Professional Documents
Culture Documents
Tesco is the UK based Supermarket chain and one of the largest food retailers in the world
and is operating around 3,728 stores and employing over 440,000 (+) people. As well as
operating in the UK, it has stores in the rest of Europe, Asia & the recent entry into U. S
market with stores in 13 International Market. It is graded as the Third Largest grocery
retailer in the world and have a Group sale of 51. 8bn. It also provides online services
through its website, Tesco. om. It sells over 40,000 food products around supermarkets;
it also sells clothing and other non-food products. The UK businesses remain their core
market. Tesco’s focused strategy of proving exceptional value and choice for customer,
ensure that they continue to grow market share. (Corporatewatch. org. uk, Tesco Plc
Overview, 2009) Tesco was initially started in London’s East End around 1919 and was
founded by Jack Cohen, son of a polish Jewish Tailor. He sold groceries in the markets of
East End. Tesco’s brand first appeared in 1924.
The name derived after Jack Cohen bought a large shipment of tea of T. E. Stockwell ,
formerly known as Messrs Torring and Stockwell of Mincing Lane, he made new labels by
using the first 3 letters of a supplier’s name and the first 2 letters of his surname forming
the word ‘TESCO’. ” (Tescocorporate. com, Tesco Plc Overview, 2009) Tesco’s growth in
Food Products is phenomenal as described by Management Today Magazine “Opponents
want to know who pays the price for Tesco’s relentless profit growth – the bigger it gets,
the more power it has to squeeze competitors and suppliers. And furthermore it also
stated that, Tesco’s success mainly rely on ‘Quality of Management’, ‘Quality of Goods &
Services’, ‘Ability to Attract, Develop & Maintain Top Talent’, ‘Value as a Long-Term
Investment’, ‘Quality of Marketing’ and ‘Use of Corporate Assets’.
Tesco’s stores are categorized into five formats, depending on the size and the range of
services offered and products sold. It offers various products and have hands various
fields such as mobile phone services, home phone, internet services and VoIP businesses.
The first Tesco Extra was opened in 1997, which are larger and out of town supermarkets,
Stocking groceries and stock valuables for everyday essentials for the customers.
(tescocorporate. com. Tesco plc, 2009)
1. Food & Non-food Retail. There in variety of product sold in Tesco’s. Tesco’s don’t
only sell food they also sell many other non-food products ranging from Electronics
& Electricals to Clothing & Lifestyle.
2. Retailing services: Tesco has changed and respond by proving new products and
services.
The E-commerce business has grown rapidly and they are the world’s larger grocery e-
trailer, they operate system in the international market like in United States, Ireland,
Thailand, Poland, Hungry, Malaysia, Korea and Thailand. Tesco has now have moved their
services into Telecom, Launching a fixed line phone service, Director Enquiry services.
The market share of Tesco’s is 5% and their aims and goals are to be equally strong in
food and non-food sector. The company’s own-label products are at three levels, Value,
Normal and Finest. Own brand accounts for approximately 50% of sales.
As well as convenience produce, many stores have gas stations. The company has become
one of Britain’s largest petrol independent retailers. Other retailing services offered in the
UK include Tesco. com and Tesco Personal Finance which primarily offers Insurance,
Savings Accounts, Personal Loans, Investment bonds, online Mortgage finder.
While Sainsbury and Tesco decided to base their operations fundamentally on telephone
contact (although Web presence is important), this strategy is known to be a Joint-Venture,
which was a establishment of a subsidiary, that is an independent business entity, whose
share equity is owned by both companies in order to provide banking services via
telephone banking or in-store financial desks and centres in practice. It is formed keeping
in mind the strategic purposes so as to preserve the identity and autonomy of the
organisations which are involved (Martinelli & Sparks, 2003).
