Description
The food and drink retail sector represents the largest industry in the UK, providing employment for over three million people in primary production, manufacturing and retailing.
Strategic Management of TESCO supermarket: PESTEL analysis,
Porter's 5 Forces analysis, Critical success factors, SOT
!nalysis, "!L#E C$!%& analysis, TESCO'S strategic options,
Core Competences ' Cultural e()
% %&T*O+#CT%O&
T,e foo- an- -rink retail sector represents t,e largest in-ustry in
t,e #., pro/i-ing employment for o/er t,ree million people in
primary pro-uction, manufacturing an- retailing) %n 0112 retail
accounte- for 34 of gross -omestic pro-uct 5+atamonitor, 01126)
%n recent years #. supermarkets ,a/e come un-er increase-
scrutiny o/er t,eir treatment of suppliers, particularly of o7n8la(el
pro-ucts, yet t,e -e/elopment of strategic supply net7orks ,as
(een an integral part of most supermarket strategies for t,e past
-eca-e)
T,e report (elo7 pro/i-es an insig,t into t,e supermarket
company, Tesco, 7it, emp,asis on its e9ternal en/ironment
analysis an- company's analysis of resources, competence an-
culture) T7o future strategic options are suggeste- in regar-s to
t,e resources (ase- strategies)
1
Tesco is one of t,e largest foo- retailers in t,e 7orl-, operating
aroun- 0,2:; stores an- employing o/er 20ritain's largest in-epen-ent petrol retailers) Ot,er retailing
ser/ices offere- inclu-e Tesco Personal Finance)
0)1 %&+#ST*? !&!L?S%S: PESTEL F*!MEO*.
2.1 Political Factors
Operating in a glo(ali@e- en/ironment 7it, stores aroun- t,e
glo(e 5Tesco no7 operates in si9 countries in Europe in a--ition to
t,e #.A t,e *epu(lic of %relan-, $ungary, C@ec, *epu(lic,
Slo/akia, Turkey an- Polan-) %t also operates in !sia: in Sout,
.orea, T,ailan-, Malaysia, Bapan an- Tai7an6, Tesco's
performance is ,ig,ly influence- (y t,e political an- legislati/e
con-itions of t,ese countries, inclu-ing t,e European #nion 5E#6)
2
For employment legislations, t,e go/ernment encourages
retailers to pro/i-e a mi9 of Co( opportunities from fle9i(le, lo7er8
pai- an- locally8(ase- Co(s to ,ig,ly8skille-, ,ig,er8pai- an-
centrally8locate- Co(s 5>alc,in, :33=6) !lso to meet t,e -eman-
from population categories suc, as stu-ents, 7orking parents an-
senior citi@ens) Tesco un-erstan-s t,at retailing ,as a great
impact on Co(s an- people factors 5ne7 store -e/elopments are
often seen as -estroying ot,er Co(s in t,e retail sector as
tra-itional stores go out of (usiness or are force- to cut costs to
compete6, (eing an in,erently local an- la(our8intensi/e sector)
Tesco employs large num(ers ofA stu-ent, -isa(le- an- el-erly
7orkers, often paying t,em lo7er rates) %n an in-ustry 7it, a
typically ,ig, staff turno/er, t,ese 7orkers offer a ,ig,er le/el of
loyalty an- t,erefore represent -esira(le employees)
0)0 Economical Factors
Economic factors are of concern to Tesco, (ecause t,ey are likely
to influence -eman-, costs, prices an- profits) One of t,e most
influential factors on t,e economy is ,ig, unemployment le/els,
7,ic, -ecreases t,e effecti/e -eman- for many goo-s, a-/ersely
affecting t,e -eman- reDuire- to pro-uce suc, goo-s)
3
T,ese economic factors are largely outsi-e t,e control of t,e
company, (ut t,eir effects on performance an- t,e marketing mi9
can (e profoun-) !lt,oug, international (usiness is still gro7ing
5!ppen-i9 !6, an- is e9pecte- to contri(ute greater amounts to
Tesco's profits o/er t,e ne9t fe7 years, t,e company is still ,ig,ly
-epen-ent on t,e #. market) $ence, Tesco 7oul- (e (a-ly
affecte- (y any slo7-o7n in t,e #. foo- market an- are e9pose-
to market concentration risks)
0)2 SocialECultural Factors
Current tren-s in-icate t,at >ritis, customers ,a/e mo/e-
to7ar-s 'one8stop' an- '(ulk' s,opping, 7,ic, is -ue to a /ariety of
social c,anges) Tesco ,a/e, t,erefore, increase- t,e amount of
non8foo- items a/aila(le for sale)
+emograp,ic c,anges suc, as t,e aging population, an increase
in female 7orkers an- a -ecline in ,ome meal preparation mean
t,at #. retailers are also focusing on a--e-8/alue pro-ucts an-
ser/ices) %n a--ition, t,e focus is no7 to7ar-sA t,e o7n8la(el
s,are of t,e (usiness mi9, t,e supply c,ain an- ot,er operational
impro/ements, 7,ic, can -ri/e costs out of t,e (usiness) &ational
retailers are increasingly reticent to take on ne7 suppliers 5Clarke,
>ennison an- Fuy,:33=A +atamonitor *eport, 01126)
4
T,e type of goo-s an- ser/ices -eman-e- (y consumers is a
function of t,eir social con-itioning an- t,eir conseDuent attitu-es
an- (eliefs) Consumers are (ecoming more an- more a7are of
,ealt, issues, an- t,eir attitu-es to7ar-s foo- are constantly
c,anging) One e9ample of Tesco a-apting its pro-uct mi9 is to
accommo-ate an increase- -eman- for organic pro-ucts) T,e
company 7as also t,e first to allo7 customers to pay in c,eDues
an- cas, at t,e c,eckout)
0)= Tec,nological Factors
Tec,nology is a maCor macro8en/ironmental /aria(le 7,ic, ,as
influence- t,e -e/elopment of many of t,e Tesco pro-ucts) T,e
ne7 tec,nologies (enefit (ot, customers an- t,e company:
customer satisfaction rises (ecause goo-s are rea-ily a/aila(le,
ser/ices can (ecome more personalise- an- s,opping more
con/enient)T,e launc, of t,e Efficient Consumer *esponse 5EC*6
initiati/e pro/i-e- t,e s,ift t,at is no7 apparent in t,e management
of foo- supply c,ains 5+atamonitor *eport, 01126) Tesco stores
utilise t,e follo7ing tec,nologies:
•
ireless -e/ices
•
%ntelligent scale
•
Electronic s,elf la(elling
5
•
Self c,eck8out mac,ine
•
*a-io FreDuency %-entification 5*F%+6)
T,e a-option of Electronic Point of Sale 5EPoS6, Electronic Fun-s
Transfer Systems 5EFTPoS6 an- electronic scanners ,a/e greatly
impro/e- t,e efficiency of -istri(ution an- stocking acti/ities, 7it,
