- Deriving future strategic recommendations for TESCO in the UK using the SWOT analysis and the PESTEL framework
Introduction and Explanation of the Methodology of the Paper:
The retail giant TESCO is currently facing difficulties all around its home – base in the UK (Ruddick, G. 2014a). Its share prices have been dropping, its losses are higher than even expected, an accounting scandal and leadership changes are shaking a company, which, as if this all had not been enough yet, is suffering from very low customer satisfaction rates (Ruddick, 2014). Within this paper it is intended to use as a major methodology two key tools out of classic strategic analysis, the PESTEL framework and the SWOT analysis, involving all key factors around TESCO’s past, current and potential future business operations and activities as well as externalities, and finally, to derive strategic recommendations for TESCO to secure its future success.
PESTEL – Analysis of TESCO, UK.
Socio – cultural Factors:
TESCO is troubled at its home market in the UK with a massive drop in like – for – like sales by 4.6 Pence for the six months until August 2014. This clearly underlines that both the shareholders and investors are losing confidence in the group. Additionally, today’s customers lifestyles are pushing continuously the eCommerce sector to further success (Retailresearch 2014), as it is indicated by constant growth especially of the giants such as Amazon, a disadvantage of Tesco which is relying on branch structures (Ruddick, G. 2014b). The TESCO brand is currently seriously “compromised” especially due to customers’ dissatisfaction about Quality and Service (Ruddick, G. 2014a).
Technological Factors:
One initiative and currently ongoing idea to become more competitive again towards discounters for TESCO is to lower their prices (Ruddick, G. 2014b) but how will it be possible to both lower operational income and to stay competitive from a technological perspective?
Economic Factors:
The current loss of TESCO is bigger than expected, £250m were lost due to “timing”, but in addition to that, £263m had to be written off, only so far and already, following the current investigations due to the accounting scandal (Ruddick, G. 2014b). Last quarter’s results published seemed unanimously for all experts from the London City not to have sufficient clarity on the next necessary strategic steps for TESCO (Ruddick, G. 2014b).
Nobody knows how much will be the following burdens by this scandal, which now has been around for over six months in October 2014 already and may easily lead to further losses in confidence of the Brand and thus to further loss of reputation with the customers. Chairman Broadbent stepped down and with many analysts seeing the reason for the current crisis in a failure of governance this may not seem as convincing next step to solve the problems. TESCO does not have high – quality governance. Pay outs to former stepped - down Executive are also being hold back, making the company less attractive to Top - Managers (Ruddick, G. 2014b). TESCO is lacking cash – flow and trying to come up with a lot of ways to fix that, mostly bringing its business in Asia to the stock market, or the selling of Dunnhumby, anything that creates flexibility, but currently the company is dealing with rights’ issues that are preventing and may further prevent the planned cash generation (Ruddick, G. 2014b).
The Pension scheme of TESCO, currently one of the last intact ones (for over 300.000 employees in UK) is not bound to be kept and is thus posing a potential long term threat to the economic survival and the future of the TESCO group (Ruddick, G. 2014b).
The planned lowering of prices may have negative consequences such as damaging the Brand, to be seeming desperate in the eyes of the remaining customers, the potential threats by a price war with the ever – since growth enjoying discounters in the UK (Ruddick, G. 2014b).
Political Factors:
If the economic situation of TESCO continues to worsen, it is unsure if government officials can step in to save the company. Other political factors are currently not concerned.
Legal Factors:
When it comes to Legal Factors it needs to be mentioned the ongoing Rights issue which may prevent an IPO of Tesco’s Asian business operations which may prevent the company from making more cash and the major accounting scandal going on since more than six months already with unforeseeable consequences (Ruddick, 2014b)
SWOT – Analysis of TESCO, UK:
Internal Strengths:
TESCO is a strong and well established retailer with wide - spread structures and hard – working employees. It is and continues to be the biggest retailer in the UK. As such, no matter how many external and internal negative factors the company has got to face in these days, it will be very difficult to bring down such a resistant group, which, additionally, still has got high market coverage (Ruddick, G., 2014b).