The strategy of developing market share for goods outside the usual supermarket arena
led to Tesco surpassing its once-rival Sainsbury’s to become the biggest supermarket in
the UK,recently garnering over a quarter of market. Famously, $ 1 in every $ 8 spent by
the British public on groceries is now spent at Tesco, with the company garnering
revenues of 51. 8bn in its financial year to 2009. (Palmer, 2005),
Tesco Personal Finance
Personal Finance
Personal finance is to analyse and obtain financial planning and calculating the risk
involved. It helps in monitoring current stock and various investment values. The analyses
can be clarified by many experts. Bankers assist in providing various financial services and
trusts. It helps identify Inflation Risk, Interest Rate of Risk, Income Risk, Personal Risk
and Liquidity Risk. (Kapoor et. al. , 2004) Tesco Personal Finance was formed in 1997,
this retail bank was launched as a joint venture in collaboration with the Royal Bank of
Scotland, which will processes all its financial transactions and With Subsidiary companies
such as Direct Line and Lombard Direct will process all its Insurance related products.
These companies are the subsidiary companies of RBS.
Tesco initially had a banking venture with Natwest, which was ended in 1997. Tesco’s
aggressive move into retail have affected its growth in food sales, which led to fewer
openings for its general merchandise stores. “Tesco Personal Finance has proved a big
success as one of Europe’s fastest growing financial service providers, with over 4 million
customer accounts by August 2003, and 50,000 new accounts opening each week. ”
(Corporatewatch. org. uk Tesco Plc. , 2009). Tesco has also expanded into selling over
the Internet and is by a long stretch the world’s largest e-grocer. In 2001 Tesco. om broke
even in its Internet sales for the first time. 36 By April 2004 it had become a fast growing
and profitable business, with sales of $ 577m and reported pre-tax profits of $ 206m last
year, and are expected to come in over $ 240m in the current financial year.
(Corporatewatch. org. uk Tesco Plc. , 2009)
Credit Cards
Loans
Savings
Motoring
Travel It also has Tesco compare and operates various networks of cash machines
such as ATMs.
It sells products through multiple channels including in-store, by telephone and online.
(corporatewatch. org. uk, 2009) Tesco has maintained its competitive edge over its
competitors by the innovative idea of Tesco Club card points. “This strategy is highly
effective because it can be combined with in store offers which results in customers
spending higher amounts of money, often on non-food items in order to increase sales
across all product lines thus causing sustainable yet competitive growth which allows them
to deal with control for market control with ASDA. ” (Sparks, 2002)
The company has operations in the UK & Europe, Ireland, Hungary, Poland, Czech
Republic and Slovakia. However, Tesco Personal Finance is completely-owned entity of
Tesco plc. (Corporatewatch. org. uk. Tesco Plc. 2009) For thorough understanding of
Tesco Personal Finance Success key facts are highlighted in Appendix A. Johnson et. al. ,
(2008) mentions that “Tesco, Sainsbury’s and Asda all compete in the same environment,
yet Tesco is a superior performer. It is not the environment that distinguishes between
them but their internal Strategic capabilities.
Tesco has appointed two former RBS executive, which will in turn report to Tesco’s finance
directors, to manage the business so as to have an independent management structure
to satisfy the regulatory requirements. The main objective of this strategy is to maximise
the amount of profits generated from financial services and other related products such
as Telecoms and non-store sales to $ 1bn in the next few years. It also clarified that under
this agreement between the two firms, RBS will continue to cater banking services and
other back-office functions.
With this venture RBS expects to eventual gain $ 00m profit on the deal, if approved by
the Financial Services Association. RBS chief Sir Fred Goodwin stated that business was
much strong and successful. Furthermore at this stage it is appropriate for Tesco Personal
Finance to have a single ownership for the next stage of growth. (bbc. co. uk, 2009)
Tesco’s buyout of the RBS Stake and the situation surrounding this: Being successful in
the financial sector and its current strategy Tesco announced that they were buying out
the half of Royal Bank of Scotland’s stakes which amounted to 50% in the company for
the investment of $ 50 million, and the transaction was completed at the end of 2008.
(skynews. co. uk, 2008)
Products Introduced after buyout of RBS Stake -2008 During this year (2009)
Tesco plans to operate about 30 branches in store which would be termed as Tesco Banks.