nee-s (eing communicate- almost in real time to t,e supplier
5Finc,, 011=6)
0)5 En/ironmental Factors
%n 0112, t,ere ,as (een increase- pressure on many companies
an- managers to ackno7le-ge t,eir responsi(ility to society, an-
act in a 7ay 7,ic, (enefits society o/erall 5Lin-green an- $ingley,
01126) T,e maCor societal issue t,reatening foo- retailers ,as
(een en/ironmental issues, a key area for companies to act in a
socially responsi(le 7ay) $ence, (y recogni@ing t,is tren- 7it,in
t,e (roa- et,ical stance, Tesco's corporate social responsi(ility is
concerne- 7it, t,e 7ays in 7,ic, an organi@ation e9cee-s t,e
minimum o(ligations to stake,ol-ers specifie- t,roug, regulation
an- corporate go/ernance) 5Bo,nson an- Sc,oles, 01126
Fraiser an- Scott 5011=6 state t,at in 0112 t,e go/ernment ,as
inten-e- to launc, a ne7 strategy for sustaina(le consumption an-
6
pro-uction to cut 7aste, re-uce consumption of resources an-
minimise en/ironmental -amage) T,e latest legislation create- a
ne7 ta9 on a-/ertising ,ig,ly processe- an- fatty foo-s) T,e so8
calle- 'fat ta9' -irectly affecte- t,e Tesco pro-uct ranges t,at ,a/e
su(seDuently (een a-apte-, affecting relations,ips 7it, (ot,
suppliers an- customers
0)< Legislati/e Factors
"arious go/ernment legislations an- policies ,a/e a -irect impact
on t,e performance of Tesco) For instance, t,e Foo- *etailing
Commission 5F*C6 suggeste- an enforcea(le Co-e of Practice
s,oul- (e set up (anning many of t,e current practices, suc, as
-eman-ing payments from suppliers an- c,anging agree- prices
retrospecti/ely or 7it,out notice 5Mintel *eport, 011=6) T,e
presence of po7erful competitors 7it, esta(lis,e- (ran-s creates
a t,reat of intense price 7ars an- strong reDuirements for pro-uct
-ifferentiation) T,e go/ernment's policies for monopoly controls
an- re-uction of (uyers' po7er can limit entry to t,is sector 7it,
suc, controls as license reDuirements an- limits on access to ra7
materials 5Mintel *eport, 011=A Myers, 011=6) %n or-er to
implement politically correct pricing policies, Tesco offers
consumers a price re-uction on fuel purc,ases (ase- on t,e
7
amount spent on groceries at its stores) ,ile prices are lo7ere-
on promote- goo-s, prices else7,ere in t,e store are raise- to
compensate)
2)1 %&+#ST*? !&!L?S%S: PO*TE*'S F%"E FO*CES
3.1 Threat of New Entrants
T,e #. grocery market is primary -ominate- (y fe7 competitors,
inclu-ing four maCor (ran-s of Tesco, !s-a, Sains(ury's an-
Safe7ay t,at possess a market s,are of G14 an- small c,ains of
Somerfiel-, aitrose an- >u-gens 7it, a furt,er :14) O/er t,e
last 21 years, accor-ing to *it@ 501156, t,e grocery market ,as
(een transforme- into t,e supermarket8-ominate- (usiness)
MaCority of large c,ains ,a/e (uilt t,eir po7er -ue to operating
efficiency, one8stop s,opping an- maCor marketing8mi9
e9pen-iture) T,is po7erful force ,a- a great impact on t,e small
tra-itional s,ops, suc, as (utc,ers, (akers an- etc) $ence,
no7a-ays it possesses a strong (arrier for ne7 companies 7,o
-esire to enter t,e grocery market) For instance, it (ecomes rat,er
-ifficult for ne7 entrants to raise sufficient capital (ecause of large
fi9e- costs an- ,ig,ly -e/elope- supply c,ains) T,is is also
e/i-ent in ,uge in/estments -one (y large c,ains, suc, as Tesco,
in a-/ance- tec,nology for c,eckouts an- stock control systems
8
t,at impact ne7 entrants an- t,e e9isting ones) Other barriers
include economies of scale and differentiation in the
pro!ision of products or ser!ices with a higher percei!ed
!alue than the competition" achie!ed by Tesco and #sda seen
in their aggressi!e operational tactics in product
de!elopment$ promotional acti!ity and better distribution.
2)0 >argaining Po7er of Suppliers
T,is force represents t,e po7er of suppliers t,at can (e
influence- (y maCor grocery c,ains an- t,at fear of losing t,eir
(usiness to t,e large supermarkets) T,erefore, t,is consoli-ates
furt,er lea-ing positions of stores like Tesco an- !s-a in
negotiating (etter promotional prices from suppliers t,at small
in-i/i-ual c,ains are una(le to matc, *it@ 501156) %n return, #.
(ase- suppliers are also t,reatene- (y t,e gro7ing a(ility of large
retailers to source t,eir pro-ucts from a(roa- at c,eaper -eals)
T,e relations,ip 7it, sellers can ,a/e similar effects in
constraining t,e strategic free-om of t,e company an- in
influencing its margins) T,e forces of competiti/e ri/alry ,a/e
re-uce- t,e profit margins for supermarket c,ains an- suppliers)
9
3.3 %argaining Power of &ustomers
Porter t,eori@e- t,at t,e more pro-ucts t,at (ecome stan-ar-i@e-
or un-ifferentiate-, t,e lo7er t,e s7itc,ing cost, an- ,ence, more
po7er is yiel-e- to (uyers Porter M) 5:3;16) Tesco's famous
loyalty car- 8 Clu(car- remains t,e most successful customer
retention strategy t,at significantly increases t,e profita(ility of
Tesco's (usiness) %n meeting customer nee-s, customi@ing
ser/ice, ensure lo7 prices, (etter c,oices, constant flo7 of in8store
promotions ena(les (ran-s like Tesco to control an- retain t,eir
customer (ase) %n recent years a crucial c,ange in foo- retailing
,as occurre- -ue to a large -eman- of consumers -oing t,e
maCority of t,eir s,opping in supermarkets t,at s,o7s a greater
nee- for supermarkets to sell non8foo- items) %t ,as also pro/i-e-
supermarkets 7it, a ne7 strategic e9pansion into ne7 markets of
(anking, p,armacies, etc) Consumers also ,a/e (ecome more
a7are of t,e issues surroun-ing fairer tra-e an- t,e influence of
7estern consumers on t,e e9pectations an- aspirations of T,ir-
orl- pro-ucers) Ecologically (enign an- et,ically soun-
pro-uction of consumer pro-uce suc, as tea, coffee an- cocoa is
/ia(le, an- suc, pro-ucts are no7 7i-ely a/aila(le at t,e maCority
of large c,ains)
10
2)= T,reat of Su(stitutes
