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Analysis of Tesco to enter Vietnamese supermarket



Table of Content
1 Introduction .......................................................................................................................... 2
2 Tesco Background ............................................................................................................... 2
2.1 SWOT ........................................................................................................................... 2
2.2 Resource based view .................................................................................................... 4
2.3 PELST analysis............................................................................................................. 6
2.4 Porter 5 forces model .................................................................................................... 7
3 Tesco in Asia........................................................................................................................ 9
3.1 Supermarket revolution ................................................................................................ 9
3.2 Motives and Objectives .............................................................................................. 10
3.3 Performance in FY 2013............................................................................................. 14
4 Vietnamese supermarket industry ...................................................................................... 15
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4.1 Overview .................................................................................................................... 15
4.2 Drivers of Change of the Retail Industry in Vietnam ................................................. 18
5 Entry mode for Tesco in Vietnam ...................................................................................... 19
6 International competitive strategy...................................................................................... 21
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1 Introduction
2 Tesco Background
According to Tesco (2012), Tesco is one of the most popular retail chain stores in the United
Kingdom. After the Wal-Mart of the United States of America and Carrefour of France, this is
considered as the third largest retailer in the world. Tesco has operation in fourteen
countries of the world covering Europe, Asia and North America and occupy more than
thirty percent of the United Kingdom retail market.
2.1 SWOT
To observe strength, weakness, opportunities and threats, it is important to carry out SWOT
analysis which will give a brief idea on how Tesco is performing in the market.
Strengths: Tesco is a powerful retail brand. It is known as a company that is value for money,
very convenient with the wide range of products, all products in one place. TESCO have very
secured market position in the global market. Tesco also expanded to different stores like Tesco
Metro, Tesco Express which made it more convenient for the customers. Because of the size and
facilities, Tesco buy in bulk which means they take benefit of economies of scale. That means
they can lower prices when they want in order to keep the prices attractive and be competitive
with stores such as Asda or Sainsbury. By creating loyalty packages such as club card they
achieving loyal customers what is important and is as a consequence they are successful
company.
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Weaknesses: Tescos finance profit was impacted by bad debt form credit cards and to many
household insurance climes. Also by trying to gain new markets other that food sector such as
books they are facing obstacle because there are companies that are specialising already in this
area such as Amazon that might provide better service and have more loyalty from customers in
this area. In recent times Tesco is trying to do some online selling. However to start online
selling like other leading online stores, Tesco needs to invest a lot of cash for the new web
technologies, where Tesco is lacking in free cash at the moment as they have large amount of
debts which can be destructive as when interest rates is increasing.
Opportunities: There are many opportunities for Tesco. Tesco should stick with the strategy
that they following at the moment about entering new markets with new products. Big
opportunities are on the Internet as Tesco is trying to meet the needs of the customers. Also
creating brands like Tesco value or Tesco finest that is targeted to desired group of people that
can afford it to buy in Tesco. In addition there is still opportunity to develop Tesco brand in Asia
and other international markets.
Threats: One big threat that Tesco faces is the takeover of Asda by Wal-Mart. The reason this is
a threat is because Wal-Mart is the largest Global Competitor and therefore has the necessary
skills, resources experience and funds to cause Tesco problems. A major threat to Tesco current
strategies of expansion is the government and the Monopoly and mergers commission. Also
there is a Growing public concern and annoyance that Tesco is threatening the smaller retailer.
The smaller shops are disappearing due to the growth of supermarkets and this is annoying some
people. So there is a social and legal implication as well.
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2.2 Resource based view
UK
Plan to Build a Better Tesco on track with improvements made to the
offer and more to come in 2013/14; Year-on-year profit performance
reflects UK reinvestment; Strong progress in the online grocery
business with sales growing by 12.8%; Growing the portfolio of
businesses by investing in WE7, Mobcast, Giraffe, Harris + Hoole and
Euphorium
Asia
Regulatory challenges in South Korea held back profit growth;
Successfully launched online grocery businesses in Thailand and
Malaysia; Expanded the convenience store business in Thailand to
over 1,115 stores; As one of the worlds largest retailers, with over
530,000 colleagues, Tesco serves millions of customers a week in
their stores and online.
