Introduction
The UK's food and retail industry has grown tremendously over the past decade. As noted by Fernie, Sparks and McKinnon (2010), the UK's retail industry is very competitive, and the firms operating in it must formulate unique business strategies to remain relevant in the market. Similarly, the emergence of the global retail outlets such as Walmart in the UK has made the industry more competitive. To meet the current customer’s needs and outperform competitors, a firm must be very creative in its strategy formulation to ensure that it offers the best quality at affordable prices. Tesco PLC is one of the largest food retailers in the UK with its headquarters in Hertfordshire (Desjardins 2010). Globally, Tesco is the second largest food retail after Walmart. The company was established in the year 1924 by Cohen, and its first store was opened in Middlesex in the year 1929 (Desjardins 2010). By the year 1973, the company had opened over 60 stores. Currently, Tesco PLC operates over 2,318 stores globally out of which 1,878 are located throughout the UK. Besides the foodstuff and non-food items, Tesco offers other services such as personal finance. Tesco’s online businesses are conducted by Tesco.com, tesco.net, and tescodirect.com. The objective of this essay is to evaluate Tesco's business strategy. The essay is structured into five key sections. The introduction and structure of the essay are represented in the first section. Tesco's current business strategy is explained in detail in the second section. Section three discusses the evaluation of Tesco's business strategy covering areas such as SWOT analysis, PESTEL analysis, and Porter's Five Forces. The new proposed business strategy to help the company achieve its current and future objectives is discussed in the fifth section. A comprehensive summary of this essay is provided in the last section.
Tesco’s Current Business Strategy
According to Desjardins (2010), Tesco has managed to record exception performance globally because of its current marketing and management strategies. Early in the year 2000, Tesco introduced its loyalty card with the brand ‘Club Card’ whose aim was to provide discounts to those customers who repurchased various items. More importantly, the loyalty card helps management to study customers’ behavior triggered by the loyalty points. The other benefit of the loyalty card is that it helps the company track buyers’ data that used at managerial level to study customers’ purchasing behavior (Fernie, Sparks and McKinnon 2010). Additionally, the data collected by management using the loyalty card helps management in planning and setting promotional targets. The data collected using the loyalty card program also helps management in changing the customers’ layout to increase the level of convenience (Fernie, Sparks and McKinnon, 2010). It is also vital to note the discounts provided through the use of the loyalty card program creates a good relationship between Tesco and its customers globally. Therefore, Tesco has managed to link its marketing strategy the use of the loyalty card program with its operational strategy because the company has been able to record increased sales. To boost sales besides the use of loyalty price cards, the company has improved its delivery systems through the explosive innovation of its supply chain to ensure high-quality customer delivery (Fernie, Sparks and McKinnon 2010).
The current rapid expansion of Tesco’s operations is attributed to its unique management strategy. For instance, Tesco has strategized in venturing with local partners to enter into a new market. As noted by Desjardins (2010), the local partners have a better understanding of the local customers' preferences and trends. Therefore, Tesco's strategy of venturing with the local players before fully setting its operations in the foreign countries has helped it to succeed in its operations. One major merit of venturing with the local players I that it helps the company to understand better the local market before the company does massive investments. For instance, before entering the Korean and Thailand markets, Tesco joint ventured with Samsung Group Pokphand companies to get a better knowledge of those new market (Fernie, Sparks and McKinnon 2010). Additionally, Tesco considers devoting its efforts to the countries where it has a strong market position. For instance, Tesco considered selling its business to Taiwan where it was making losses to purchase Carrefour stores in the Czech Republic where it had a strong market position. Such management strategic approach has helped Tesco from incurring Further Losses (Desjardins 2010).
Evaluation of Tesco’s Business Strategic Analysis
SWOT Analysis
Strength of Tesco
Based on the 2010 monitor data report, Tesco controls over 30% of the UK’s food and retail market (Desjardins 2010). Additionally, Tesco operates in many countries with over 4,331 stores. Secondly, Tesco has a strong financial position, and this enables it to conduct regular advertisements and promotions to familiarize its brands to the customers (Desjardins 2010). Further, Tesco has put in place a strong strategic business model. The strong business strategic model ensures that the business operations are effective and efficient in meeting the demands of customers, suppliers, and stakeholders of the company. Similarly, Tesco has an efficient research and development center that helps in developing new products that meet the changing customer tastes and preferences (Desjardins 2010). The other strength is that Tesco introduced a strong loyalty program in which customers are given both food and non-food items at discounted prices. The loyalty program is a strength because it has helped the company to a larger market share.