Internal Weaknesses:
The internal weaknesses of TESCO are numerous and a result of serious wrong steps in the company’s past. Most experts and shareholder associations say the governance is to blame for the current crisis, it all would come down non – flexible, strategic unfit “failure of Governance”. Chairman Broadbent stepped down saying he would be the one to take all the responsibility, but in most cases to change the Chairman is not sufficient. The company and its new Leadership is suffering and needs to get active on a high number of different construction sites in order to save TESCO, in fact they will have to work on Quality, finances, especially generating cash flow, clearing the ongoing scandal and avoiding further scandals, on the marketing and the branding of TESCO.
The currently high prices are making it impossible to stand any chance in a price war with the growing discounters (at least for the next 12 months until October 2015 they will dictate the growth in UK) and their ideas on how to generate cash, among others the planned IPO of the Asian business or the selling of Dunnhumby, all of it, does not sound promising yet (Ruddick, G. 2014b).
External Opportunities:
Just like the many distinct weaknesses, a company of the size and with the established structures of TESCO, has got equally various external opportunities to become successful again. It may revamp the Clubcard business, which, back in the 1990s was a major success for the TESCO group, it may increase its staff numbers and also increase the training of current and new staff, with the overall goal of improving the quality, it may launch media campaigns orchestrating the re branding and re – engineering of the TESCO business. Overall the size of the TESCO business may still have to be shrinked, as in the end it will only be possible to take on the discounters with a clearly defined Pricing Strategy (Ruddick, G. 2014b).
External Threats:
It is today unclear how deep in the end will be the financial and reputational hole inside of TESCO opened by the Accounting scandal and so far nobody knows what will happen , what will come to the surface and how much will the company have to suffer because of this scandal. Equally nowadays there is no clearly defined pricing strategy, as the major object of customers’ dissatisfaction about TESCO, and as long this is not solved more customers may be lost (Ruddick, G. 2014b). Now TESCO is unready to take on the various discounters in a price war, neither is there any clearance about TESCO’s Pension deficit, which may end up a gigantic burden for the company (Ruddick, G. 2014b). In the last part of this report I will now give recommendations for TESCO’s future strategy.
Recommendations derived for TESCO’s future strategy out of the SWOT:
TESCO should better use and also improve its well – established retail structures that will make sure that the company has got the power to get back on track again, in the coming years in an intensive complete re – engineering process of its business accompanied by investing in both staff hiring/development and quality management. Campaigns in the broad Media and in all different markets for explaining these actions to the customers and to the public in general, and thus for TESCO to significantly improve the customers’ satisfaction, are recommended as well. More eCommerce companies shaping the market for the entire Retail industry (Retailresearch 2014) so TESCO needs to improve their connection between Offline/Online Customer experiences as well. Recommended here is finding a well – branded partner from the eCommerce industry to keep costs lower. Nobody is sure what the current Accounting scandal may present to the company, especially in terms of fines and reputation damages, so TESCO need to act as soon as possible and solve the issue, if not avoidable by using money, not to suffer in the years to come in the faces of Lawmakers and eye of the public. The current weakness of TESCO of still comparatively high prices will be transformed into a strength that will go together with the quality improvement measures for customers of TESCO, making the re – engineering process of the business fundamentally more believable, as higher prices, not only in the eyes of the customers, always have stood for better quality.
All discounters according to recent market data all around the UK have experienced strong growth – TESCO cannot win a price war with them – so a strategy of differentiation is recommended in terms of pricing by a clear pricing strategy developed by TESCO Leadership. Governance at TESCO is considered to be a cause for the current crisis, so the new leadership body will need to win back confidence, mostly by a clear distinct strategy. The international portfolio needs to be revised and several parts not making cash need to be sold, other companies potentially supporting the new quality based strategy may have to be added to the portfolio of businesses.
The Pension deficit needs to be observed, as it creates strong reputational damage among TESCO’s employees, and, depending on experts’ opinions may be private pensions need to be further pushed by TESCO Management.
References
Retailresearch 2014. Online Retailing: Britain, Europe and the US 2014 [online]. Published unknown and available at: http://www.retailresearch.org/onlineretailing.php [Accessed December 14th, 2014]
Ruddick, G., 2014a. Tesco brand 'severely compromised', say shoppers. Telegraph [online]. Published October 21st, 2014 and available at: http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11175655/Tesco-brand-severely-compromised-says-new-survey.html [Accessed December 13th, 2014]
Ruddick, G., 2014b. Tesco crisis: Everything you need to know. Telegraph [online]. Published October 23rd, 2014 and available at: http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11181686/Tesco-crisis-what-you-need-to-know.html [Accessed December 13th, 2014]