Feneral su(stitution is a(le to re-uce -eman- for a particular
pro-uct, as t,ere is a t,reat of consumers s7itc,ing to t,e
alternati/es Porter M) 5:3;16) %n t,e grocery in-ustry t,is can (e
seen in t,e form of pro-uct8for8pro-uct or t,e su(stitute of nee-
an- is furt,er 7eakene- (y ne7 tren-s, suc, as t,e 7ay small
c,ains of con/enience stores are emerging in t,e in-ustry) %n t,is
case Tesco, !s-a an- Sains(ury's are trying to acDuire e9isting
small8scale operations an- opening Metro an- E9press stores in
local to7ns an- city centres *it@ 501156)
2)5 >argaining Po7er of Competitors
T,e grocery en/ironment ,as seen a /ery significant gro7t, in t,e
si@e an- market -ominance of t,e larger players, 7it, greater store
si@e, increase- retailer concentration, an- t,e utili@ation of a range
of formats, 7,ic, are no7 prominent c,aracteristics of t,e sector)
!s it 7as mentione- a(o/e, t,e purc,asing po7er of t,e foo-8
retailing in-ustry is concentrate- in t,e ,an-s of a relati/ely small
num(er of retail (uyers) Operating in a mature, flat market 7,ere
gro7t, is -ifficult 5a -ri/er of t,e -i/ersification into non8foo-
areas6, an- consumers are increasingly -eman-ing an-
sop,isticate-, large c,ains as Tesco are accruing large amounts of
11
consumer information t,at can (e use- to communicate 7it, t,e
consumer *it@ 501156) T,is ,ig,ly competiti/e market ,as fostere-
an accelerate- le/el of -e/elopment, resulting in a situation in
7,ic, #. grocery retailers ,a/e ,a- to (e inno/ati/e to maintain
an- (uil- market s,are) Suc, inno/ation can (e seen in t,e
-e/elopment of a range of tra-ing formats, in response to c,anges
in consumer (e,a/iour) T,e -ominant market lea-ers ,a/e
respon-e- (y refocusing on price an- /alue, 7,ilst reinforcing t,e
a--e- /alue elements of t,eir ser/ice)
=)1 C*%T%C!L S#CCESS F!CTO*S
!fter a close e/aluation of t,e e9ternal analysis of t,e grocery
in-ustry an- SOT analysis presente- in !ppen-i9 >, it is crucial
to consi-er internal operational effecti/eness of Tesco in t,e form
of i-entifying critical success factors of t,e company 7it,in t,e
foo- retailing sector)
=): >ran-ing an- *eputation
T,ere are companies t,at ,a/e al7ays un-erstoo- t,at t,ey 7ere
selling (ran-s (efore t,e pro-uct) Tesco is a (ran- an- also
ser/es as t,e core strategic a-/antage) T,e company 7as
sprea-ing like 7il-fire transforming t,e generic into t,e (ran-8
specific, largely t,roug, carefully (ran-e- packaging an- t,e
12
promotion of an He/ery penny countsI en/ironment) T,e company
,as a strong (ran- image, an- is associate- 7it, goo- Duality,
trust7ort,y goo-s t,at represent e9cellent /alue)
T,e pro-uct an- ser/ice -e/elopment processes of t,e company
,a/e (een su(stantially re8engineere-, to facilitate (etter
management of pro-uct lifecycles an- more efficient -eli/ery of
7i-e ranges of pro-ucts to customers) Pro-uct acti/ity ,as
focuse- on en,ancing core ranges an- intro-ucing Duality
pro-ucts) Tesco's inno/ati/e 7ays of impro/ing t,e customer
s,opping e9perience, as 7ell as its efforts to (ranc, out into
finance an- insurance ,a/e also capitali@e- on strong (ran-
reputation)
T,e company is also /ery successful in terms of customer loyalty
-ue to its loyalty car-s system an- its general approac, to
customi@ing ser/ices to t,e nee-s of e/ery customer) T,is is truly
e/i-ent in terms of tremen-ous gro7t, of on8line sales 7,ere t,e
company ,as a strong platform to furt,er -e/elop t,is re/enue
stream) !fter consi-ering t,e fact t,e no7a-ays maCority of people
,a/e less time for s,opping, Tesco employe- t,is on8line systems
an- no7 (ecame t,e (iggest online supermarket)
13
=)0 %T %ntegration
To-ay companies act in an increasingly -ynamic an- comple9
en/ironment, gi/ing more -ifficulties making forecasts an-
a-apting t,emsel/es to t,e continuous c,anges) %n or-er to (e
a(le to compete in t,is kin- of 7orl-, it is necessary to inno/ate at
an e9traor-inary spee-, continuously impro/ing t,e pro-ucts,
ser/ices an- processes) For Tesco operations ,a/e (ecome
necessities rat,er t,an lu9uries) Systems t,at control stock, keep
all t,e stock an- -eli/eries recor-s an- analyse (usiness
transactions are t,e lifelines of t,e company) %t can also (e sai-
t,at %T ,as risen (eyon- its tra-itional support role an- taken up a
central role in (usiness strategy formulation)
E9tranet system employe- (y t,e company, ena(les Tesco to use
t,e %nternet to create proprietary an- customise- information flo7s
(et7een t,e company an- its (usiness partners) T,e system
connects (usiness partners online (e,in- /irtual fire7alls, (ringing
more fle9i(ility, scala(ility, e9tensi(ility an- integration across t,e
-istri(ution c,annels) E9tranet also ,elps to e9ten- t,e key
information on (usiness partners t,roug,out t,e supply c,ain an-
facilitate colla(orati/e relations,ips 7it, partners) Market
e9c,anges ,ol- t,e promise of e9ten-ing Tesco's reac,, -eli/ering
14
(uyers to t,eir /irtual -oorstep from aroun- t,e 7orl-) Ot,er
e9amples of t,e most efficient tec,nological a-/ances t,at support
-aily (usiness operations of Tesco are 7ireless -e/ices, intelligent
scale, electronic s,elf la(elling, self c,eck8out mac,ine an- ra-io
freDuency i-entification 5*F%+6 systems) T,is tec,nology is an
effort to maintain Tesco's a(ility to ,an-le an increase in
pro-uctEser/ice /olume 7,ile controlling costsA it also ena(les to
(e inno/ati/e an- market oriente-)
'.3 (upplier )anagement
Tesco, like many ot,er grocery c,ains companies, sources its
goo-s from o/erseas manufacturers 7,o are more competiti/e on
price an- /olumes) For many years Tesco ,as (een supporting
>ritis, Co(s an- e9pertise (y encouraging large (ran-e- suppliers
to -e/elop e9clusi/e pro-uction facilities) >ut in recent years t,e