Europe
Customers affected by severe economic conditions; Slovakia and
Hungary proved more resilient; successfully launched online grocery
businesses, now in all of the Central European markets
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Key enablers
The core elements of the business model have six key enablers including, for example,
leveraging Group skill and scale and innovating the offer which maximise the potential of the
core activities and ensure that what they do is sustainable. Transferring know-how, new systems
and processes around the Group has become a regular part of how they do things based on the
principle of invent once, deploy everywhere. As the leadership group which numbers over
500 directors gains even more experience in multiple markets, new technologies and
approaches can be introduced quickly and cost-effectively. Loyalty and own-label programmes,
format expertise and online trading platforms are all current examples of Tesco leveraging Group
skill and scale. As keeping pace with changing consumer shopping patterns what they buy,
how, where and when they shop becomes ever more demanding, staying close to the customers
means that they are well-placed to see and to grasp the opportunities to innovate. For example,
they spend a lot of time applying new technology in-store so that they can improve the shopping
experience for customers.
2.3 PELST analysis
Political factors: Now Tesco is operating business in 14 courtiers all over the world, so its
performance may be influenced by the local legislative and political conditions. Employment
laws specified by local government must be followed in order to avoid legal hurdles. Most of the
governments encourage the organizations to provide employment for local candidates so that
local people can be benefited more. All kinds of jobs like low-paid, highly flexible, more skilled,
highly-paid and local based jobs are available in stores like Tesco. Tesco employed different
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categories of people like students, elderly workers and disabled people for low labor rates. Tesco
followed the employment legislation and other laws properly in every country where it has
stores.
Economical Factors: Demand for a product in market, price of the product and profits of an
organization depends on the economic factors like interest, inflation rates and local
unemployment levels. Organizations cannot have control on these economic factors, but it can
show adverse effect on organization performance. Tesco is still completely depending on UK
market even though it has stores in different countries, which mean if UK market collapsed or
affected by any economic factors, Tesco will be in greater amount of risks.
Social Factors: Demographic changes and change in customer behaviors, attitudes are the
important social factors which can show effect on business. As Tesco is into food business it has
to examine the customers constantly, because today every customer is choosing healthy and tasty
food items. Tesco understood the recent social changes and included non-food items in their
sales list, thus it attracted more number of customers in the market.
Technological factors: Importing new technologies into business can be an advantage for
organization as well as customer. In Tesco, using of advanced technologies improved customer
satisfaction. Technologies used in most of the Tesco stores are: Electronic shelf labelling;
Electronic Point of Sale; Radio Frequency Identification; Electronic Fund transfer system; Self
check-out machines. Customer can feel more convenient as product is readily available to them.
The above mentioned technologies helped Tesco in improving the stocking and distribution
processes.
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Legal factor: Tesco performance is directly affected by some of the laws specified by
governments. For example, Food Retailing Commission enforced to use standard pricing for
products. That means retailers must not change the prices without any notice and it should not
demand the payment from suppliers. Most of the companies try to change product prices
regularly in order to attract customers towards them and to hold its position in market. Tesco
reduced prices on promoted products where as other product prices increased so that it
implemented politically correct pricing laws.
Environmental factors: Organizations must take the social responsibility while developing
products. Cutting wastage while product manufacturing, decreasing the usage of resources and
reducing environmental damage are the important specifications to be followed by companies
like Tesco.
2.4 Porter 5 forces model
Threat of new entrants: The UK grocery market is primary dominated by few competitors,
including four major brands of Tesco, Asda, Sainsbury's and Safeway that possess a market
share of 70% and small chains of Somerfield, Waitrose and Budgens with a further 10%. Over
the last 30 years, according to Ritz (2005), the grocery market has been transformed into the
supermarket-dominated business. Majority of large chains have built their power due to
operating efficiency, one-stop shopping and major marketing-mix expenditure. So the possibility
of new entrants in the supermarket is very low.
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
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supermarkets. Therefore, 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. In return, UK based suppliers are also threatened by the growing ability of large retailers
to source their products from abroad at cheaper deals. The relationship with sellers can have
similar effects in constraining the strategic freedom of the company and in influencing its
margins. The forces of competitive rivalry have reduced the profit margins for supermarket
chains and suppliers.
Bargaining Power of Customers: Porter theorized that the more products that become
standardized or undifferentiated, the lower the switching cost, and hence, more power is yielded
to buyers Porter M. (1980). Tesco's famous loyalty card - Clubcard remains the most successful
customer retention strategy that significantly increases the profitability of Tesco's business. In
meeting customer needs, customizing services, ensuring low prices, better choices, and constant
flow of in-store promotions enables brands like Tesco to control and retain their customer base.
