a further 10%. In order to implement politically correct pricing policies. the grocery market has been transformed into the supermarket-dominated business. 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. such as demanding payments from suppliers and changing agreed prices retrospectively or without notice (Mintel Report. Hence. prices elsewhere in the store are raised to compensate. Tesco offers consumers a price reduction on fuel purchases based on the amount spent on groceries at its stores. For instance. Over the last 30 years. This is also . 2004). Asda. Myers.0 INDUSTRY ANALYSIS: PORTER'S FIVE FORCES 3. bakers and etc. The latest legislation created a new tax on advertising highly processed and fatty foods. Sainsbury's and Safeway that possess a market share of 70% and small chains of Somerfield. The presence of powerful competitors with established brands creates a threat of intense price wars and strong requirements for product differentiation. according to Ritz (2005). 2004. 2003) Graiser and Scott (2004) state that in 2003 the government has intended to launch a new strategy for sustainable consumption and production to cut waste. it becomes rather difficult for new entrants to raise sufficient capital because of large fixed costs and highly developed supply chains. 3. such as butchers.obligations to stakeholders specified through regulation and corporate governance. 2004). This powerful force had a great impact on the small traditional shops.6 Legislative Factors Various government legislations and policies have a direct impact on the performance of Tesco. one-stop shopping and major marketing-mix expenditure. Majority of large chains have built their power due to operating efficiency. While prices are lowered on promoted goods. including four major brands of Tesco.1 Threat of New Entrants The UK grocery market is primary dominated by few competitors. affecting relationships with both suppliers and customers 2. The so-called fat tax' directly affected the Tesco product ranges that have subsequently been adapted. reduce consumption of resources and minimise environmental damage.

more power is yielded to buyers Porter M. Therefore. pharmacies.Clubcard remains the most successful customer retention strategy that significantly increases the profitability of Tesco's business. 3.3 Bargaining Power of Customers Porter theorized that the more products that become standardized or undifferentiated.2 Bargaining Power of Suppliers This force represents the power of suppliers that can be influenced by major grocery chains and that fear of losing their business to the large supermarkets.4 Threat of Substitutes . customizing service. UK based suppliers are also threatened by the growing ability of large retailers to source their products from abroad at cheaper deals. The forces of competitive rivalry have reduced the profit margins for supermarket chains and suppliers. ensure low prices. coffee and cocoa is viable. Other barriers include economies of scale and differentiation (in the provision of products or services with a higher perceived value than the competition) achieved by Tesco and Asda seen in their aggressive operational tactics in product development. In meeting customer needs. and such products are now widely available at the majority of large chains. Ecologically benign and ethically sound production of consumer produce such as tea. such as Tesco. (1980). Consumers also have become more aware of the issues surrounding fairer trade and the influence of western consumers on the expectations and aspirations of Third World producers. It has also provided supermarkets with a new strategic expansion into new markets of banking. In recent years a crucial change in food retailing has occurred due to a large demand of consumers doing the majority of their shopping in supermarkets that shows a greater need for supermarkets to sell non-food items. 3.evident in huge investments done by large chains. 3. in advanced technology for checkouts and stock control systems that impact new entrants and the existing ones. The relationship with sellers can have similar effects in constraining the strategic freedom of the company and in influencing its margins. the lower the switching cost. constant flow of instore promotions enables brands like Tesco to control and retain their customer base. this consolidates further leading positions of stores like Tesco and Asda in negotiating better promotional prices from suppliers that small individual chains are unable to match Ritz (2005). better choices. promotional activity and better distribution. Tesco's famous loyalty card . etc. and hence. In return.