company ,as realise- t,e nee- to look a(roa- for pro-ucts no
longer a/aila(le in #., (u- trie- to -o it t,roug, long8esta(lis,e-
#. partners) T,e foo-s continue- to (e ,ea/ily #.8(ase- -ue to
t,e /ery successful range of prepare- foo-s)
!s a maCor retailer selling -i/erse pro-uct range, t,ey 7ork 7it,
many -ifferent suppliers aroun- t,e 7orl-, 7it, employees from
many -ifferent cultures an- et,nic groups) T,erefore, it is t,e
15
company policy an- company's main approac, to ,a/e uniDue
relations,ips 7it, suppliers) !pplying a-/ance- tec,nology in its
communications an- cooperation 7it, t,e suppliers, t,e company
aims to control t,e 7ork of its suppliers an- ,ea/ily relies on t,eir
efficiency) T,e -irect suppliers use a num(er of su(8contracte-
suppliers, selecte- to (e (est in class in t,eir country) Tesco ,as
esta(lis,e- close relations,ips 7it, t,e contractors (elie/ing t,at
regular an- long term or-ers promote t,e in/estment necessary to
impro/e con-itions in t,e supply c,ain)
>eing an international company, Tesco -e/elops /arious supplier
management programmes to sur/ey key suppliers an- franc,isee
satisfaction) T,e company also takes part in t,e Et,nical Tra-ing
%nitiati/e)
T,e ta(le presente- (elo7 gi/es a strategic comparati/e analysis,
comparing Tesco's successful factors -iscusse- a(o/e 7it, t,e
same factors of t,e main competitors' in t,e #. grocery in-ustry)
T,e scores ,a/e (een gi/e 7it, t,e scale from 1 to 5
CSF Sains(ury's !s-a Safe7ay
>ran-ing 5 2)5 2
%T %ntegration = 2 2
16
Supplier
Management
5 2 =
Total := :1)5 ::
T,e results ,ig,lig,t t,at t,e main t,reat is potentially coming
from Sains(ury's t,at possesses a strong (ran- name an- is
carefully selects an- controls its suppliers)
5)1 !&!L?S%S OF *ESO#*CES, COMPETE&CE !&+
C#LT#*E
*.1 (+OT #nalysis
Tesco is t,e top grocer an- lea-ing retailer in its ,ome market of
t,e #.) Pitc,e- at t,e (roa- mi--le mass8market, it ,as
maintaine- its position t,roug, a clear focus, 7ell targete- pro-uct
offer an- e9cellent recor- (ot, in pro-uct an- format inno/ation)
Tesco also lea-s t,e 7orl- in online grocery retailing) %n t,e #.
t,e company concentrates on running grocery superstores, c8
stores an- an online ser/ice) Else7,ere t,e focus is usually on
,ypermarkets) %n 0112, t,e group's tra-ing recor- aroun- Europe
an- #. ,as (een outstan-ing)
T,e full SOT analysis of Tesco is presente- in !ppen-i9 >,
summari@ing t,e key issues from t,e (usiness en/ironment an-
17
t,e strategic capa(ility, inclu-ing resources an- competence, of
t,e company t,at are most likely to impact on strategy
-e/elopment
*.2 &ore &ompetence
Superior performance, accor-ing to Bo,nson an- Sc,oles 501126,
,as to (e -etermine- (y t,e 7ay in 7,ic, company's resources
are -eploye- to create competence in t,e organisational acti/ities)
Core competencies are acti/ities or processes t,at critically
un-erpin t,e company's competiti/e a-/antage) T,e primary
target for t,e company is to recogni@e t,at competition (et7een
(usinesses is as muc, a race for competence as it is for market
position an- market po7er) T,erefore, t,e goal for Tesco
management is to focus t,e attention on competencies t,at really
affect competiti/e a-/antage)
T,e competence lea-s to le/els of performance from an acti/ity or
process t,at is significantly (etter t,an competitors)
>enc,marking may ,elp in un-erstan-ing performance stan-ar-s
an- 7,at constitutes goo- or (a- performance) $o7e/er, it 7ill (e
crucial for Tesco to look at t,e generic le/el) Core competences
may (e em(e--e- -eep in Tesco at an operational le/el in t,e
7ork routines) T,e frame7ork -e/elope- (y Pra,ala- an- $amel
18
in t,e :331s suggests t,at o/er time companies may -e/elop ,ey
areas of e-pertise which are distincti!e to that company and
critical to the company.s long term growth /re0er$ 21112 /e
Toni$ and Tonchia$ 2113". 3n the case of Tesco the areas of
e-pertise are most li,ely to de!elop in the critical$ central
areas of the organisation where the most !alue is added to its
ser!ice and its deli!ery. For e9ample, trust in t,e Tesco (ran-
lies at t,e ,eart of t,ese ser/ices an- in 0112 t,e num(er of retail
ser/ice accounts rose (y 2rea-t, of pro-uct offerings, tec,nology,
special features, or customer ser/ice are popular approac,es to
-ifferentiation)
T,e last strategy of focus can (e eit,er a cost lea-ers,ip or
-ifferentiation strategy aime- to7ar- a narro7, focuse- market) %n
pursuing a cost lea-ers,ip strategy Tesco focuses on t,e creation
of internal efficiencies t,at 7ill ,elp t,em 7it,stan- e9ternal
pressures) T,erefore, it appears reasona(le to t,ink t,at Tesco
7ill ,a/e freDuent interactions 7it, t,e go/ernmentalEregulatory
an- supplier sectors of t,e en/ironment) %n accor-ance to t,is
frame7ork, 7,ile (ot, o/erall cost lea-ers,ip an- -ifferentiation
24
strategies are aime- at t,e (roa- market, Tesco may also c,oose
to confine t,eir pro-uct to specific market areas or may c,oose to
offer a smaller line of pro-ucts to t,e (roa- market, t,us pursuing
a strategy of focus or nic,e 5Porter, :3;16) %n ot,er 7or-s, Tesco
pursues a strategy of cost lea-ers,ip or -ifferentiation eit,er in a
specific market or 7it, specific pro-ucts)
T,e -anger some organisation face is t,at t,ey try to -o all t,ree
an- (ecome 7,at is kno7n as stuck in t,e mi--le) %n case of
Tesco it is not appropriate, as t,ey -o ,a/e a clear (usiness
strategy 7it, a clearly -efine- market segment)
G)1 M!*.ET O>BECT%"ES !&+ ST*!TEF%ES
%MPLEME&T!T%O&
Strategy frame7orks an- structuring tools are key to assessing
t,e (usiness situation) *isk an- /alue tra-e8offs are ma-e e9plicit,
lea-ing to concrete proposals to a-- /alue an- re-uce risk)
E9plicit plans for action, inclu-ing effecti/e planning nee- to (e