Threat of Substitutes: General substitution is able to reduce demand for a particular product, as
there is a threat of consumers switching to the alternatives Porter M. (1980). 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, such as the way small chains of convenience stores are
emerging in the industry. Tesco has taken the issue seriously. In this case Tesco along with other
company like Asda and Sainsbury's are trying to acquire existing small-scale operations and
opening Metro and Express stores in local towns and city centres.
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Intensity of competitive rivalry: The grocery environment has seen a very significant growth in
the size and market dominance of the larger players, with greater store size, increased retailer
concentration, and the utilisation of a range of formats. This highly competitive market has
fostered an accelerated level of development, resulting in a situation in which UK grocery
retailers have had to be innovative to maintain and build market share. Tesco has so far
responded well initiating more products with much better price to dominate the market.
3 Tesco in Asia
3.1 Supermarket revolution
The supermarket revolution in Asia has been driven by the same factors as in other regions:
on the demand side by income growth and urbanization and on the supply side by foreign direct
in- vestment (FDI), format diversication to meet consumer segment needs, competitive
domestic investments, and procurement sys- tem modernization to drive down costs. However,
several things were different in Asia. Especially for third-wave countries China, India, and
Vietnamthe trends have been more intense and more rapid. The third-wave countries in Asia
also have active state involvement in economic development. In China and Vietnam, and to
lesser extent India, state investment in modern retail provided a major initial llip to the
revolution. Although supermarkets in other regions eventually moved from the initial urban base
to rural markets and from the initial offering of mainly processed foods and staples into fresh
produce, in Asia, especially in the third-wave countries, these transitions have been accelerated.
Modern retail, either in modern- private or state variants, has adapted to formats to penetrate
rural areas, sometimes (as in India) combining with services for farmers. Relative to the United
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States and Latin America, Asian supermarkets have already started to penetrate fresh produce
markets, perhaps because of the special importance this has for Asian consumers. The
combination of rapid retail transformation and supply-side constraints requires combining
modernization of procurement systems in ways done in other regions (distribution centers and
networks, preferred supplier systems, use of dedicated wholesalers, and private standards) and
adaptation to traditional supply chains, involving development of relations with wholesale
markets. Beyond this dual approach is the gradual introduction of innovative procurement
system and supply chain modernization solutions by agribusiness companies, sometimes in
company with government and donors, such as with rural business plat- forms and hubs
3.2 Motives and Objectives
With a population of more than 3.2 billion, Asia offers enormous opportunity; Tesco has thus
established strong foundations in key markets.
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Thus, Tesco businesses in Asia will make a significant contribution to the company targeted
improvement in Group ROCE.
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Key message
Opportunity: Asia with its large and growing popu lation and increasingly
prosperous consumers will be a powerful driver of long term growth and returns for
Tesco
Scale: Weve built sophisticated and profitable businesses of scale in three markets
Korea, Thailand and Malaysia
Growth: The corporation has significant growth opportunities in Tesco three leading
Asian markets but with China and India they have growth opportunity on a completely
new scale
Foundations: In the largest Asian market China w e have laid strong foundations
on which they are developing a business for long term profitable growth
Property: A strong property strategy helps us succeed in Tesco three leading Asian
markets. In China the Life space malls will help Tesco achieve the vision of becoming
the Best Retailer in China and will also create significant value from property
development
People: Tesco has strong teams in all The corporation Asian businesses with a good
mix of local expertise and international experience. The new Asian Academy shows
the commitment to developing the people
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3.3 Performance in FY 2013
Actual rates Constant rates
m growth growth
*Exc. Japan
Asia sales 12,317m 5.90% 6.10%
Asia revenue (exc. VAT, exc. impact of IFRIC
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11,479m 6.00% 6.20%
Asia trading profit 661m -10.30% -9.80%
Trading margin (trading profit/revenue) 5.76% (105)bp (102)bp

Total sales in Asia increased by 6.1% at constant rates, with a good overall performance,
benefiting from a strong contribution from Thailand held back by the impact of regulatory
restrictions on opening hours in Korea. These restrictions led to a decline in trading profit for the
region as a whole. Thailand continues to be one of Tesco strongest international businesses and
the corporation has made good progress throughout the year. Following on from the success of