1 Branding and Reputation There are companies that have always understood that they were selling brands before the product. and the utilisation of a range of formats. large chains as Tesco are accruing large amounts of consumer information that can be used to communicate with the consumer Ritz (2005). This highly competitive market has fostered an accelerated level of development. As it was mentioned above. The dominant market leaders have responded by refocusing on price and value. largely through carefully branded packaging and the promotion of an every penny counts environment. Operating in a mature. Asda and Sainsbury's are trying to acquire existing smallscale operations and opening Metro and Express stores in local towns and city centres Ritz (2005). it is crucial to consider internal operational effectiveness of Tesco in the form of identifying critical success factors of the company within the food retailing sector. the purchasing power of the food-retailing industry is concentrated in the hands of a relatively small number of retail buyers. 3. (1980). 4. 4. as there is a threat of consumers switching to the alternatives Porter M. flat market where growth is difficult (a driver of the diversification into non-food areas). Such innovation can be seen in the development of a range of trading formats. Tesco is a brand and also serves as the core strategic advantage. The company was spreading like wildfire transforming the generic into the brand-specific. which are now prominent characteristics of the sector. increased retailer concentration. and consumers are increasingly demanding and sophisticated.5 Bargaining Power of Competitors The grocery environment has seen a very significant growth in the size and market dominance of the larger players.General substitution is able to reduce demand for a particular product. in response to changes in consumer behaviour. . such as the way small chains of convenience stores are emerging in the industry. In the grocery industry this can be seen in the form of product-for-product or the substitute of need and is further weakened by new trends.0 CRITICAL SUCCESS FACTORS After a close evaluation of the external analysis of the grocery industry and SWOT analysis presented in Appendix B. In this case Tesco. resulting in a situation in which UK grocery retailers have had to be innovative to maintain and build market share. whilst reinforcing the added value elements of their service. with greater store size.

The system connects business partners online behind virtual firewalls. For Tesco operations have become necessities rather than luxuries. to facilitate better management of product lifecycles and more efficient delivery of wide ranges of products to customers. extensibility and integration across the distribution channels. intelligent scale. electronic shelf . keep all the stock and deliveries records and analyse business transactions are the lifelines of the company. Systems that control stock. Product activity has focused on enhancing core ranges and introducing quality products. Extranet also helps to extend the key information on business partners throughout the supply chain and facilitate collaborative relationships with partners. 4. trustworthy goods that represent excellent value. and is associated with good quality. Market exchanges hold the promise of extending Tesco's reach. scalability. This is truly evident in terms of tremendous growth of on-line sales where the company has a strong platform to further develop this revenue stream. Tesco's innovative ways of improving the customer shopping experience. Tesco employed this on-line systems and now became the biggest online supermarket. In order to be able to compete in this kind of world. enables Tesco to use the Internet to create proprietary and customised information flows between the company and its business partners. as well as its efforts to branch out into finance and insurance have also capitalized on strong brand reputation. Extranet system employed by the company. The company is also very successful in terms of customer loyalty due to its loyalty cards system and its general approach to customizing services to the needs of every customer. The product and service development processes of the company have been substantially reengineered.2 IT Integration Today companies act in an increasingly dynamic and complex environment. it is necessary to innovate at an extraordinary speed. Other examples of the most efficient technological advances that support daily business operations of Tesco are wireless devices. After considering the fact the nowadays majority of people have less time for shopping. continuously improving the products.The company has a strong brand image. It can also be said that IT has risen beyond its traditional support role and taken up a central role in business strategy formulation. delivering buyers to their virtual doorstep from around the world. bringing more flexibility. services and processes. giving more difficulties making forecasts and adapting themselves to the continuous changes.

The company also takes part in the Ethnical Trading Initiative. The scores have been give with the scale from 0 to 5CSF Sainsbury's Asda Safeway Branding 5 3.5 3 3 3 5 3 4 IT Integration 4 Supplier Management . they work with many different suppliers around the world. it is the company policy and company's main approach to have unique relationships with suppliers. But in recent years the company has realised the need to look abroad for products no longer available in UK. Being an international company. with employees from many different cultures and ethnic groups. Applying advanced technology in its communications and cooperation with the suppliers. it also enables to be innovative and market oriented. Tesco has established close relationships with the contractors believing that regular and long term orders promote the investment necessary to improve conditions in the supply chain.3 Supplier Management Tesco. The direct suppliers use a number of sub-contracted suppliers. For many years Tesco has been supporting British jobs and expertise by encouraging large branded suppliers to develop exclusive production facilities. As a major retailer selling diverse product range. bud tried to do it through longestablished UK partners. self check-out machine and radio frequency identification (RFID) systems. selected to be best in class in their country. The foods continued to be heavily UK-based due to the very successful range of prepared foods.labelling. The table presented below gives a strategic comparative analysis. 4. Tesco develops various supplier management programmes to survey key suppliers and franchisee satisfaction. sources its goods from overseas manufacturers who are more competitive on price and volumes. This technology is an effort to maintain Tesco's ability to handle an increase in product/service volume while controlling costs. the company aims to control the work of its suppliers and heavily relies on their efficiency. comparing Tesco's successful factors discussed above with the same factors of the main competitors' in the UK grocery industry. Therefore. like many other grocery chains companies.