With the in-store marketing strategy such as posters / leaflets in place, Tesco will have
no difficulty in promoting this new venture. Moreover, this will further bring down cost of
advertisement whereby existing premises and stores will be utilized to have direct contact
with customers.
This will help bring Tesco Financial Services in touch with customers by post, phone or via
the internet. (Bradshaw, 2009) The main primary objective of Tesco banks will be to
provide mortgages and current accounts to its customer and various other ranges of
products, but this will not be done before the end of 2010. (Bradshaw, 2009) “Arguably
this is what new players in the insurance market such as Tesco have done. They have not
tried to change basic principles of Insurance provision; they have significantly changed
the way in which insurance is sold and distributed”. (Johnson et. al. , 2008)
In order to diversify its current financial business status, Tesco is planning to launch its
own retail banking; it is also considering offering basic bank accounts, to go head to head
with UK’s high street money lenders. Tesco’s Finance has a combined stake with RBS and
with this advantage its strategy to launch Current Accounts might prove profitable and
furthermore Sir Terry Leahy Tesco’s, chief executive, said that “We are going to do this
gradually, we are not going to explode new products overnight, but clearly the transition
will be into a full service bank.
Some changes will just be an extension of what we are already doing. ” (telegraph. co.
uk, 2009) With the above statements we can conclude that Tesco’s expansion into
providing basic bank accounts is not an opportunity but a strategic move as it is aiming
to get long term sustainable competitive advantage; whereby an opportunity, can only
fetch short term profits. What strategy would Tesco employ to perform this new venture.
When you find a suitable strategy [Chapter 5] discuss this strategy and link it to Tesco.
With Tesco living up to their advertising strap line of “Every little helps”, consumers have
not only rely on them for cheap provisions but for increasing number of goods and services
– from TVs to Insurance, deckchairs to mobile phones and now with the inclusion of basic
bank accounts this will not only enhance its market growth but will also have an impact
on consumer position.
Though it has 2000 stores, and its current coverage in UK gives it an enviable consumer
position. Which it believes can fetch $ 1bn i. e. double the profits in comparision to the
current years profits of $ 400m. Sir Terry Leahy Tesco’s, chief executive, also said that
this move designed will grab a bigger slice of the $ 20bn financial services sector in the
UK, but have no immediate plans to open branches of its own bank, and would continue
to offer its services in-store, over the telephone and online. (telegraph. co. uk, 2009).
With current market scenario and with large consumer base Tesco will look forward to
offer banking with a new paradigm, which is a non branch-based banking.
As stated by the chief executive of TPF “supermarket banking is an extension of the new
paradigm – non branch-based banking” (Brown-Humes, 1998). “The essence of strategy
lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones
you possess today. (Hamel & Prahalad, 2008)
They have capabilities that permit them to produce at lower cost or generate a superior
products or service at standard cost in relation to other organisations with inferior
capabilities. ‘These concepts underlie what has become known as the resource-based view
of strategy (though it might more appropriately be labelled’ the ‘capabilities view of
strategy’): that the competitive advantage and superior performance of an organisation
is detailed by its capability in offering distinctive services. ( Johnson et. al. , 2008).
They are other strategies which also have impact on success, place of business, loyal and
committed employees, good rapport with Irish Consumers, and committed to providing
better services so as to meet demands of the customer.
The following explanation signifies the factors which act as a tool to evaluate the strategic
planning to achieve those objectives:
Strengths:
Strong U. K. Market
Strong Retail and Non-Retail Business
Strong International Market
Committed & Loyal Staff
Weaknesses:
Reputation Risk
Threats from other competitors
Strengths
Strong U. K. Core Business
Tesco maintains a strong core U. K. business and can be termed as a capital market for
Tesco.
It holds the upright strong position within the U. K. market and it continues to grow
stronger with new ventures. It coped well with the economic downturn and deteriorating
retail sector. Its success can be analysed with new business plans to offer current accounts
and mortgages with currently offering a complete range of foods and non food products,
which includes food items with their own brand and labels. It also provides financial
services and products such as Credit Cards, Loans, Savings, Motoring, Travel. Tesco is
able to use its large customer base (5. million customers) to sell these financial services
& products.