the first Asian hypermarket refit to Tesco Extra format in Tesco Rama IV store in Bangkok in
2011, they now have eight Extra stores trading, including the first 5K Extra. Tesco took another
step towards multichannel leadership in the market with the launch of online grocery home
shopping in Bangkok in February and the convenience business continues to prove popular with
Thai consumers They now have over 1,115 Express stores trading, with plans for a further 340
in the year ahead. The impact of the regulations restricting shopping hours in Korea was broadly
in line with the guidance of (100)m, with significant levels of Sunday store closures throughout
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the second half and considerable uncertainty in the market impacting operations even when
stores were able to open. Following the passing of legislation in January this year, the situation
seems more certain, with more consistent store closures expected on alternate Sundays. With the
extension of 24-hour trading restrictions to between midnight and 10.00am and increased credit
card interchange fees, they expect a maximum incremental impact of 40m in 2013/14, as they
face the full year effect of the regulations. As they described at the start of the year, they have
adopted a more cautious stance in China. Tesco still see an excess amount of new space being
opened in the market ahead of customer demand and they have moderated the pace of
development accordingly. Tesco opened just 12 new stores this year and closed five
underperforming stores as part of the increased focus on the three strongest regions. China
remains a strategically important market for Tesco. This year they plan to open 2.8m square feet
of net new selling area in Asia overall, in addition to continued roll-out of the grocery dotcom
operations.
4 Vietnamese supermarket industry
4.1 Overview
Table 1 is to compare the performance of Vietnam supermarket industry to those of other
countries in Asia.
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Retail market in Vietnam is growing at the remarkable progress, far exceeding many other
economies in the world, behind only India and Russia. This area received a lot of investment
from abroad, and the market is firmly established with the opening of many trading centers and
larger stores. The retail market in Vietnam can be roughly divided into six types of modern
distribution with specific characteristics, including hypermarkets, supermarkets, commercial
centers, shopping centers, convenience stores and specialty supermarkets.
Hypermarket is expansive retail facility which encompasses a large number of types
of products - both groceries and non-groceries items. Examples of hypermarkets are
Loblaw and Superstore (Canada), Fred Meyer, Meijer and Super Kmart (US), Asda
and Tesco (UK), Carrefour and NTUC Fairprice (Singapore), to name a few. In
Vietnam, Big C is the only brand name of hypermarkets. Metro Cash & Carry stores
give the impression of hypermarkets but are not. Metros clients are mostly industry
and wholesalers while hypermarkets are final customers.
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Supermarket, whose retail price is a bit higher compared with a hypermarket, is
better fitted for weekly shopper. Some of the most famous supermarket names in
Vietnam are: Intimex, Co.opmart, Fivimart and Citimart. Supermarkets in Vietnam
offer more or less similar goods and services. Some offer frequent buyer card, with
which you earn points to get deduction on the following purchase.
Department stores sell luxurious items such as brand-name clothes, shoes and high
class electronic devices. Parkson and Diamond Plaza are two most popular department
stores in HCM City, while in Hanoi City there are Vincom, Trang Tien Plaza, Grand
Plaza, the Manor and the most recent one- Parkson.
Shopping malls are relatively new concept in Vietnam, which may include a
hypermarket, a supermarket, a department store, a cinema and special stores. Lotte
Mart in HCMCs District 7 can be qualified as a shopping mall, and theres also one
Lotte Mart being built in Hanoi. Convenience stores serve daily demand for sundry
items, and can be found in all streets. You can easily get water bottle or other petty
items such as toilet paper, shampoo, tissue and you-name-it.
Convenience stores in Vietnam are competing with roadside stalls and traditional
markets; Co.opFood stores, under the Saigon Co.op store system, G7 Mart and Shop
& Go can be listed as convenience stores. However, it is the no-name convenience
stores that still make up the majority of the Vietnamese retail market.
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4.2 Drivers of Change of the Retail Industry in Vietnam
The governments control: As representatives of the Ministry of Industry and Trade, the
Ministry is developing the master plan to develop Vietnam's trade 2009-2015 and orientation to
2025 "with the aim of developing infrastructure systems in a reasonable period of 2009 -2015
material to create an environment more favorable than, more civilized and more modern,
improved business environment, market development, including planning the retail market. Set
targets retail sales growth over 18% in the period 2010-2015 and increased to the highest level is
over 20% per year in subsequent years. With government support and favorable consumer
confidence will open new perspective for retailers in Vietnam. Traditional retail channels will
continue to dominate the market, but government decision to allow 100% entry to foreign
retailers under WTO commitment will lead modern retail to realize unrealistic growth (RNOS,
2009).