it will be crucial for Tesco to look at the generic level. However. Benchmarking may help in understanding performance standards and what constitutes good or bad performance. The competence leads to levels of performance from an activity or process that is significantly better than competitors. well targeted product offer and excellent record both in product and format innovation. The primary target for the company is to recognize that competition between businesses is as much a race for competence as it is for market position and market power. including resources and competence. c-stores and an online service.Total 14 10. has to be determined by the way in which company's resources are deployed to create competence in the organisational activities.0 ANALYSIS OF RESOURCES.2 Core Competence Superior performance. of the company that are most likely to impact on strategy development 5. it has maintained its position through a clear focus. In the UK the company concentrates on running grocery superstores. summarizing the key issues from the business environment and the strategic capability.1 SWOT Analysis Tesco is the top grocer and leading retailer in its home market of the UK. 5. Core competences may be embedded deep in . In 2003.5 11 The results highlight that the main threat is potentially coming from Sainsbury's that possesses a strong brand name and is carefully selects and controls its suppliers. the goal for Tesco management is to focus the attention on competencies that really affect competitive advantage. Tesco also leads the world in online grocery retailing. according to Johnson and Scholes (2003). Core competencies are activities or processes that critically underpin the company's competitive advantage. COMPETENCE AND CULTURE 5. the group's trading record around Europe and UK has been outstanding. Elsewhere the focus is usually on hypermarkets. Therefore. The full SWOT analysis of Tesco is presented in Appendix B. Pitched at the broad middle mass-market.

De Toni. Makes a significant contribution to the perceived customer benefits of the outcome: delivers a fundamental customer benefit. providing the most customized and efficient service. so its core competencies will have to adapt and change. 2003). The framework developed by Prahalad and Hamel in the 1990s suggests that over time companies may develop key areas of expertise which are distinctive to that company and critical to the company's long term growth (Drejer. trust in the Tesco brand lies at the heart of these services and in 2003 the number of retail service accounts rose by 36%. Through a long period of operations. Prahald's and Hamel's approach states that core competencies should change in response to changes in the company's environment and be flexible and evolve over time. 2003. Fro instance.Tesco at an operational level in the work routines. and Tonchia. This shows that Tesco designs and implements effective supply systems and deliver an efficient "customer interface". MarketWatch. Tesco was the first UK grocer to launch a loyalty card and has been the most effective. Core competences framework suggests three factors. based on a good customer relationship management.why is the customer willing to pay more or less for one product or service than another. In the case of Tesco the areas of expertise are most likely to develop in the critical. Tesco is recognized as the company. Therefore. the question of . For example. Tesco has established a strong leadership in food retailing industry. The core competence that enabled Tesco to enter retailing of food and non-food products was a clear distinctive brand proposition that had a focus on a properly define market segment. The example of this was when the company has launched its loyalty card and went into banking.needs to be addressed. central areas of the organisation where the most value is added to its service and its delivery. which can help to identify core competences: Provide potential access to a wide variety of markets: enables the creation of new products and services. For example. Tesco have been very successful in capturing the leadership of the retailing market. In order to identify core competences in a particular market. core competencies of Tesco have to be rather fixed. Some 50. Financial services have also been launched internationally in for example Hungary and Korea (Datamonitor Report. . 2000. Tesco needs to adapt to new rapidly changing circumstances and opportunities.000 new service accounts per week are being opened and Tesco sees these areas as long term businesses with the potential to build real scale. 2004).