Weakness
According to Burt, Sparks and Teller (2010), the weakness of any company is represented by the internal factors that slow down the growth of the company. Tesco has invested heavily in Europe and the UK. For instance, 70% of its revenues are collected from the UK and European markets (Burt, Sparks and Teller 2010). This implies that Tesco has not embraced geographical diversification. Lack of geographical diversification can be detrimental to the company in situations of financial crisis. Additionally, compared to the other well-established supermarket chains in the UK, Tesco's product pricing is slightly higher and this is a big weak point (Desjardins 2010). Further, Tesco incurs higher transportation costs because it delivers its products to remote locations where it has not established stores and this in the long-run affects its profitability.
Opportunities
The emerging economies such as China, South Korea, Brazil and South Africa are proving expansion opportunities for Tesco (Desjardins 2010). For instance, Tesco is geographically diversifying to the Asian Market. According to Burt, Sparks and Teller (2010), diversification is key when the company wants to reduce risks and maximize on profitability. Additionally, geographical diversification will help Tesco to enjoy economies of scale that will help it reduce its production costs to enable it to enjoy cost advantages. Further, there are increasing opportunities on the online platforms (Burt, Sparks and Teller 2010). Tesco has introduced tesco.com and tescodirect.com to capture the online growing opportunities. Tesco has more than million online customers, and the company can triple this number to increase its revenue collection in the long-run (Desjardins 2010).
Threats
Tesco's most stores are located in the UK and Europe, and this poses a risk of slow growth. In the past few years, the European countries have experienced financial crisis (Keller, Parameswaran and Jacob 2011). For instance, Greece's level of national debt was very high, and this negatively influenced the business operations. Due the financial crisis, Spain's level of the unemployment rate has risen to 26%, and this impacts negatively on the demand for food and other retail products. Additionally, the food and retail industry in the UK is very competitive due to the establishment of well retail chains (Desjardins 2010).
PESTEL Analysis, UK
Political and Legal Factors
The political environment under which Tesco operates cannot be overlooked because it plays a significant role in determining whether its business strategy succeeds or not (Desjardins 2010). Firstly, the country's political environment is a key factor that will determine the conduciveness of the business operations. In the UK, the country has enjoyed a favorable political environment for some years. Further, it is essential to note that Tesco is a multinational entity that operates globally, and the political and legislative regulations of the respective countries determine the company's success (Fernie, Sparks and McKinnon 2010). In Europe, the company operates in six countries in which there are varying political environment. Besides Europe, Tesco has ventured into other countries such as China and Korea whose political affiliations are not the same (Fernie, Sparks and McKinnon 2010). For instance, the employment legislations are determined by the politics of the respective countries where the company operates. Therefore, the wage rates differ from country to country, and it is essential for the company to consider such factors before implementing its business strategy. In the UK, it is fundamental for retailers to ensure flexible working hours for the employees. Additionally, retailers are required to adhere to the set wage rate limits, and any violation will lead to severe implications to the retail outlet in involved in the multi-practice (Fernie, Sparks and McKinnon 2010). Since Tesco understands the implications of political environment on its operations, the company modifies its business and operational strategy to ensure that it complies with the local political environment to avoid any unanticipated business disruptions.
Economic Factors
As noted earlier, the UK's food retail industry is very competitive, but there are some economic factors that either favor or threaten the operations of Tesco. For instance, in the years 2008/2009, the financial crisis that occurred negatively influenced the operations of Tesco (Desjardins 2010). For instance, the rate of inflation increased and this greatly discouraged sales due to the falling demand. Additionally, due to the influence of technological advancement and globalization, there has been an increasing number of new entrants that have influenced the pricing of the retail food products in both the UK and globally. Further, the rate of interest differs from one country to the other (Desjardins 2010). When there is an increase in the interest rates, the demand for Tesco’s products drastically drops.