Consumer behaviour: Shoppers have preferred convenient hours and locations, outstanding
services as and reasonable prices. It is reason why retailers compete in seeking convenient
premises and high quality and stable source of goods.
The boom of FDI in Vietnam: The market of 86 billion of population is a big pie that many
foreign investors keep their eyes on. This was clearly evident in the activities of many players as
they prepared for the foreign invasion by aiming to offer better service, improve product quality,
implementing more marketing activities and strengthening relationships with local partners.
In the next period, many prospects will come to Vietnam's retail market. The reason is that
when consumers have passed the psychology of tighten consuming" in the time of economic
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crisis (VOV News, 2010). Government support and favorable consumer confidence will result in
positive outlook for retailers in Vietnam. Traditional retail channels will continue to dominate
the market, but government decision to allow 100% entry to foreign retailers under WTO
commitment will lead modern retail to realize unrealistic growth. The new trend for the retail
market will be consolidations through an increasing pace of mergers (SIS International Research,
2010). Though, over 70 percent of Vietnams population lives in rural areas, retailers have not
been able to enter this market. Domestic retailers intend to expand into rural markets by
establishing effective distribution channels. Key factors that will contribute to their success
include location, supply, and the number of buyers.
5 Entry mode for Tesco in Vietnam
The joint venture approach is proposed for Tesco as market entry mode to Vietnam. This type
to market entry is well-known to provide essential knowledge concerning customers, regulations
and contacts, especially within particularistic business environments.
It is identified three kinds of joint venture suitable for Tesco within Vietnam: (1) ofcial joint
venture; (2) unofcial joint venture; and (3) renting joint venture. First, the ofcial joint venture
was established overseas retailers formally contributing capital to set up a third company with a
local partner. This approach has worked well, not only the cases of Big C (Cora) and Seiyu
supermarkets in the transitional stage, but also in the globalisation stage, when the JV
approach became less of a pre-requisite for market entry, with the likes of Lottemart, Circle K,
Big C, SPAR and Familymart employing the strategy. However, such arrangements often led to
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relations with numerous local partners and at times led to rather convoluted forms of ownership
that are clear from one example in the emergence of Vindemias partners.
Second, operators within Vietnam may have pursued unofcial joint ventures. Given the
unregulated nature of such developments, precise details are difcult to obtain however, our
research has suggested that some retailers strategically rented areas in trade centres owned by
domestic companies and opened outlets without receiving the ofcial permission of the relevant
authority. In the case of the Big C store in the Go Vap District of HCMC, the authorities
conrmed that they would not provide a licence for a 100 per cent-owned foreign company.
Consequently, a Big C unit was developed, in all but name, as the store was covered by the name
of the trade centre owned by a local enterprise. The Big C website did not list this unit until at
the end of 2009 when regulations were relaxed.
Third, operators have pursued joint ventures within Vietnam through the initial rental of
stores with the short-term use of a partners store fascia before later changing their name to a
preferred retail brand an approach undertaken by Hong Kong based retailer, Dairy Farm. In
July 2006, Dairy Farm received licences to operate stores in Vietnam as a wholly foreign-owned
company. Singapores Giant South Asia Investment Pte, a member of Dairy Farm International
Holding Limited, set up a company named Giant South Asia (Vietnam) Ltd. with investment
capital of US$5 million to establish a chain of stores on the existing premises of Citimart
supermarkets. The company was allowed to upgrade and manage three Citimart supermarkets in
HCMC, one in Can Tho City and another in Kien Giang province. However, the company was
not permitted to expand to other brands beyond the Citimart fascia. The rst outlet was opened in
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Ho Chi Minh City in August with 10,000 SKUs, of which 90 per cent were domestic. Such a
strategy provided an essential foothold within the market prior to regulatory relaxation that will
enable the retailer to develop its own Wellcome brand and leverage its competencies in the
market. However, by the end of 2010, the retailer still only operated three supermarkets under
the Wellcome banner. The case of Metro Group is also notable given its approach to entering the
market via a 100 per cent owned cash & carry operation that nominally required customers to
be wholesale purchasers. However, this investment did not have the right to import directly into
Vietnam.
6 International competitive strategy