Tesco is biggest supermarket

INTRODUCTION

Tesco is biggest supermarket chain in the U.K. it has more than 1700 stores in the U.K alone and has about 2318 stores in the whole world. It also sells its products through online Tesco.com. Tesco is the U.Ks largest retailers which operate through its branches under the name of Extra, Metro, superstore and Express. Political and other conditions of UK and European union has very much influence on the Tesco performance. Tesco employs a large number of students and disable people and elderly people and pays them in most cases lower wages. Consumers are getting to know about health issues and their approach in choosing the food product is increasingly changing. (Ivythesis, 2009)

Tesco has serving more than 40,000 food products including non food items and clothing to its customers. The company’s own products which contribute about 50% of its sales are categorized in three different types Value, normal and finest. As a convenience produce most of Tesco store have gas store and filling stations. It is becoming one of U.K biggest independent filling outlets. Tesco is operating others business as well which includes retail banking, Tesco insurance, Tesco mobile as well. (bized, 2009)

The company is also the first in U.K which allows their customer to pay or cash their cheques at the tills. Tesco has been employing a large number of British people and it facilitating it by allowing the new branded product into Tesco which helps the new companies to grow and employ more people. But recently company realized to look for some other products which are not available in U.K market.

Recently Tesco has been facing stiff competitions from Sainsbury and Asda food giants. The goal of Tesco management is to focus on competitive advantage by adding more value in its products like Tesco has starts giving delivery services to its customers as well.

The business and organizational strategy applied by Tesco has helps the organization to make its core business which is in the UK more strong. It also helps the company to expand its business internationally. These services includes providing the financial services like offering Credit cards, loans, insurance and banking services. There is also a strategy to find the potential market to enhance the market share of the company in Asia, Europe and in United States.

The strategy to explore new market has started in 1997and it has been the foundation of success of Tesco business. There has been a huge expansion in its expansion of operations with the opening of thousands of store for the past12 years has been made possible with the implementation of this strategy, they are having competitive edge over other businesses and are profitable. In fact Tesco is market leader not even in U.K but also outside the U.K as well. (tesco plc, 2009)

1) STRATEGY OF TESCO:

Tesco has been doing business in the stock exchange since 1947 and it was having share price 27 pence in the beginning. It has been keeping on growing and has become a popular name on the High street of the UK. Tesco has a strategy which is describes as Pile it high and sell it cheap but with time as people attitude has been changed and there become a trend in the better interior of stores, Tesco has made huge investments in the refurbishments of its stores and make them very attractive to shop for customers. It has added many value added service and product in its operations. It has start selling petrol and customer gets discount when they buy from Tesco and then they spend money to buy petrol. It has made a huge investment on the implementing of Tesco loyalty card scheme.

1.1 STRATEGY:

Tesco has done well by successfully implementing the four parts of its business strategy.

• A strong UK core business ,
• Non food
• Retailing services
• International

The objectives of this strategy are:

1. To be a successful retailers in the world.
2. To grow the core UK business.
3. To be as strong in the non-food items as in food items.
4. To develop retailing services- such as Tesco personal Finance, Telecoms and Tesco.com.
5. To put the community in the heart whatever we do.

Tesco has taken considerable steps to attract customer with advent of Tesco Extra, Tesco Metro, Tesco Super stores and Tesco Express at town with filling stations. These stores provide all essentials food and non food items at very competitive prices. These stores give a direct challenge to other stores like ASDA, Sainsbury etc.

Tesco has introduced a loyalty club card. Customer gets points from every purchase they made and then they can get product with these points. For Tesco this thing help to get a value data about customer, what is customers buying behavior and how they respond to the sales promotions carried on in the store.

Apart from the product it sells it has worked on the other services as well. It has start providing the Loans, credit cards and online sale of products.

Tesco has taken to expand in other countries like India, Japan, and U.S.A and in Europe as well. It has continuing working on the improvements of services to its customers. In USA it has made a partnership with Safeway Group. (articlebase,2009)

2) ENVIRONMENTAL ANALYSIS:

2.1 PESTEL FRAMEWORK:

2.1.1 Political Factors:

Tesco has stores worldwide and its main business is in UK. These countries includes many European countries. It also has stores in Taiwan, Japan and India as well. Political and other environmental factors of UK and European are having a too much influence on the Tesco performance. These legislations advise to these stores to hire people for different position in the company. These people include the students, disables and senior citizens as well. As local business in the Tesco suffers heavily because of competitions, in order to survive these local stores cuts the jobs so Tesco has hire a large number of People to accommodate them. Tesco usually pays them low wages.

2.1.2 Economical Factors:

Tesco is very much concern to the economic factors because prices and demand gets affected with this. Goods and services are heavily affected if the economic conditions of people is not good and many people are unemployed and it influence the people purchasing capacity so demand for the goods and services will be affected.

Tesco is heavily dependant on UK market, Although international business are growing but Tesco is still dependent on the U.K food market and if the demand for UK food market get slow down then it will badly affect the Tesco performance.