5. The control systems and measurements are constantly under the management review to monitor the efficiency of the staff and managers' decisions. structures and systems. however. Therefore. for many years up to 2003 (In 2003 Tesco has been recognised a leading UK food retailer) Tesco had a very strong position within the retailing industry. which Tesco emphasises what is particularly important and reinforce .3 Cultural Web Cultural web theory application (The cultural web theory is also an effective analysis for management in order to represent the underlying assumptions linked to political. to compete effectively Tesco have to identify its core competences and use them for company's advantage. 2004). In the external environment. and towards those outside the company that can make up the ways people do things. This presents the clues about the takenfor-granted assumptions. Tesco has a very friendly and supporting approach in the routine ways that staff at Tesco behave towards each other. The rituals of the company's life are the special events. Johnson and Scholes. beliefs and taken forgranted actions and ways of doing business within and outside the company. it was the only grocer to use the information to mail customers every month. corporate gatherings. Applying this framework to Tesco shows that the company in order to be successful has to base its business strategy on these capabilities. rituals. the concept of cultural web is the representation of these actions taken for granted for understanding how they connect and influence the strategy (Veliyath and Fitzgerald. stories. It had a different approach to the service concept. Capabilities result from Tesco's ability to combine and exploit these resources in uniquely different ways. Difficult for competitors to imitate highlights the need for a core competence to be competitively unique. symbolic and structural aspect of the company) is a useful tool in considering the cultural context for Tesco's business. 2000. including routines. This indicated the importance of product differentiation. 2003). the intensity of competition is not completely under the retailer's control. Culture generally tends to consist of layers of values.Palmer (2004) claims that until recently. For example. Culture can be analysed through the observations of how the company behaves. It is also useful to understand and characterise both the company's culture and the subcultures in adaptation of future strategies. providing good corporate reputation and introducing new premium quality products (MarketWatch.

The last strategy of focus can be either a cost leadership or differentiation strategy aimed toward a narrow. Tesco may also choose to confine their product to specific market areas or may choose to offer a smaller line of products to the broad market. developed by Porter. and thus. focused market. such as Tesco. thus having a significant competitive advantage. price inelasticity on the part of buyers. thus pursuing a strategy of focus or niche (Porter.the way things are done. while both overall cost leadership and differentiation strategies are aimed at the broad market. If Tesco uses another strategy of differentiation. or customer service are popular approaches to differentiation. Tesco pursues a strategy of cost leadership or differentiation either in a specific market or with specific products. technology. Therefore. 1980). to obtain a sustainable competitive advantage they should follow either one of three generic strategies.0 TESCO'S STRATEGIC OPTIONS: GENERIC STRATEGIES Generic Strategies are characterised by an individual retailer's response to the industry structure. In accordance to this framework. The danger some organisation face is that they try to do all three and become what is known as stuck in the middle. In case of Tesco it is not appropriate. than it has to try to offer services and products with unique features that customers value. 7. as they do have a clear business strategy with a clearly defined market segment. 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. For a giant retailer. Tesco will be able to create brand loyalty for their offerings. 6. Breadth of product offerings. On-going meetings and communication at every level of the company's hierarchy represent a strong internal environment. In other words. it appears reasonable to think that Tesco will have frequent interactions with the governmental/regulatory and supplier sectors of the environment. In pursuing a cost leadership strategy Tesco focuses on the creation of internal efficiencies that will help them withstand external pressures.0 MARKET OBJECTIVES AND STRATEGIES IMPLEMENTATION . special features. 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.

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. From the generic strategies discussed above. potential and complexities of these markets. Tesco's interests in Japan are likely to continue growing in due course. Product Development: Diversification Johnson and Scholes (2003) believe that changes in the business environment may create demand for new products and services at the expense of established provision. These new markets are also demographically high opportunity markets.Strategy frameworks and structuring tools are key to assessing the business situation. Explicit plans for action. as Asian markets are showing an increase in consumer spending and increased trend towards retailing. product development and stores operations skills to deliver a better shopping experience to customers. one of the suggested strategic options is in international alliances with the local retailers in Asian markets. In the case of Tesco. It is about the rationale of this expansion-market development strategy. in order to gain a larger economy of scale and larger market presence. 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. Risk and value trade-offs are made explicit. Feasibility will be regarded to whether Tesco has the resources and competence to deliver the strategy. By entering into joint ventures or partnerships. It will be considered as a method of development and may be formed to exploit current resources and competence. However. Tesco will draw on the extensive local knowledge and operating expertise of the partner whilst adding its own supply chain. including effective planning need to be developed by Tesco as the strategic alternative. the level of risk and the likely reaction of stakeholders. Tesco may feel that being the first mover is not necessarily an advantage. leading to concrete proposals to add value and reduce risk. given the huge scale. Ansoff's . acceptability and feasibility. The success of the partnership will be related to three main success criteria: sustainability. The acceptability relates to the expected return from the strategy. Sustainability will be concerned with whether a strategy addresses the circumstances in which the company is operating.