-e/elope- (y Tesco as t,e strategic alternati/e)
From t,e generic strategies -iscusse- a(o/e, Tesco is likely to
employ t7o strategic options t,at are also likely to (e primary
market o(Cecti/es of focus on market -e/elopment t,oug,
partners,ips an- -i/ersification t,roug, ne7 pro-uct -e/elopment)
25
Market +e/elopment Strategy: Boint +e/elopments an- Strategic
!lliances
>y entering ne7 markets like C,ina an- Bapan it can ser/e as a
key gro7t, -ri/er of t,e company's re/enues an- e9pansion
strategy) Tesco's interests in Bapan are likely to continue gro7ing
in -ue course, as !sian markets are s,o7ing an increase in
consumer spen-ing an- increase- tren- to7ar-s retailing) T,ese
ne7 markets are also -emograp,ically ,ig, opportunity markets)
%n t,e case of Tesco, one of t,e suggeste- strategic options is in
international alliances 7it, t,e local retailers in !sian markets) %t
7ill (e consi-ere- as a met,o- of -e/elopment an- may (e
forme- to e9ploit current resources an- competence) >y entering
into Coint /entures or partners,ips, in or-er to gain a larger
economy of scale an- larger market presence, Tesco 7ill -ra7 on
t,e e9tensi/e local kno7le-ge an- operating e9pertise of t,e
partner 7,ilst a--ing its o7n supply c,ain, pro-uct -e/elopment
an- stores operations skills to -eli/er a (etter s,opping e9perience
to customers) $o7e/er, gi/en t,e ,uge scale, potential an-
comple9ities of t,ese markets, Tesco may feel t,at (eing t,e first
mo/er is not necessarily an a-/antage) T,e success of t,e
partners,ip 7ill (e relate- to t,ree main success criteria:
26
sustaina(ility, accepta(ility an- feasi(ility) Sustaina(ility 7ill (e
concerne- 7it, 7,et,er a strategy a--resses t,e circumstances in
7,ic, t,e company is operating) %t is a(out t,e rationale of t,is
e9pansion8market -e/elopment strategy) T,e accepta(ility relates
to t,e e9pecte- return from t,e strategy, t,e le/el of risk an- t,e
likely reaction of stake,ol-ers) Feasi(ility 7ill (e regar-e- to
7,et,er Tesco ,as t,e resources an- competence to -eli/er t,e
strategy)
Pro-uct +e/elopment: +i/ersification
Bo,nson an- Sc,oles 501126 (elie/e t,at c,anges in t,e (usiness
en/ironment may create -eman- for ne7 pro-ucts an- ser/ices at
t,e e9pense of esta(lis,e- pro/ision) !nsoff's matri9 also
suggests t,at if ne7 pro-ucts are -e/elope- for e9isting markets,
t,en a pro-uct -e/elopment strategy ,as to (e consi-ere- (y t,e
management le/el of a company) %n e9pan-ing an- -i/ersifying
Tesco's pro-uct mi9, it is also crucial to implement internal
-e/elopment 7,en ne7 pro-ucts are -e/elope-) T,e nature an-
t,e e9tent of -i/ersification s,oul- also (e consi-ere- in relation to
t,e rationale of t,e corporate strategy an- t,e -i/ersity of t,e
portfolio) >y follo7ing t,e c,anging nee-s of t,e customers Tesco
27
can intro-uce ne7 pro-uct lines) T,is may reDuire more attention
to *'+, lea-ing to a--itional spen-ing)
T,e retailing in-ustry is e9periencing o/ercapacity an- inno/ati/e
ser/ices an- pro-ucts (eing t,e maCor competiti/e a-/antage)
T,erefore, inno/ation ,as to (e a maCor -ri/er for Tesco's pro-uct
-e/elopment) For e9ample, Tesco can -e/elop a portfolio of
-ifferent store formats in t,e #., eac, -esigne- to pro/i-e a
-ifferent s,opping e9perience) ,ile t,e maCority of Eastern
European an- Far Eastern outlets are ,ypermarkets, Tesco can
also -e/elop -ifferent store types in t,ese markets as 7ell) T,is
/alue a--e- (y t,e uniDueness 7ill e/entually lea- Tesco to
comman- a premium price) T,e management of tec,nological
inno/ation is increasingly in/ol/e- in strategic -ecision8making)
Tesco ,a/e to e9ploit t,eir internal strengt,s an- minimise t,eir
internal 7eaknesses in or-er to ac,ie/e sustaine- competiti/e
a-/antage 5!lt,oug, a competiti/e a-/antage is t,e goal
inno/ators 7ant to ac,ie/e, t,e a(ility to create platform5s6
-epen-s on ,o7 t,ey coul- manage t,e inno/ation) &e/ert,eless,
it -oes not mean t,at t,e inno/ator ,as to possess all reDuisite
capa(ilities, t,e important t,ing is t,e a(ility to organise an- use
t,e capa(ilities of ot,ers in or-er to create a (usiness platform6)
28
1 CO&CL#S%O&
T,e success of t,e Tesco s,o7s ,o7 far t,e (ran-ing an-
effecti/e ser/ice -eli/ery can come in mo/ing (eyon- splas,ing
one's logo on a (ill(oar-) %t ,a- fostere- po7erful i-entities (y
making t,eir retiling concept into a /irus an- spen-ing it out into
t,e culture /ia a /ariety of c,annels: cultural sponsors,ip, political
contro/ersy, consumer e9perience an- (ran- e9tensions)
%n a rapi-ly c,anging (usiness en/ironment 7it, a ,ig,
competitors' pressure Tesco ,a/e to a-opt ne7 e9pansion
strategies or -i/ersifie- t,e e9isting in or-er to sustain its lea-ing
market position in an alrea-y esta(lis,e- retailing market) T,e
company must constantly a-apt to t,e fast c,anging
circumstances) Strategy formulation s,oul- t,erefore (e regar-e-
as a process of continuous learning, 7,ic, inclu-es learning a(out
t,e goals, t,e effect of possi(le actions to7ar-s t,ese goals an-
,o7 to implement an- e9ecute t,ese actions) T,e Duality of a
formulate- strategy an- t,e spee- of its implementation 7ill
t,erefore -irectly -epen- on t,e Duality of Tesco's cogniti/e an-
(e,a/ioural learning processes)
%n large organi@ations as Tesco strategy s,oul- (e analyse- an-
implemente- at /arious le/els 7it,in t,e ,ierarc,y) T,ese -ifferent
29
le/els of strategy s,oul- (e relate- an- mutually supporting)
Tesco's strategy at a corporate le/el -efines t,e (usinesses in
7,ic, Tesco 7ill compete, in a 7ay t,at focuses resources to
con/ert -istincti/e competence into competiti/e a-/antage)
!PPE&+%K >
SOT !&!L?S%S: TESCO
(ource4 )intel 6eport$ /atamonitor 6eports$ Tesco &ase
(tudies
Strengt,s
3ncreasing mar,et share4 Tesco ,ol-s a :24 s,are of t,e #.
