Tesco Ethical Issues

Keywords: ethical issues in tesco

Tesco is a leading superstore chain in UK and also the third largest retailer in the world headquartered in Cheshunt, UK. Tesco established itself as the 3rd largest retailer in the world after Wal-Mart and Carrefour. By the middle of 2010 Tesco has 4811 stores world wide and 472000 employees and made £62.5 bn group sales. Tesco perform their business with a motto of “Every Little Helps”.

Chapter 1:

Background Analysis:

Tesco was founded by Jack Cohen. Jack Cohen served with the Royal Air Force during the First World War. Once he returned form war at 1919, he invested 30 pound to buy surplus food stockpiles and opened a little stall in east London. On his first day he had £4 turnover and £1 profit. Jack Cohen started selling his firs own brand product in 1924 and that was Tesco Tea. The name Tesco came from the initials of TE Stockwell who was a partner in the firm of tea suppliers and CO from Jack’s last name. In 1929 Jack Cohen opened his first Tesco store in Burnt Oak, Edgware, and North London and in 1932 Tesco Stores Limited became a private limited company. Two years later Jack Cohen bought a plot of land at Angel road, Edmonton North London to build a new headquarters and warehouse which was the first modern food warehouse in the country and introduced new ideas for central stock control. Later on to ensure fresh vegetables for his trade he bought three acres of land with greenhouses and 9 acres of field in Cheshun and Hertfordshire for growing cucumber, tomatoes and fruit trees. In 1947 Tesco Stores Ltd floats on the Stock Exchange with a share price of 25p. The first Tesco self service supermarket was opened in 1956 in a converted cinema in Maldon.

Lines of Business:

Tesco is a superstore giant who sells almost every necessary things for our day to day life. It is mentioned in Tesco website that some of the Tesco stores stock up around 40000 product lines to meet the expectation of the customer. Below I have mentioned some of the common product line in Tesco I found in Tesco website:

Groceries: Grocery section includes hundreds of cooking product along with health and beauty including red and white wines.

Electrical Goods: PC, PC accessories, Speakers, Camera, MP3 players, DVD players, photo printing, audio accessories, projectors, Television, radio, mobile phones & accessorizes etc.

Home and electrical: Washing machine, steam generator iron, heating, kitchen appliances, kettles, toaster, coffee machines etc.

Furniture & kitchen: Sofas, armchairs, beds, mattresses, kid’s furniture, bathroom accessories.

Clothing & Jeweler: Jeweler, watches, diamonds, rings, clothing.

Garden: Garden sheds furniture, garden storages, green houses, BBQ & dining, lighting & heating, pressure washers.

Baby & Toddler: Bay toys, bathing, changing & nappies, car seats, maternity, carriers & accessories.

Banking & Insurance: Car and home insurance, loans, credit cards, mortgages, gas & electricity etc.

Chapter 2:

Business strategy:

Tesco has a well-established and consistent strategy for growth, which has allowed Tesco to strengthen their core UK business and drive expansion into new markets. Tesco has continued to make good progress with their strategy, which has five elements, reflecting their four established areas of focus, and also Tesco’s long-term commitments on community and environment.

The objectives of strategy are:

1. To be a successful international retailer
2. To grow the core UK business
3. To be as strong in non-food as in food.
4. To develop retailing services – such as Tesco Personal Finance, Telecoms and Tesco.com
5. To put community at the heart of what we do.

To be a successful international retailer:

Tesco’s International Strategy:

The full emergence of international retailing is not something that will happen overnight – it requires a long term approach.

With more than ten years of experience overseas, Tesco has evolved a strategy based on six elements:

Be flexible – each market is unique and requires a different approach

Act local – local customers, supply chains and regulations require a tailored offer delivered by local staff.

Maintain focus – Tesco understand that customers want great service, great choice and great value. To become established as the leading local brand is a long term effort.

Use multi-formats 

Develop capability – it’s not about scale, it’s about skill – so we make sure we have capability through people, processes and systems.