The nature and the extent of diversification should also be considered in relation to the rationale of the corporate strategy and the diversity of the portfolio. it is also crucial to implement internal development when new products are developed. Tesco can also develop different store types in these markets as well. consumer experience and brand extensions. Nevertheless. While the majority of Eastern European and Far Eastern outlets are hypermarkets. The company must constantly adapt to the fast changing circumstances. political controversy. By following the changing needs of the customers Tesco can introduce new product lines. innovation has to be a major driver for Tesco's product development. each designed to provide a different shopping experience.matrix also suggests that if new products are developed for existing markets. It had fostered powerful identities by making their retiling concept into a virus and spending it out into the culture via a variety of channels: cultural sponsorship.0 CONCLUSION 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. then a product development strategy has to be considered by the management level of a company. Tesco have to exploit their internal strengths and minimise their internal weaknesses in order to achieve sustained competitive advantage (Although a competitive advantage is the goal innovators want to achieve. The retailing industry is experiencing overcapacity and innovative services and products being the major competitive advantage. the effect of possible actions towards these goals and how to implement and execute these . Strategy formulation should therefore be regarded as a process of continuous learning. the ability to create platform(s) depends on how they could manage the innovation. In expanding and diversifying Tesco's product mix. The management of technological innovation is increasingly involved in strategic decision-making. 8. Tesco can develop a portfolio of different store formats in the UK. Therefore. 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. it does not mean that the innovator has to possess all requisite capabilities. the important thing is the ability to organise and use the capabilities of others in order to create a business platform). leading to additional spending. For example. This may require more attention to R&D. which includes learning about the goals. This value added by the uniqueness will eventually lead Tesco to command a premium price.

These different levels of strategy should be related and mutually supporting. Tesco Case Studies Strengths Increasing market share: Tesco holds a 13% share of the UK retail market. Tesco has grown its non-food division to the extent that its revenues now total 23% of total group earnings. while increasing space contribution from hypermarkets will allow it to drive a higher share in non-food. and the company also plans to open up 59 new stores in the UK this year. this will ensure Tesco's continued regional strength. If geographical spread continues to grow. Its multi-format capability means that it will continue to grow share in food. APPENDIX B SWOT ANALYSIS: TESCO Source: Mintel Report. In large organizations as Tesco strategy should be analysed and implemented at various levels within the hierarchy. and is predicted to contribute nearly a quarter of group profits over the next five years. Tesco's late 2002 investment into West-midlands based convenience store group T&S was billed as the most aggressive move into the neighborhood market by a big-name retailer so far. Datamonitor Reports. Tesco's general growth and ROI show no sign of abating: In the UK.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. . Tesco's strategy at a corporate level defines the businesses in which Tesco will compete. Tesco's international business segment is growing steadily. in a way that focuses resources to convert distinctive competence into competitive advantage. The deal has turned Tesco into the country's second biggest convenience store chain after the Cooperative Group.

covering 96% of the UK. With over a million households nationwide having used the company's online is the world's biggest online supermarket and this year the group had sales of over £577 million. like the Morrison's group successfully purchasing the Safeway chain could alter the balance of UK supermarket power. any changes in the UK supermarket industry over the next year for example.000 cats and dogs covered.8% of 2003 revenues). Therefore. the company is still highly dependent on the UK market (73. Its UK sales are now 71% larger than Sainsbury's. when it was voted The Most Competitive Life Insurance Provider in the MoneyFacts Awards 2003. trustworthy goods that represent excellent value. Tesco online: Tesco. and is associated with good quality. Weaknesses Reliance upon the UK market: Although international business is still growing. and is expected to contribute greater amounts to Tesco's profits over the next few years. an increase of 29% on last year. Tesco is in an enormously strong position in its domestic market. UK market leadership reinforced: Since acquiring number one ranking in 1996. Tesco has developed a successful multiformat strategy that has accelerated its advantage. The group's instant travel insurance allows Clubcard holders to buy their holiday insurance conveniently at the checkout. The company has a strong brand image. as well as its efforts to branch out into finance and insurance have also capitalized on this. . and affect share. while the life insurance policy followed on from the success of last year. Asia and Ireland increased by 78% during the last fiscal year. Also the Competition Commission's report makes it very difficult for a competitor to challenge its scale and has effectively scuppered WalMart's chances of stealing UK leadership. Brand value: Profits for Tesco's operations in Europe. Pet insurance now has over 330. making it the fastest growing motor insurance provider ever. Tesco online now operates in over 270 stores around the country. While this isn't a major weakness in the short term.Insurance: In fiscal 2003 Tesco Personal Finance reached the milestone of one million motor insurance policies. the company has a strong platform to further develop this revenue stream. Tesco's innovative ways of improving the customer shopping experience.