It also has Tesco Compare and a network of cash machines (ATMs). It sells products
through multiple channels including in-store, by telephone and online. (corporatewatch.
org. uk, 2009). Sales which grew by 6. 7% in the year to $ 37. 9bn. It currently has 2,115
stores in U. K. alone and have 280,373 staff employed. It firmly believes in offering better
value for money and providing cheaper and quality products. Food retailers constitute the
largest annual sales in the retail industry in U. K. This fact clearly outline that U. K. will
continue to be the most important market for Tesco. (Tescoreports. com, 2009)
Weakness
Limited global scale
Tesco’s dependency on U. K. grocery market has been vast whereby it has 1800 Stores
approx. ut of 2300 total stores in U. K. alone. Though its recent expansion has opened a
new road ahead but its limited, it only have stores in Europe, Asia and recently US whereby
its sales is higher but profits are lesser. This has been one of the major drawbacks. for
example profits from international sales for the year 2007 was 9. 0%, whereby its 6. 7%
for the current year -2009. (Tescoreports. com, 2009)
For instance, the product has been supplied into the U. K. by Hurtownia Mikolaj, Poland
and distributed throughout Tesco Stores Ltd. Due to an error at the manufacturers, this
product also does not carry any English labelling. Tesco Stores Ltd has to withdraw all
date codes of this product and a point of sale notice was displayed around the stores to
inform customers. (AllergyU. K.. org, 2009). This not only risks the health & safety of the
customers but also effects the reputation of the company & size of customer base. (food.
gov. UK. 2009)
Opportunities
Financial services
Tesco have been quiet successful with the retail services, it celebrates its tenth
anniversary for Tesco Personal Finance this year. Tesco has a strong customer base with
5. 5 million customers to offer financial services products ranging from Credits Cards,
Loans, Savings, Motoring, and Travel. Currently it has 50-50 joint venture with royal bank
of Scotland, though this venture has yield 65 million for Tesco for the financial year to
February 2007. They are planning to offer Current bank accounts to customers and
mortgage by the year 2010.
Globalization/expansion of business
Globalisation is a process by which a firm not only trade internationally, but also has its
operations based internationally. Being a U. K. based retailer, Tesco’s Expansions and
progress across the international business grew well with most striking improvements. It
strategy is to acquire already existing successful companies abroad, but not those which
needs turning around and ensuring that its competitors were targeted so as to dominate
market. Tesco’s sales and profits in the international market signify the strong position it
currently holds internationally.
It has 1613 stores world wide with expansions in most of the Europe, Asia and US. With
every expansion follows the opportunities.
Tesco Direct
Tesco Direct is the online shopping store usually design for home shopping and started in
1996. Tesco being the first retailer to offer a variety of home shopping services ranging
from grocery sales to electronics and software to hardware equipments. This convenience
store has been a remarkable success platform for tesco. com which not only has online
operation within U. K. but its availability in Ireland and South Korea has enhance the sales
and success.
Threats
Reputational risk
Tesco being the largest retailer within the U. K. , carries a high profile in delivering quality
and better services. Its Goodwill is at stake when it fails to appeal to all consumers in
different markets, which might result in loss of trust and confidence. The strategy
‘consumer wants better’ has to be applied so as to avoid potential threats to its reputation.
For instance the launch of Community plan-2006 which help cope the wide range of
environmental and societal issues.
Tesco continuously monitors economic and climatic changes so as to minimise the impact
on its reputation.
This increased competition includes quality & Variety of products, price range and quality
of services offered. Failure to analyse and compete with competitors can adversely affect
the financial results. For instance Tesco have invested one billion pounds in its loyalty
programme which has been successful and still running strong. This strategy gives Tesco’s
a distinctive advantage over its competitors. This signifies the strategy which constantly
monitors’ customers expectations and measures the perception of shopping. This reduces
the respond time and helps them deliver quicker and better services.
Tesco already have hands on Insurance and investment products which provides
distinctive advantage. This value added services was started in 1997, as it was a joint
venture with Royal Bank of Scotland. This has been success as it provides financial
transactions to the customers at the same place where they shop. This adds to the ease
of the process. One of the strong strategies for Tesco is the management competence.