Build brands 

To grow the core UK business:

Tesco’s approximately 70% group sales & profits come from UK business where Tesco has got 2,200 stores and 285, 00 employees.

Sales of non food which is a key part of Tesco’s strategy contribute to the overall UK growth.

Store Formats: Tesco has four different store formats

Express -up to 3,000 sq ft

Metro- approximately 7000-15,00 sq ft

Superstore- approximately 20,000-50,000sq ft

Extra- approximately 60,000 sq ft and above..

To be as strong in non-food as in food:

Tesco’s aim is to be as strong in non-food as in food which means providing customers same great quality, range, price and service as they do in their food business.

Ranges and value: All the Tesco stores including small express sell some non-food item where as the extra’s and homeplus offer a great variety of choice of non food item such as BBQ and garden furniture’s.

Clothing: Tesco clothing brings fashion at a fantastic price. About one in seven Tesco customers have bought from clothing collections.

To develop retailing services – such as Tesco Personal Finance, Telecoms and Tesco.com:

Tesco is concerned about their growing number of different types of customer and their needs, therefore Tesco offer to their customer more than one way to shop.

Tesco Personal Finance (TPF)

Tesco.com

Tesco Telecoms.

To put community at the heart of what we do:

The Community Plan in each country is based around Tesco’s community promises – actively supporting local communities; buying and selling products; caring for the environment; giving customer’s healthy choices and good jobs for local people – and reflects the needs of the local communities.

Chapter 3:

Mission Statement/Statement of Values:

Mission statement is a unique purpose that sets a company apart from other companies and identifies the scope of its operation. It describes about the business, customer, and value of the customer and where the company wants to be. Tesco’s mission statement describes below

“Our core purpose is to create value for customers to earn their lifetime loyalty.”

This statement describes that Tesco emphasize more on customer satisfaction. It clearly categories their motivation towards excellent customer service and offer great value to the customers so they can rely on Tesco. It also describes that Tesco’s success depends on the people who work with them and shop with them. If customers like the offer, they will more likely to come back and if employees finds it rewarding they can motivate themselves for that extra mile to help customer. Which is expressed as two following values:

1. No one tries harder for customers.
2. Treat people as we like to be treated.

Environmental analysis:

Environmental analysis is the assessment of the possible effects of the external forces on which the organization survival and growth depends. The environment analysis can be divided in to two sections, one is Remote Environmental Factor on which the organization or company doesn’t have any control and another is Industrial Environment Factor on which the organization has got some control. Remote Environmental Factor includes political, economic, social, technological and ecological factors which can influence Tesco’s business as described below.

Political issues:

Taxation policy – The business of any company effects directly by this policy. If the government increases VAT, ultimately price of almost every product of Tesco would go up.

Exports imports policy – if government changes any export import rules, it might affect Tesco’s business

Government stabilities – Tesco should carefully inspect the political stability of any country before they plan to expand to. Changes in government can cause to changes in taxation and legislation.

Economic Issues:

Petroleum price- Tesco has 4811 branches world wide. Tesco have to deliver products from store to store quite often and the delivery cost much more depends on petroleum price. So increase of the petroleum cost will affect their business.

Currency exchange rate- Currency exchange rate would affect their export and import business.

Economic Growth – If economic growth gets low their sells will fall down, customer would prefer to save money instead of spending money on buying.

Social Issues:

Social religious belief- Tesco should respect local social and religious beliefs and their needs in order to control market.

Attitude to work – Tesco has to find area where local population have high attitude to work. So the recruitment process will be easy and also staff turnover will be low.

Technological Issues:

High-speed data communication Internet- For the business like Tesco it is very essential to have high speed data communication for making the regular sales report keep updated with the product price from a central work place.

New materials and processes- Newly added self service machines in many of the store has reduced the waiting time for the customer in the queue.

Ecological issues:

Factor caused by weather or climates- Factor caused by weather or climates effects business a lot. It can forecast about their sales and order requirements.