its product range is vast and almost any acquisition can be justified. The company's telecoms venture is the latest stage in its strategy to develop popular retail services. as has been the case with the UK convenience market. Signs point to serial acquisitions: With an enterprise value of £23 billion. Tesco has little free cash for any other operations. by capitalizing on its brand. While 'fill the gap' strategy would be useful to the company. Equally. its growth overseas will further increase earnings and scale. Opportunities Non-food retail: The growth in Tesco's hypermarket format in the UK means that there are expectations of seeing its 13% share of retail sales climb sharply over the next few years. Around half of new space opened in the UK last year was for non-food and the result has been to increase its market share from 5% to 6% and its overall share of UK retail sales has increased by 100 basis points to 12.8%. Across all health and beauty ranges Tesco continues to invest in price to deliver the value customers have come to expect and this year invested £27 million on . Worldwide it has sales of £7 billion in non-food. Tesco has a large capital expenditure program mainly due to its huge investment in space for new stores. Also. Its aim to be 'as strong in non-food as we are in food'. no longer sounds like the consultancy-speak that it once did. there is the danger of Tesco becoming a serial acquirer. and it is currently the fastest growing skincare retailer in the market. The company has a volume marketleading position in both toiletries and healthcare and is number one retailer in the baby goods markets. particularly in the UK. Since its expansion is so aggressive. It is estimated that Tesco's non-food sales will double over the next four years. It can use its footfall and low cost structure together with improved merchandising skills to add another leg to growth. It has repeated its approach in banking. some 23% of the total. and they are getting there using the basic tenets of value. as this tends to reduce earnings visibility and quality. choice and convenience that have been so successful in food. Health and beauty: Tesco's UK health and beauty ranges continue to grow. Tesco clearly has enormous firepower.Debt reduction: Tesco is not expected to reduce its debt until at least 2006. taking Tesco onto the virtuous circle of growth.

5 million square feet to sales area and could well enter another major market. with profits of £306 million. as China is one of the largest economies in the world with tremendous forecast growth and will present many opportunities for Tesco. Japan and Taiwan. by capitalizing on its brand. at almost £7 billion. Slovakia. they are nearly 10 times larger. its International sales were £770 million. Tesco will add 2. With both Asda and Tesco committed to price leadership. Seven years ago. It has repeated its approach in banking. such as China or Japan. It also operates in Asia: in South and beauty pricing alone. Czech Republic. Threats UK structural change could spark a price war: The price followers in the UK market are about to become aggressive investors in price. or failure in Tesco's business model. competitor action. Overseas returns could fall: The buy case for Tesco is predicated around investment overseas driving higher group returns as each country moves past critical mass. Tesco's rank as the top UK supermarket has been threatened. to take the tesco. Growing internationally has forced Tesco to become serious about hypermarkets and this has had seriously positive implications for growth in the UK. Safeway because of new ownership and Sainsbury because of new management. this could result in a step down in industry home shopping model to the US. This might not happen. In 2004 the company plans to enter the Chinese market. Malaysia. Thailand. It also could come as a consequence of an aggressive move into a larger market. Asda can now compete extremely . Turkey and Poland. Further international growth: Tesco now operates in six countries in Europe in addition to the UK. either because of economic conditions. Now. the Republic of Ireland. Telecoms are the latest stage in its strategy to develop popular retail services. Tesco has formed a strategic relationship with US supermarket. The company now has 19 stores with opticians and nearly 200 stores with pharmacies. Morrison is reducing Safeway's prices by up to 6% and Sainsbury is bound to see lower prices as one of the basic changes necessary to drive its recovery. Wal-Mart/Asda challenge: Since the US shopping giant Wal-mart purchased Asda. Safeway Inc. Hungary. In the current year.