Its management and staff is trained to takes efforts to implement conceptual thinking,
taking initiative to help customers, customer focus & Commercial awareness,.
It maintains and continually improves its position as a leading European food and non
food retailer. The above points signify the strengths, resources and capabilities that
Tesco’s can apply to be more successful and have a competitive advantage over its
competitors.
Most of the banks in UK have been profitable and provides similar financial services but
the only difference is the rate of interest they charge for their financial products. With
recently released financial reports the big five banks in UK are expected to unveil
combined profits of at least $ 32 billion (bbc. co. uk, 2009). But despite current economic
recession, these banks have faired good profits.
UK banks held assets totalling more than $ 6,200 billion at the end of 2006. This was a
13 per cent increase over the year and 83 per cent over the last five years. The number
of banks was unchanged over the year at 335, down from 385 in 2002, due to takeover
activity and retrenchment abroad. (bba. org. uk, 2009). With many organizations facing
credit crunch due to recession this also had an affect on banks. As stated by Bank of
England (2009), Britain’s recession will be deeper and longer than its previously analysis.
(business. scotsman. com, 2009)
With the financial results stated more than $ 6. billion was written off in bad debts which
accounts for approximately 0. 7 per cent of total lending and of which $ 5. 3 billion has
been accounted for individual lending. (bba. org. uk, 2009) With current turmoil UK banks
are committed to form a close strategy with the Government to reverse the current
economy crisis and downturn so as to quickly reaffirm UK’s position to be one of the
world’s leading economies. From the above findings and analyses, it can be concluded
that a well capitalised bank face lower rate of bankruptcy. Tesco already offers Insurance
and investment products which provides distinctive advantage.
This value added services has been quiet successful, as it was a joint venture with Royal
Bank of Scotland. This has been success as it provides financial transactions to the
customers at the same place where they shop. This adds to the ease of the process
Competition in the finance industry &
conclusion
UK financial service sector has undergone tremendous changes, with the combination of
technological developments and change in the consumer’s attitude. This has lead to
demand-led retail banking with new entrants such as supermarkets (J. Sainsbury’s,
Tesco’s) & insurance companies entering into banking sector providing competition to the
already existing banks and have given a wider choices to the consumers. These firms now
offer wide range of financial services such as Credit Cards, Insurance, and Mortgage and
are planning to offer basic bank accounts. As a result, financial institutions have diversified
their product ranges and channels (Gardener et al. , 1999). These multi-channel
orientated systems have replaced the traditional system of banking, by diversifying the
availability of financial services.
The operations, impact and strategy applied by these British food retailers in financial
services have increased the competition dramatically. As stated by Martinelli and Sparks
(1999), among the new entrants, large food retailers seem to possess some special ability
and characteristics, enabling them to play a major role in providing financial services. As
mentioned by McCauley and White (1997) and White (1998), UK experienced more
merger and acquisition activity in its banking sector between 1991 and 1996 than any
other European Country in terms of Value.
These changes have not only posed great challenge to the UK banks but also rapidly
changed the environment in which they operated their business. Reasonably these
changes had an impact on their performance and profits and with Current economic
downturn, consumers are nervous with current banking systems and are reluctant to
spend and its also affecting the investments from big companies. But considering the
options available for customers due to availability of various financial service providers,
they can make the best possible choice.
It entered the Irish food retail business by acquiring all of Quinnsworth, Stewart’s Store
and Crazy prices in Ireland. Its initial expansion lead to high costs and required greater
amount of commitment and risk. With good trading links between Ireland and the UK, it
ensured to carry business on large scale. It has over 106 stores supermarkets and 40 off
licences around Ireland, making it one of the leading food retailers within UK and Ireland.
Tesco’s sales and profits in the international market signify the strong position it currently
holds internationally.
It now makes more than 700 million profits, which is similar to the total profits which the
whole of Tesco made about a decade ago.