retail market) %ts multi8format capa(ility means t,at it 7ill continue
30
to gro7 s,are in foo-, 7,ile increasing space contri(ution from
,ypermarkets 7ill allo7 it to -ri/e a ,ig,er s,are in non8foo-)
Tesco.s general growth and 6O3 show no sign of abating4 %n
t,e #., Tesco's late 0110 in/estment into est8mi-lan-s (ase-
con/enience store group T'S 7as (ille- as t,e most aggressi/e
mo/e into t,e neig,(or,oo- market (y a (ig8name retailer so far)
T,e -eal ,as turne- Tesco into t,e country's secon- (iggest
con/enience store c,ain after t,e Co8operati/e Froup, an- t,e
company also plans to open up 53 ne7 stores in t,e #. t,is year)
Tesco ,as gro7n its non8foo- -i/ision to t,e e9tent t,at its
re/enues no7 total 024 of total group earnings) Tesco's
international (usiness segment is gro7ing stea-ily, an- is
pre-icte- to contri(ute nearly a Duarter of group profits o/er t,e
ne9t fi/e years) %f geograp,ical sprea- continues to gro7, t,is 7ill
ensure Tesco's continue- regional strengt,)
3nsurance4 %n fiscal 0112 Tesco Personal Finance reac,e- t,e
milestone of one million motor insurance policies, making it t,e
fastest gro7ing motor insurance pro/i-er e/er) T,e
group's instant tra/el insurance allo7s Clu(car- ,ol-ers to (uy
t,eir ,oli-ay insurance con/eniently at t,e c,eckout) Pet
insurance no7 ,as o/er 221,111 cats an- -ogs co/ere-, 7,ile t,e
31
life insurance policy follo7e- on from t,e success of last year,
7,en it 7as /ote- T,e Most Competiti/e Life %nsurance Pro/i-er in
t,e MoneyFacts !7ar-s 0112)
Tesco online4 Tesco)com is t,e 7orl-'s (iggest online
supermarket an- t,is year t,e group ,a- sales of o/er L5GG
million, an increase of 034 on last year) Tesco online no7
operates in o/er 0G1 stores aroun- t,e country, co/ering 3ritis, Foo- Bournal, "ol) :15 %ssue
=, pp)0G=80G;A
*o7ley B) 501156 >uil-ing (ran- 7e(s: Customer relations,ip
management t,roug, t,e Tesco Clu(car- loyalty sc,eme,
%nternational Bournal of *etail ' +istri(ution Management, "ol) 22
%ssue 2, pp):3=801usiness Strategy *e/ie7, Summer, "ol) :5 %ssue :0, pp) :G80=A
Copyrig,t R 011580113 %/ory *esearc, Lt-) !ll rig,ts reser/e-)
!ll forms of copying, -istri(ution or repro-uction are strictly
pro,i(ite- an- 7ill (e prosecute- to t,e Full E9tent of La7)
51
doc_665860696.pdf
The food and drink retail sector represents the largest industry in the UK, providing employment for over three million people in primary production, manufacturing and retailing.
Strategic Management of TESCO supermarket: PESTEL analysis,
Porter's 5 Forces analysis, Critical success factors, SOT
!nalysis, "!L#E C$!%& analysis, TESCO'S strategic options,
Core Competences ' Cultural e()
% %&T*O+#CT%O&
T,e foo- an- -rink retail sector represents t,e largest in-ustry in
t,e #., pro/i-ing employment for o/er t,ree million people in
primary pro-uction, manufacturing an- retailing) %n 0112 retail
accounte- for 34 of gross -omestic pro-uct 5+atamonitor, 01126)
%n recent years #. supermarkets ,a/e come un-er increase-
scrutiny o/er t,eir treatment of suppliers, particularly of o7n8la(el
pro-ucts, yet t,e -e/elopment of strategic supply net7orks ,as
(een an integral part of most supermarket strategies for t,e past
-eca-e)
T,e report (elo7 pro/i-es an insig,t into t,e supermarket
company, Tesco, 7it, emp,asis on its e9ternal en/ironment
analysis an- company's analysis of resources, competence an-
culture) T7o future strategic options are suggeste- in regar-s to
t,e resources (ase- strategies)
1
Tesco is one of t,e largest foo- retailers in t,e 7orl-, operating
aroun- 0,2:; stores an- employing o/er 20ritain's largest in-epen-ent petrol retailers) Ot,er retailing
ser/ices offere- inclu-e Tesco Personal Finance)
0)1 %&+#ST*? !&!L?S%S: PESTEL F*!MEO*.
2.1 Political Factors
Operating in a glo(ali@e- en/ironment 7it, stores aroun- t,e
glo(e 5Tesco no7 operates in si9 countries in Europe in a--ition to
t,e #.A t,e *epu(lic of %relan-, $ungary, C@ec, *epu(lic,
Slo/akia, Turkey an- Polan-) %t also operates in !sia: in Sout,
.orea, T,ailan-, Malaysia, Bapan an- Tai7an6, Tesco's
performance is ,ig,ly influence- (y t,e political an- legislati/e
con-itions of t,ese countries, inclu-ing t,e European #nion 5E#6)
2
For employment legislations, t,e go/ernment encourages
retailers to pro/i-e a mi9 of Co( opportunities from fle9i(le, lo7er8
pai- an- locally8(ase- Co(s to ,ig,ly8skille-, ,ig,er8pai- an-
centrally8locate- Co(s 5>alc,in, :33=6) !lso to meet t,e -eman-
from population categories suc, as stu-ents, 7orking parents an-
senior citi@ens) Tesco un-erstan-s t,at retailing ,as a great
impact on Co(s an- people factors 5ne7 store -e/elopments are
often seen as -estroying ot,er Co(s in t,e retail sector as
tra-itional stores go out of (usiness or are force- to cut costs to
compete6, (eing an in,erently local an- la(our8intensi/e sector)
Tesco employs large num(ers ofA stu-ent, -isa(le- an- el-erly
7orkers, often paying t,em lo7er rates) %n an in-ustry 7it, a
typically ,ig, staff turno/er, t,ese 7orkers offer a ,ig,er le/el of
loyalty an- t,erefore represent -esira(le employees)
0)0 Economical Factors
Economic factors are of concern to Tesco, (ecause t,ey are likely
to influence -eman-, costs, prices an- profits) One of t,e most
influential factors on t,e economy is ,ig, unemployment le/els,
7,ic, -ecreases t,e effecti/e -eman- for many goo-s, a-/ersely
affecting t,e -eman- reDuire- to pro-uce suc, goo-s)
3
T,ese economic factors are largely outsi-e t,e control of t,e
company, (ut t,eir effects on performance an- t,e marketing mi9
can (e profoun-) !lt,oug, international (usiness is still gro7ing
5!ppen-i9 !6, an- is e9pecte- to contri(ute greater amounts to
Tesco's profits o/er t,e ne9t fe7 years, t,e company is still ,ig,ly
-epen-ent on t,e #. market) $ence, Tesco 7oul- (e (a-ly
affecte- (y any slo7-o7n in t,e #. foo- market an- are e9pose-
to market concentration risks)
0)2 SocialECultural Factors
Current tren-s in-icate t,at >ritis, customers ,a/e mo/e-
to7ar-s 'one8stop' an- '(ulk' s,opping, 7,ic, is -ue to a /ariety of