Social Cultural Factors
The changing demographics is significantly influencing Tesco's business strategy. For instance, in the UK, there is an increasing percentage of the older people as compared to the young people (Burt, Sparks and Teller 2010). The changing demographics implies that there is a continuous change in tastes and preferences for the retail products. Additionally, the tendency towards healthier and fresh foods is influencing Tesco’s business strategy. The company has to ensure that most of its food products are natural, have low fats, and have less sugar and considers other health related concerns before they are put in its stores (Burt, Sparks and Teller 2010). Many people are becoming more conscious of their health, and this has greatly influenced business operations in the food retail sector not only in the UK but globally. Therefore, Tesco has conducted extensive research on the changing trends in tastes and preferences of various customers globally to ensure that it remains relevant in the market.
Technological Factors
According to Desjardins (2010), there is a rapid explosion of innovations in the food retail industry triggered by the advancement in technology. For instance, online shopping has become a norm in both developed and developing countries. People are becoming more time conscious and would not like to waste time physically going to the supermarkets to obtain their shopping routines. Nowadays, due to the advanced technology, people can comfortably shop food products from the comfort of the houses and offices (Desjardins 2010). To catch up with this technological development, Tesco established online shopping platforms such as tesco.com and tescodirect.com to ensure that its customers are well served. Through online shopping, the Tesco's client are assured of comfort, flexibility, and convenience since the company has established standardized delivery systems to ensure that the ordered products are delivered promptly (Desjardins 2010). The company has also computerized most of its business operations such as accounting and employee management to ensure higher levels of efficiency. Further, the company has implemented the latest warehouse management system software to ensure that the stored products are easily traced and delivered to the appropriate customers. According to Desjardins (2010), any company that maximizes the use of technology will have a competitive advantage and that exactly what Tesco has done.
Environmental factors
There have been increased campaigns globally on the reduction of environmental impact (Burt, Sparks and Teller 2010). For instance, there is greater advocacy for the use of greener production and disposal methods to ensure environmental conservation. The greener technology plays a significant role in ensuring that there is reduced carbon emissions (Burt, Sparks and Teller 2010). Carbon emissions endanger the life of the ecosystem. Therefore, the UN has come up with policies that will ensure reduction of carbon emissions (Samy, Odemilin and Bampton 2010). The UK and other countries where Tesco operates have formulated strategies aimed at ensuring that all organizations adhere to standards that do not violate environmental laws. For instance, in the year 2003, the UK started to encourage companies in the food retail industry to practice environmental friendly food consumption and manufacturing norms (Burt, Sparks and Teller 2010). In its corporate social responsibility, Tesco has put in place mechanisms to ensure that it its operations do not impact negatively on the environment. However, observing the environmentally friendly practices are costly because the company has invested more in greener technology. Despite the expense associated with environmental regulations, Tesco has ensured that it complies with the set regulations to promote its reputation and image.
Porter’s Five Forces
Bargaining power of competitors (High)
Sincere there are more than five well-established supermarket chains in the UK (Tesco, Asda, Sainsbury, Morrison, and Winrose), the rate of customer switching from one supermarket to the other is very high (Desjardins 2010). For instance, if customers feel that Morrison is charging more price than others, they will shift to other supermarkets charging lower product prices. However, before shifting, the customers tend to check both the quality and product price, Therefore, if other supermarkets are offering the same quality at lower prices, customers will consider shifting (Desjardins 2010). Therefore, the bargaining power of customers in the UK’s food and retail industry is relatively high.
Bargaining power of the Suppliers (Low)
The suppliers' bargaining power in the UK's food and retail industry is low. The respective supermarkets have signed contracts with the suppliers, and this prevents the suppliers from shifting to other chains (Fernie, Sparks and McKinnon 2010). For instance, some suppliers fear that they might lose their contracts if they shift to other retailers. However, suppliers will always be keen on the growth levels of the retail chains to ensure that they will be assured of contract renewals.
The Threat of New Entrants (Low)
In the UK, the threat of new entrants is low. The capital required to venture into the food retail industry is huge (Desjardins 2010). For instance, to establish a competitive food brand in the UK requires extensive research and development that requires a huge amount of money. Additionally, competing with the few well-established brands such as Tesco and Sainsbury is difficult because they have captured a significant percentage of the food retail market (Burt, Sparks and Teller 2010). For instance, Sainsbury, Tesco, Asda and Morrison food retail supermarkets already control over 80% of the UK's food retail market. It, therefore, implies that the new entrants will only struggle with the 20% of the market which is currently dominated by the small food retailers (Burt, Sparks and Teller 2010). Based on the nature of the UK's food retail industry, it is difficult for the new entrants to influence the current business strategy of Tesco. Additionally, there are strict regulations on the UK's food retail industry that require the entrants to adhere to high health standards. Such strict regulations also prevent new entrants to the industry. Therefore, the threat of the new entrants in the UK's food retail industry is relatively low.