Chapter 4:

SWOT Analysis:

A SWOT analysis will help to reveal exactly what Tesco is doing & will also help to perform their accurate decision making. This SWOT analysis will give us a clear idea on what the company is good at & which areas they can improve more & put more attention to achieve their goal.

Strength, Weakness, Opportunity & Threats (SWOT) is described below:

Strengths:

• Tesco is one of the leading retailers in the world with having more than 30% grocery market share in UK.
• Tesco is strong in both food and non food item. Tesco’s market for non food is worth approximately £75 billion in UK.
• Increasing growth of their online business made Tesco to be the largest grocery online retailer in the world with having over 450000 users.
• Tesco has 30% of their store outside UK & planned to make it 45% by the end of 2010.
• Tesco planned to become carbon neutral company by 2050. Eventually for which every new store cost 30% more to build, but significantly it uses 50% less energy.

Weaknesses:

• Failure to dominate the city centre in UK, where other competitors are doing literally well.
• Tesco is comparatively new in insurance and phone market.

Opportunities:

• New location and store type will allow Tesco to take advantage of market development.
• Tesco’s small stores “Express” idea will help them to expand their business more quickly.
• Tesco can merge or form a strategic alliance with another company in areas where Tesco is not doing very well but could do better with the expertise of a specialised company.
• Tesco’s new launched drive through service is a new attachment in retail world which will bring more customer satisfaction & bring variety in their services.

Threats:

• Other competitors.
• Location war
• Tesco is getting too big day by day and driving out the competition. So the government and mergers competition can put Tesco in trouble.
• Comparatively cheap product price might cause doubt for the customer about the product quality of Tesco.

Chapter 4:

Strategic model:

Michael Porter describes a business strategy category scheme where there are three general types for achievement and maintenance of its competitive advantage. The three types are

1. Market Segmentation
2. Differentiation
3. Cost leadership

Cost leadership more focused on having lowest price compare to other organization in the market while still achieving high return on investment.

A differentiation strategy is mainly focused on producing product which is preserved through out its industry as unique.

Another strategy is Market segmentation which is more focused on different type of product for different market.

From the mentioned three strategic levels I would recommend Tesco to take cost leadership strategy model. Cost leadership is more focused on having lowest price with the target of making high return on investment (ROI). The main goal of cost leadership is to produce less expensive but same quality a product which is already exists in the market. This strategy is generally related with large-scale businesses which offer “standard” products with moderately little changed but completely acceptable to the most of the customers. As Tesco is a big company and one of the market leaders in retail business so they have to face such challenges to bit their budget. Tesco is not the only company who is involved with retail business but they have got strong competitor. For competing with them and make more profit they have plan for proper strategy based on market research. After the current recession in the world most of the peoples buying capability is decreased. So in this time if any company offer quality product but in cheap rate then the maximum customer would go for that company. Which just will not make Tesco beneficial but also bring customer satisfaction. This will encourage customer to spend more as well. For example if some other company sell coca cola multi pack can in £2.95 where Tesco sells it in half price, then most of the customer would go for Tesco as they are getting it cheaper but same quality. Here it seems Tesco is making less money but strategy will show that they are actually making more profit as majority of the people would go for cheap price and that little profit would make higher revenue.

Chapter 5:

Key performance indicator (KPI):

Key performance indicator (KPI) helps any organization to measure progress towards its major long term goal. KPI is used by organization to evaluate its success. Some key performance indicator (KPI) of Tesco plc is given below:

UK market share:

As a market leader in the retail business Tesco is always conscious about their market share. By the middle of 2009 Tesco’s total UK market share was 22.2% in grocery and 8.8% in non-food item which was respectively 21.8% and 8.5% in 2008.

Employee retention:

Employee retention shows the percentage of employees who have stayed with Tesco for longer than one year. Tesco use this measure to monitor employee satisfaction and loyalty and they always aim to exceed 80%. One statistics shows that employee retention for Tesco was 84% in 2008 and by 2009 it raised to 87%.