social c,anges) Tesco ,a/e, t,erefore, increase- t,e amount of
non8foo- items a/aila(le for sale)
+emograp,ic c,anges suc, as t,e aging population, an increase
in female 7orkers an- a -ecline in ,ome meal preparation mean
t,at #. retailers are also focusing on a--e-8/alue pro-ucts an-
ser/ices) %n a--ition, t,e focus is no7 to7ar-sA t,e o7n8la(el
s,are of t,e (usiness mi9, t,e supply c,ain an- ot,er operational
impro/ements, 7,ic, can -ri/e costs out of t,e (usiness) &ational
retailers are increasingly reticent to take on ne7 suppliers 5Clarke,
>ennison an- Fuy,:33=A +atamonitor *eport, 01126)
4
T,e type of goo-s an- ser/ices -eman-e- (y consumers is a
function of t,eir social con-itioning an- t,eir conseDuent attitu-es
an- (eliefs) Consumers are (ecoming more an- more a7are of
,ealt, issues, an- t,eir attitu-es to7ar-s foo- are constantly
c,anging) One e9ample of Tesco a-apting its pro-uct mi9 is to
accommo-ate an increase- -eman- for organic pro-ucts) T,e
company 7as also t,e first to allo7 customers to pay in c,eDues
an- cas, at t,e c,eckout)
0)= Tec,nological Factors
Tec,nology is a maCor macro8en/ironmental /aria(le 7,ic, ,as
influence- t,e -e/elopment of many of t,e Tesco pro-ucts) T,e
ne7 tec,nologies (enefit (ot, customers an- t,e company:
customer satisfaction rises (ecause goo-s are rea-ily a/aila(le,
ser/ices can (ecome more personalise- an- s,opping more
con/enient)T,e launc, of t,e Efficient Consumer *esponse 5EC*6
initiati/e pro/i-e- t,e s,ift t,at is no7 apparent in t,e management
of foo- supply c,ains 5+atamonitor *eport, 01126) Tesco stores
utilise t,e follo7ing tec,nologies:
•
ireless -e/ices
•
%ntelligent scale
•
Electronic s,elf la(elling
5
•
Self c,eck8out mac,ine
•
*a-io FreDuency %-entification 5*F%+6)
T,e a-option of Electronic Point of Sale 5EPoS6, Electronic Fun-s
Transfer Systems 5EFTPoS6 an- electronic scanners ,a/e greatly
impro/e- t,e efficiency of -istri(ution an- stocking acti/ities, 7it,
nee-s (eing communicate- almost in real time to t,e supplier
5Finc,, 011=6)
0)5 En/ironmental Factors
%n 0112, t,ere ,as (een increase- pressure on many companies
an- managers to ackno7le-ge t,eir responsi(ility to society, an-
act in a 7ay 7,ic, (enefits society o/erall 5Lin-green an- $ingley,
01126) T,e maCor societal issue t,reatening foo- retailers ,as
(een en/ironmental issues, a key area for companies to act in a
socially responsi(le 7ay) $ence, (y recogni@ing t,is tren- 7it,in
t,e (roa- et,ical stance, Tesco's corporate social responsi(ility is
concerne- 7it, t,e 7ays in 7,ic, an organi@ation e9cee-s t,e
minimum o(ligations to stake,ol-ers specifie- t,roug, regulation
an- corporate go/ernance) 5Bo,nson an- Sc,oles, 01126
Fraiser an- Scott 5011=6 state t,at in 0112 t,e go/ernment ,as
inten-e- to launc, a ne7 strategy for sustaina(le consumption an-
6
pro-uction to cut 7aste, re-uce consumption of resources an-
minimise en/ironmental -amage) T,e latest legislation create- a
ne7 ta9 on a-/ertising ,ig,ly processe- an- fatty foo-s) T,e so8
calle- 'fat ta9' -irectly affecte- t,e Tesco pro-uct ranges t,at ,a/e
su(seDuently (een a-apte-, affecting relations,ips 7it, (ot,
suppliers an- customers
0)< Legislati/e Factors
"arious go/ernment legislations an- policies ,a/e a -irect impact
on t,e performance of Tesco) For instance, t,e Foo- *etailing
Commission 5F*C6 suggeste- an enforcea(le Co-e of Practice
s,oul- (e set up (anning many of t,e current practices, suc, as
-eman-ing payments from suppliers an- c,anging agree- prices
retrospecti/ely or 7it,out notice 5Mintel *eport, 011=6) T,e
presence of po7erful competitors 7it, esta(lis,e- (ran-s creates
a t,reat of intense price 7ars an- strong reDuirements for pro-uct
-ifferentiation) T,e go/ernment's policies for monopoly controls
an- re-uction of (uyers' po7er can limit entry to t,is sector 7it,
suc, controls as license reDuirements an- limits on access to ra7
materials 5Mintel *eport, 011=A Myers, 011=6) %n or-er to
implement politically correct pricing policies, Tesco offers
consumers a price re-uction on fuel purc,ases (ase- on t,e
7
amount spent on groceries at its stores) ,ile prices are lo7ere-
on promote- goo-s, prices else7,ere in t,e store are raise- to
compensate)
2)1 %&+#ST*? !&!L?S%S: PO*TE*'S F%"E FO*CES
3.1 Threat of New Entrants
T,e #. grocery market is primary -ominate- (y fe7 competitors,
inclu-ing four maCor (ran-s of Tesco, !s-a, Sains(ury's an-
Safe7ay t,at possess a market s,are of G14 an- small c,ains of
Somerfiel-, aitrose an- >u-gens 7it, a furt,er :14) O/er t,e
last 21 years, accor-ing to *it@ 501156, t,e grocery market ,as
(een transforme- into t,e supermarket8-ominate- (usiness)
MaCority of large c,ains ,a/e (uilt t,eir po7er -ue to operating
efficiency, one8stop s,opping an- maCor marketing8mi9
e9pen-iture) T,is po7erful force ,a- a great impact on t,e small
tra-itional s,ops, suc, as (utc,ers, (akers an- etc) $ence,
no7a-ays it possesses a strong (arrier for ne7 companies 7,o
-esire to enter t,e grocery market) For instance, it (ecomes rat,er
-ifficult for ne7 entrants to raise sufficient capital (ecause of large
fi9e- costs an- ,ig,ly -e/elope- supply c,ains) T,is is also
e/i-ent in ,uge in/estments -one (y large c,ains, suc, as Tesco,
in a-/ance- tec,nology for c,eckouts an- stock control systems
8
t,at impact ne7 entrants an- t,e e9isting ones) Other barriers
include economies of scale and differentiation in the
pro!ision of products or ser!ices with a higher percei!ed
!alue than the competition" achie!ed by Tesco and #sda seen
in their aggressi!e operational tactics in product
de!elopment$ promotional acti!ity and better distribution.
2)0 >argaining Po7er of Suppliers
T,is force represents t,e po7er of suppliers t,at can (e
influence- (y maCor grocery c,ains an- t,at fear of losing t,eir
(usiness to t,e large supermarkets) T,erefore, t,is consoli-ates
furt,er lea-ing positions of stores like Tesco an- !s-a in
negotiating (etter promotional prices from suppliers t,at small
in-i/i-ual c,ains are una(le to matc, *it@ 501156) %n return, #.