and this could spell the end of Tesco's brand dominance in the future. and coupled with the country's current unrest. . and has so far been quick to keep up with price cuts or special offers at Asda. Tesco tries to maintain the level of consumer choice in store (+). this represents a high risk area for Tesco to bank on. just behind Sainsbury's and then Tesco. For the moment. storage of goods. Tesco's debt may increase before it begins to decline. Adds value (+). Potential to add value (P+)) Inbound logistics Inbound logistics are placed at the first stage of the value chain as they possess the earliest opportunity to create value. the elements of this stage are considered to be upstream activities. losses value (-). and Tesco's large investment. International expansion: International growth is expensive. Korean consumer spending is currently quite low. The logistical tasks. Asda is the third largest supermarket in the UK. APPENDIX C VALUE CHAIN Primary Activities (Currently. However. leaving the company to directly challenge Tesco's dominance. Asda closed the gap on Sainsbury's in 2003. in this case. as well as land prices (which are currently low) and extra distribution and operation expense. Tesco is well aware of this. Entering new markets with a new brand requires heavy investment and marketing. Korea is contributing a good proportion of Tesco's international profit growth. Korea will probably represent one-third of Tesco's international profits in 2003. include the receipt of goods from suppliers. Therefore. handling & transportation of goods internally and placing the products on the shelves. Wal-mart may also decide to wield its buying power more heavily in the UK. If profits continue to grow in this way.well on price and range of goods.

whilst increasing the turnaround (+). and the stock (+). people are helping the environment (P+). operations could be the second upstream opportunities that enable services and products to be provided. e.V. which is essentially takes away competitive advantage (-). In return. In order to obtain future competitive advantage Tesco has to consider expanding further in terms of operating hours in those places. other tangibles that have to be improved are those of parking facilities. However. Adding value could be achieved through the implementation of a trolley deposit system.g. where it does not occur or opening new Metro and Express stores (P+). maintaining the shelves. Operations The production element of Tesco activities are service orientated. Tesco currently adds value in its home delivery service (+). Tesco may also decide to attract more customers by advertising via radio. it provides an excellent opportunity to reduce costs unfairly incurred by the company. However. till staff and systems to gain competitive advantage. therefore preventing these costs being passed on to the consumer (P+). With a more customer sophistication and their awareness of ethical business practices. In applying a quality control procedure concerning damaged goods and products. the lower prices advertising campaign or more discounts offers (+). However. local newspaper and national T. Tesco can take it as an advantage and provide customers with more of the recycling points and include information in their advertisements. tasks such as opening every day in accordance with trading hours. Clubcard gives further discounts and loyalty for the customers (+). as well as making these facilities readily available and quicker to obtain (P+). adding value for customers who will believe that by choosing to shop at Tesco. they will add value by saving the customer time (+). keeping them tidy and enabling customers to get to and from the premises quicker. Hence. trolley collectors.whilst improving the efficiency of its distribution system (+). Marketing and sales Marketing and sales are placed under downstream elements of the value chain. Outbound logistics The third stage of the value chain is the outbound logistics that is concerned with delivering the product to the customer. if executed more efficiently than competitors. this might be restricted by law or planning councils. . it may give the company some constraints in terms of selling environmentally friendly products (-).

Clarke I. (1994) The Dynamics of UK Grocery Retailing at the Local Scale. and installing new security systems which aim to reduce internal theft.. as Tesco s brand name gives the product vitality (+). covering everything from recruitment to management development. Human resource management HRM is regarded as up and downstream activity. and are encouraged to improve their approach to customers and service provision quality. well trained staff. not the costs (+). International Journal of Retail & Distribution Management. installation and capital investment is a long term process and needs total commitment of the staff. And departments such as profit protection whose main jobs are to reduce shrink. 22 Issue 6. It also remains a key competitive advantage. adding value. interdependence). REFERENCES Balchin A. (1994) Part-time workers in the multiple retail sector: small change from employment protection legislation?. (P+). Technology development It is a downstream activity and is the ability to provide new innovative product ranges/ solutions that anticipate customer needs. The company aims to increase the number of training schemes and further develop its recruitment programmes so to pass on to the customer the benefits of a well recruited. where training is also linked directly to pay. an expense the customer will now not have to cover in the price of their purchases (+). pp. and Guy C.Support Activities Company Infrastructure Planning and control functions are the ones that account to provide the continued focus on the costs and cash control of the company s operations (+). Bennison D. Vol. Employee Relations. Vol. However.43-57.11-20. 16 Issue 7. so the staff are motivated to learn. The company has now increased its staff count who are involved in upgrading its anti-fraud software (infrastructure/technology. . Tesco continues to invest in customer service (+). But who will be responsible for the service provision and the floor personnel? (-). pp.

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