2.1.3 Social/Cultural Factors:

Currently the U.K people trend shows that they prefer to go at that store from where they could get everything. There has been huge demographics changes in the UK population happened i-e ageing people, increase in the number of female workers and declining in the preparations of food in the home, which has force Tesco to sell supporting products and services as well.

Customer’s demands of services and products are created by the change of their social and cultural changes, their beliefs. People are recognizing the hygienic problems.

Tesco is adopting a product mix in order to meet the demand of organic products. It has start mentioning the product with labels on it for people who strictly want to use product which are free from animal’s ingredients. U.K has a diverse population from different cultural background people. Areas which are densely populated with Asian people prefer to go for their traditional foods so keep this thing in mind Tesco management have introduced mostly those products which are in demand in those areas. (321books, 2009)

2.1.4 Technological factors:

Technological improvement has benefited both the company and customers. Goods are readily available in the store which has increased the customer satisfaction and it has become easier to manage the ordering system. Customers get served more quickly than before.

Tesco stores are utilizing the following technologies in their outlets:

• Wireless devices
• Intelligent scale
• Electronic shelves labeling
• Self check out machine
• Radio frequency identification.

By the use of electronic tills and fast fund transferring machine and new scanner has increased the operational activities of the Tesco which has improve the image of the Tesco further. (Finch, 2004).

2.1.5 Environmental factors:

Starting from 2003, managers were under great pressure to look into society issues and adopt policy which benefits for both the society and for the company. (Lind green and Hingley, 2003). In order to prove that company care about society, they need to clearly work about environmental issues. By recognizing this trend Tesco has been working on the environmental issue to prove that it is a socially responsible organization which cares about the environment.

Government has introduced new policies which aim to reduce the waste pollution and encourage the companies to take steps to reduce the pollution. Recently a new legislation has been created in which a heavy tax has been imposed on those products which are not environment friendly. This tax has been directly affecting the Tesco’s products and damaging the relations with suppliers and customers.

2.1.6 Legislative factors:

Tesco performance has been affected by various government policies and legislation. Tesco is bound by law no to take payments from supplier to take order for goods and any such kind of activities. The existence of strong competitors has created a demand of stiff competitions in prices of branded products and a strong demand for product diversification. Government policies to control the monopoly and reduction of buyer’s powers can reduce the chances to enter in this sector with such controls. (Mintel Report, 2004: Myers, 2004). Tesco has been giving discount on buying the petrol to its customers based on amount it spends on the purchase of groceries at the stores. Tesco’s keep the prices on the promotions low while it increase the prices on other products in the store in order to compensate.

3) PORTER’S FIVE FORCES FRAMEWORK:

3.1 Threats of new entrants:

There is four big supermarket which are Tesco, Sainsbury, ASDA, Liddell which makes 75% of total market and Waitrose, Somerfield and Budgens makes about 10% percent of total market. The trend in people of UK has been changed to one stop shopping and they want to get everything at one place so majority of grocery stores has transformed into one stop supermarket. These big supermarkets heavily affects the surrounding butcher and food shops. These big supermarket does not let any new business to come into their area as they give very stiff competitions and starting business in those area are more difficult because of huge capital investment. In order to make a solid position in the UK market, Tesco has been spending a huge amount of money on the development of existing infrastructure.

3.2 Bargaining Power of Supplier:

Suppliers power of bargaining get affected from big store as the supplier fear that if they put their own conditions of bargaining then they might lose it client and will not be able to operate their business. Tesco always negotiate with suppliers to get the best competitive prices and get a better price as compared to small food chains. The UK small food chains also threatened from this big supermarket as they get cheap goods from abroad for their promotional activities. So the relations with the suppliers can have affects on the freedom and margin of the company. (321books, 2009)

3.3 Bargaining Power of Customers:

Tesco club card scheme is very successful in order to retain the customers with Tesco which has increase the profit margin of the Tesco significantly. In order to fulfill the customers needs, the customized services such as lower prices, better choices, constant flow of promotional products and availability of all the product which customers demands enables Tesco to retain its customers. In recent years a huge changes has occurred in the food chain stores due to a change of behavior of customers, So Tesco has started keeping more non food items as well in its stores. It has also provides a strategic expansion of its business into new markets such as retail banking, pharmacies, phone shops.

3.4 Threats of substitutes:

A demand for a particular product can be reduce due to a general substitution because there is always a threat that customer will switch to alternatives (Porter, 1980). Substitute for needs and product for product has been observed in the grocery industry. It is more affected with the new trend. Small stores are opening up in the industry. In this case supermarket like Tesco is trying to taking over the small stores and opening up big stores in town centers. (Ritz, 2005).

3.5 Bargaining Power of Competitors:

Tesco is getting lot of customer information through its loyalty club card and trying to improve its relations with the consumers. In UK food industry, because of high competitive expansions, most of these big stores are taking further steps by investing more money in the information system of the business.

4) CRITICAL SUCCESS FACTORS:

By doing an evaluation of Tesco industry it has become an important to identify the success factors to consider the effectiveness of Tesco.