The Threats of Substitutes (Low)
In the UK’s food retail industry, the threat of substitutes is usually low for food items and medium of other products (Burt, Sparks and Teller 2010). Despite that there are small chains that provide food items, Tesco's brand is highly recognized in the UK, and therefore, the small chains offering substitute products do not pose a significant threat to its operations. For the non-food items, Tesco remains the best brand because most of the products are discounted for those customers who hold loyalty price cards. Therefore, most customers will still prefer to make their purchases at Tesco and the other few established supermarkets such as Asda. Therefore, it is difficult for customers to shift to substitute products (Burt, Sparks and Teller 2010). Additionally, Tesco has established its stores in every part of the UK to ensure that its customers can access the products easily and their convenience. Similarly, Tesco has ventured fully into online shopping to reach quickly their customers, and this prevents the customers from opting to substitute products.
The Rivalry from Within (High)
The competition from within in the UK's retail industry is very high. The few established firms such as Tesco, Sainsbury, Asda, Morrison, and Winrose are continuously inventing new ways to attract customers from their respective competitors (Burt, Sparks and Teller 2010). The respective supermarkets have introduced various promotional programs to attract customers. The competition continues to become severe each day as companies within the industry are working on price reduction strategies to gain a larger market share. Therefore, Tesco has an uphill task to ensure that it maintains its customers (Burt, Sparks and Teller 2010). The introduction of loyalty cards has greatly helped Tesco to hold its customers from the competitors. Similarly, Tesco has ensured that excellent customer service is part of its business strategy to ensure that it maintains its customers.
The New Proposed Business Strategy
According to Fernie, Sparks and McKinnon (2010), for a company to remain competitive ahead of its rivals, the company must always formulate new strategies. Based on the current competition, Tesco must formulate and implement another strategy to ensure that it acquires a larger market share. The new proposed strategy for Tesco is Cost Leadership and Differentiation (Desjardins 2010). There is a need for the company to work on modalities that can further reduce its production costs to ensure that it enjoys cost advantages. Currently, Tesco's product prices are slightly higher than those of the competitors, and this is a weak point that discourages sales. To attain and implement the cost leadership strategy, Tesco will have to strive at reducing its operational costs. For instance, the company will work on reducing its transportation costs to ensure that the products are priced competitively (Desjardins 2010). In general, the management Tesco will have to control or eliminate any avoidable expense to help it reduce its product prices. Additional to the cost leadership strategy, the company should embrace differentiation to ensure that it offers unique products to the market.
Conclusion
Tesco is among the largest food and retail outlets in the world. However, to remain competitive, it is vital for the company to review continuously its strategic analysis to ensure that it matches the current and future market demands. Additionally, the company will need to take advantage of the emerging opportunities to increase its market share. For instance, the company will have to invest more of geographical diversification and online shopping. Additionally, Tesco will have to work on its weakness to improve its strengths in the market. To address the current and futures needs, Tesco should adopt new strategies such as cost leadership and differentiation to acquire a larger market share. To attain cost leadership, Tesco will have to control its operational costs effectively. Additionally, to offer unique products, the company will have to invest more on differentiation.
Reference List
Burt, S., H., Sparks, L., and Teller, C., 2010. Retail in the UK-a synopsis. In European Retail Research (pp. 173-194). Gabler Verlag.
Desjardins D. (2010) Tesco strategies turn up competitive heat in the UK, DSN Retailing Today, 2/28/2005, Vol. 44 Issue 4, pp.4-6;
Fernie, J., Sparks, L. and McKinnon, A.C., 2010. Retail logistics in the UK: past, present, and future. International Journal of Retail & Distribution Management, 38(11/12), pp.894-914.
Keller, K.L., Parameswaran, M.G. and Jacob, I., 2011. Strategic brand management: Building, measuring, and managing brand equity. Pearson Education.
McDermott, M.C., 2010. Foreign divestment: The neglected area of international business?. International Studies of Management & Organization, 40(4), pp.37-53.
Samy, M., Odemilin, G. and Bampton, R., 2010. Corporate social responsibility: a strategy for sustainable business success. An analysis of 20 selected British companies. Corporate Governance: The International journal of business in society, 10(2), pp.203-217.