Differences in the following factors suggest the need to adapt the firm’s product offering
for international markets ( Kotler et al. , 1996). Tesco’s globalisation strategy is based on
Tesco being a UK retailer need to ensure that it only sell or have maximum products
supplied from Irish suppliers. It also pose threats from International retailers such as
Safeway and Sainsbury’s, with their continuous expansion into Ireland. Tesco’s own
labelled brand products are at stake as they are forced to offer products from Irish
Suppliers. With recent reports and findings it is estimated that total refit and re-branding
to the Tesco label for Tesco Ireland has been $ 50 million.
Competitors Strengths
Tesco is a UK retailer and to globally place it products, it needs to have a good market
control, which does not apply for the Irish supermarkets which are established locally for
a long time.
Tesco was accused of having taken arrogant approach to retailing in Ireland, which in-
turn would benefit the local supermarkets. Most products for Tesco are manufactured in
UK and many local Irish supermarkets already offering local brands have a distinct
advantage over the sales and customer base, as Irish customers are sensitive and unsure
about products manufactured in UK.
Competitors Weaknesses
Tesco being one of the leading supermarket retailers, can easily manage the
business downturn.
Smaller Irish retailers cannot compete with the price; product range and customer
service which Tesco’s offer.
Tesco’s carry business with strategy and extensive market research with most Irish
has the same tastes to their UK counterparts. It aims to bring down prices so as
to provide lower price products to Irish Consumers.
Many of UK businesses operating in Irish Market, whereby it’s the best place for
Tesco to exploit as the Irish market is underdeveloped and Tesco’s expansion plan
can be a success.
To survive in the Irish market, Tesco needs to create a good rapport with Irish suppliers
and consumers and have to offer constant and better quality services at all times. It needs
to have a strategy for Cost cutting in relation to product manufacture, advertising and
product design. Tesco’s expansions have been successful only due to its extensive market
research, which provides all the information about the local market internationally. It helps
create a better channel between consumers and customer service. With better
implementation of strategy, planning and control, it adversely increases the profits and
growth of business.
One of the major advantages Tesco holds is to provide higher quality and more reliable
products globally; Tesco needs to keep this strategy intact if it wants to capture Irish
market. Tesco not only offers its own brands but also other branded products which give
a comparative scenario for the customers to choose among the complete range of
cheapest and finest products. 9. 1 Present strategy adopted by Tesco: Tesco has been
quiet successful in the Irish market and with recent research revealed, Tesco is the only
international retailer in Ireland which gives specific guarantee in relation to the products
it purchases from Irish suppliers.
However, the marketing strategy for both, Tesco UK and Tesco Ireland are very much
similar. Its extensive research has lead to following important factors or strategy they
need to keep intact:
There are other strategies which also have impact on success, place of business, loyal and
committed employees, good rapport with Irish Consumers, and committed to providing
better services so as to meet demands of the customer. With Tesco living up to their
advertising strap line of “Every little helps”, consumers have not only rely on them for
cheap provisions but for increasing number of goods and services – from TVs to Insurance,
deckchairs to mobile phones and now with the inclusion of their own brands this will not
only enhance its market growth but will also have an impact on consumer position.
With current market scenario and with large consumer base Tesco will look forward to
offer products and services with a new paradigm, which will increase the competitive level
in the Irish market, which is yet to be exploited. However, establishing financial market in
the Ireland would not be easy and might take good number of years, but Tesco needs to
first have a strong base and concentrate on the current strategy, which is Tesco Ireland.
Finally, Tesco needs to adapt to the Irish market rather than assuming Ireland as an
extension of business for Tesco UK.
Appendix
Tesco Personal Finance key facts Over 5 million customer accounts 28 financial products
and services Over 100 Tesco Travel Bureaux Over 2. 2 million credit cards in circulation
Over 1. 1 million in-force Car Insurance policies Over 440,000 Home Insurance customers
Over 660,000 Pet Insurance policies – 2nd largest in UK Good value, instant-access
savings products, with customers’ savings protected by our banking license Over 2,500
ATMs issuing over 1. 6 billion per month 6th largest UK car insurance book 8th largest UK
credit card issuer Source: tescocorporate. co. uk, 2009).