4.1 Branding and Reputation:

The company is expanding rapidly by working hard on its packaging and spending every penny on promotions which contribute to the environment as well.

Tesco is doing well in the information system applications. By introducing loyalty club card system which has helped the Tesco to get a valuable data about customer’s behaviors about their spending, choices and etc.

4.2 IT integration:

Tesco is always step ahead in applying the new technology and it has become a necessity rather luxury in Tesco’s operations. A system that controls stocks, helping to serves the customers; keeping valuable record of customer’s transactions and ordering system is the lifeline of the Tesco.

4.3 Supplier Management:

To have a competitive position in the market Tesco also get most of its products from oversee countries which are cheaper as compared to UK. Tesco has been supporting British companies for its branded products but recently it has start importing products which are not manufacturing in the UK.

To keep a better communication to get its products on time Tesco has adopted a advance communication system which enables the suppliers to delivers products on time.

5) MARKET OBJECTIVES AND STRATEGIES IMPLEMENTATIONS:

Tesco has plan to introduce two types of strategies, first one will going to focus to explore the market and find new customer with its new products and second one is on the diversifications of products.

5.1 Joint development and joint ventures:

Tesco’s has a long term strategy to focus on the Japan market. In making possible Tesco is making partnerships with local business to enter into the market. By doing joint ventures Tesco will have a economy of scale and has made a good image of its brand name. (Andrew, 2009)

By the entering into partnership with the local businesses in the foreign countries, Tesco will get the necessary skill in order to penetrate in the market. So in future it will be easy for Tesco to operate its operations independently. By doing joint venture with the international companies Tesco will improve its operational skills as well.

5.2 Product Diversification:

UK is diverse population which comprises of different ethnic people from different countries. Tesco can do more development expansion by opening up new stores in those areas where people strictly go for their traditional food, so Tesco can add whole range of products which is in demand in these areas.

6) CRITICAL EVALUATION:

Ro have a sustainable competitive advantage Tesco should apply following strategies:

Firstly Tesco should adopt a strategy of cost leadership by offering goods and services to its customers at low prices in a broad market. This strategy will help the Tesco to reduce its cost, Tesco will be able to sell its products competitively and thus generate huge profit. If Tesco has to adopt another strategy then, It has to offers it products and services with a unique features which customers value it. Then Tesco has to gives some other value added services in technology, competitive price, special features and customer service improvements.

Last strategy of niche is from either cost leadership strategy or product differentiation but focus on narrow market. In order to perform cost leadership strategy Tesco has to work on internal efficiencies that will help Tesco to cope with external pressure. As these both strategies are aimed at broader market, it may be possible than Tesco focus on small market or with a limited range of product. In other words, Tesco may be pursuing the strategy to be a leader in cost and keeping a huge variety in product. This can be done with a specific product in a market or by selecting a specific market for its products.

The problem which many of organizations have that these organization implement all these strategies one time and most of them stuck in middle. But Tesco is very careful when it select a market, they have a clear strategy regarding it. (Wringley, 1988)

7) CONCLUSION

Tesco is a very well established organization in the UK. Tesco apply different strategy in the organization to make the business grows. Its primary focus is to attract the customers and keep the loyal customers attached with the organization. In order to evaluate the customers it has apply different technology process in order to know the customers needs, their attitude and likes and dislikes. It has a specific layout which has been applied in all its branches.

Tesco is investing a lot money on its information technology improvement which has helped it to improve its sales and get a competitive advantage over its competitors.

8) REFERENCES

• Publications from the Tesco preliminary result.2004. [online]. [Accessed on 2 December 2009]. Available from World Wide Web: .
• Publications from the Tesco web site. Tesco plc.2009. [online]. [Accessed 2 December 2009]. Available from World Wide Web: http://www.tescoplc.com/plc/about_us/strategy.
• Publications from 321books web site. Porters five forces model.2009. [online]. [Accessed 5 December 2009]. Available from World Wide Web: http://www.321books.co.uk/catalog/tesco/porters-five-forces.htm.
• Andrew.2007. Article base web site. [online]. [Accessed 5 December 2009]. Available from World Wide Web: http://www.articlesbase.com/sales-articles/success-of-tesco-in-great-britain-163894.html.
• Publications from a article from web site.2006. [online]. [Accessed 8 December 2009]. Available from World Wide Web: http://ivythesis.typepad.com/term_paper_topics/2009/08/tesco-strategic-analysis.html.
• WRINGLEY, N. 1988. Store choice, store location and market analysis. NY (USA). T.J press. [Accessed on 8 December 2009]. Available from World Wide Web: http://books.google.co.uk/books?id=xbYOAAAAQAAJ&pg=PA106&dq=tesco+analysis&ei=xkZDS7naLqXczQTRkZDtDg&cd=1#v=onepage&q=tesco%20analysis&f=false.
• PANDELETON, D. 2004. Tesco’s Steering Wheel Strategy. [online]. [Accessed on 9 December 2009]. Available from World Wide Web: http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/BSTR187.htm.