Reduction in CO2 emissions:

This measure shows the overall reduction in emissions from energy. It excludes refrigerant gas emissions. It shows the average reduction in emissions intensity of all new stores built since 2006/7. Carbon trace reporting is assured by Environmental Resources Management (ERM).

Information requirements for the various managerial decision making levels:

Level of

management

Type of decision

Type of IS required

Benefits to organisation

Strategic

Level

Planning

ESS – Setting 5 years sales forecasting system

Better plan for the future

Budgeting

ESS- Financial system for both government and shareholders.

Better budget allocation

Reporting

ESS- yearly sales reporting system

Better prediction about the revenue

Monitoring

ESS- Develop the relationship system between company and customer.

Bring more customer satisfaction.

Level of

management

Type of decision

Type of IS required

Benefits to organisation

Management

Level

Monitor

MIS- Employee management system

Checking the benefit of employee

Monitor

MIS- Management system of the product

Checking the progress of the product.

Store performance report

DSS- Produce quarterly report of shrinkage and sales

Gives clear idea about sales

Improvement

DSS- Apply new system for the company

Better information

Level of

management

Type of decision

Type of IS required

Benefits to organization

Knowledge

Level

Designing

KWS- Apply a new design for the store

Have superior looks of the store

Marketing

KWS- Applying a new marketing system

Get better market share

Selling

KWS- Applying a new sales system

Have modern and improved sales system.

Level of

management

Type of decision

Type of IS required

Benefits to organisation

Operation Level

Sales

TPS- selling system

Improved control over sales data.

Stock

TPS- Stock counting system

Knowledge about the market

Employee Expense

TPS- Employee schedule and salary

Knowledge about the employee expenses.

Promotion

TPS- Apply a new system for promotional package

Knowledge about customer and bring customer satisfaction.

Chapter 6:

Competitive edge:

Tesco use various information systems in their different decision making level. One of the important decisions they make is about their customer as how they earn their customer’s life time loyalty, how they can encourage customer to shop with Tesco.

Therefore they use Executive Support System (ESS) to monitor and improve their relation between customer and Tesco. In my opinion this customer relationship management would give them a competitive edge as Tesco is always keen to improve their relationship with customer.

Customer Relationship Management (CRM) is a strategy for managing an organization or company’s interaction with the customer. It can be achieved by extending lifetime, breadth and depth of the relationship with the customer, identifying loss-making relationship and terminating.

CRM software for Tesco:

Tesco is using CRM software vendor RightNow which they adopted newly in their call centres to support its electronic division, Tesco digital. This system will allow them to manage a customer interaction via phone, email or chat.

Club card:

Club card is a card provided by Tesco to their customers to gather points based on their shopping amount. This is another decision of Tesco which encourage customers to shop from Tesco more and more. Thus Tesco builds strong relation with their customers.

Tesco encourage every customer to sign up for club card. Once they sign up for club card they are eligible to collect 2 points in every pound spent. Every 100 points is equivalent to £1. After the end of every statement they will receive voucher according to their gathered points and they can use vouchers in any Tesco stores or online. Thus Tesco make strong relationship with their customers.

Chapter 7:

Ethical issues:

As a founder member of Ethical Trading Initiative (ETI) Tesco use the ETI base code which includes employment is freely chosen, freedom of association and the right to collective bargaining are respected, working conditions are safe and hygienic, child labour shall not be used, living wages are paid, working hours are not excessive, no discrimination is practised, regular employment is provided and no harsh or inhumane treatment is allowed. More over They have successfully accomplished Fair Trade commitment for their farmers.

There are different types of ethical issues of Information System in order to create understanding of IS ethical issue. Tesco has approximately 472000 employees and they hold lots of their personal and financial information. Tesco is following the data protection act 1998 and strongly committed to keep that information private and should not sell to other third party.