(ase- suppliers are also t,reatene- (y t,e gro7ing a(ility of large
retailers to source t,eir pro-ucts from a(roa- at c,eaper -eals)
T,e relations,ip 7it, sellers can ,a/e similar effects in
constraining t,e strategic free-om of t,e company an- in
influencing its margins) T,e forces of competiti/e ri/alry ,a/e
re-uce- t,e profit margins for supermarket c,ains an- suppliers)
9
3.3 %argaining Power of &ustomers
Porter t,eori@e- t,at t,e more pro-ucts t,at (ecome stan-ar-i@e-
or un-ifferentiate-, t,e lo7er t,e s7itc,ing cost, an- ,ence, more
po7er is yiel-e- to (uyers Porter M) 5:3;16) Tesco's famous
loyalty car- 8 Clu(car- remains t,e most successful customer
retention strategy t,at significantly increases t,e profita(ility of
Tesco's (usiness) %n meeting customer nee-s, customi@ing
ser/ice, ensure lo7 prices, (etter c,oices, constant flo7 of in8store
promotions ena(les (ran-s like Tesco to control an- retain t,eir
customer (ase) %n recent years a crucial c,ange in foo- retailing
,as occurre- -ue to a large -eman- of consumers -oing t,e
maCority of t,eir s,opping in supermarkets t,at s,o7s a greater
nee- for supermarkets to sell non8foo- items) %t ,as also pro/i-e-
supermarkets 7it, a ne7 strategic e9pansion into ne7 markets of
(anking, p,armacies, etc) Consumers also ,a/e (ecome more
a7are of t,e issues surroun-ing fairer tra-e an- t,e influence of
7estern consumers on t,e e9pectations an- aspirations of T,ir-
orl- pro-ucers) Ecologically (enign an- et,ically soun-
pro-uction of consumer pro-uce suc, as tea, coffee an- cocoa is
/ia(le, an- suc, pro-ucts are no7 7i-ely a/aila(le at t,e maCority
of large c,ains)
10
2)= T,reat of Su(stitutes
Feneral su(stitution is a(le to re-uce -eman- for a particular
pro-uct, as t,ere is a t,reat of consumers s7itc,ing to t,e
alternati/es Porter M) 5:3;16) %n t,e grocery in-ustry t,is can (e
seen in t,e form of pro-uct8for8pro-uct or t,e su(stitute of nee-
an- is furt,er 7eakene- (y ne7 tren-s, suc, as t,e 7ay small
c,ains of con/enience stores are emerging in t,e in-ustry) %n t,is
case Tesco, !s-a an- Sains(ury's are trying to acDuire e9isting
small8scale operations an- opening Metro an- E9press stores in
local to7ns an- city centres *it@ 501156)
2)5 >argaining Po7er of Competitors
T,e grocery en/ironment ,as seen a /ery significant gro7t, in t,e
si@e an- market -ominance of t,e larger players, 7it, greater store
si@e, increase- retailer concentration, an- t,e utili@ation of a range
of formats, 7,ic, are no7 prominent c,aracteristics of t,e sector)
!s it 7as mentione- a(o/e, t,e purc,asing po7er of t,e foo-8
retailing in-ustry is concentrate- in t,e ,an-s of a relati/ely small
num(er of retail (uyers) Operating in a mature, flat market 7,ere
gro7t, is -ifficult 5a -ri/er of t,e -i/ersification into non8foo-
areas6, an- consumers are increasingly -eman-ing an-
sop,isticate-, large c,ains as Tesco are accruing large amounts of
11
consumer information t,at can (e use- to communicate 7it, t,e
consumer *it@ 501156) T,is ,ig,ly competiti/e market ,as fostere-
an accelerate- le/el of -e/elopment, resulting in a situation in
7,ic, #. grocery retailers ,a/e ,a- to (e inno/ati/e to maintain
an- (uil- market s,are) Suc, inno/ation can (e seen in t,e
-e/elopment of a range of tra-ing formats, in response to c,anges
in consumer (e,a/iour) T,e -ominant market lea-ers ,a/e
respon-e- (y refocusing on price an- /alue, 7,ilst reinforcing t,e
a--e- /alue elements of t,eir ser/ice)
=)1 C*%T%C!L S#CCESS F!CTO*S
!fter a close e/aluation of t,e e9ternal analysis of t,e grocery
in-ustry an- SOT analysis presente- in !ppen-i9 >, it is crucial
to consi-er internal operational effecti/eness of Tesco in t,e form
of i-entifying critical success factors of t,e company 7it,in t,e
foo- retailing sector)
=): >ran-ing an- *eputation
T,ere are companies t,at ,a/e al7ays un-erstoo- t,at t,ey 7ere
selling (ran-s (efore t,e pro-uct) Tesco is a (ran- an- also
ser/es as t,e core strategic a-/antage) T,e company 7as
sprea-ing like 7il-fire transforming t,e generic into t,e (ran-8
specific, largely t,roug, carefully (ran-e- packaging an- t,e
12
promotion of an He/ery penny countsI en/ironment) T,e company
,as a strong (ran- image, an- is associate- 7it, goo- Duality,
trust7ort,y goo-s t,at represent e9cellent /alue)
T,e pro-uct an- ser/ice -e/elopment processes of t,e company
,a/e (een su(stantially re8engineere-, to facilitate (etter
management of pro-uct lifecycles an- more efficient -eli/ery of
7i-e ranges of pro-ucts to customers) Pro-uct acti/ity ,as
focuse- on en,ancing core ranges an- intro-ucing Duality
pro-ucts) Tesco's inno/ati/e 7ays of impro/ing t,e customer
s,opping e9perience, as 7ell as its efforts to (ranc, out into
finance an- insurance ,a/e also capitali@e- on strong (ran-
reputation)
T,e company is also /ery successful in terms of customer loyalty
-ue to its loyalty car-s system an- its general approac, to
customi@ing ser/ices to t,e nee-s of e/ery customer) T,is is truly
e/i-ent in terms of tremen-ous gro7t, of on8line sales 7,ere t,e
company ,as a strong platform to furt,er -e/elop t,is re/enue
stream) !fter consi-ering t,e fact t,e no7a-ays maCority of people
,a/e less time for s,opping, Tesco employe- t,is on8line systems
an- no7 (ecame t,e (iggest online supermarket)
13
=)0 %T %ntegration
To-ay companies act in an increasingly -ynamic an- comple9
en/ironment, gi/ing more -ifficulties making forecasts an-
a-apting t,emsel/es to t,e continuous c,anges) %n or-er to (e
a(le to compete in t,is kin- of 7orl-, it is necessary to inno/ate at
an e9traor-inary spee-, continuously impro/ing t,e pro-ucts,
ser/ices an- processes) For Tesco operations ,a/e (ecome
necessities rat,er t,an lu9uries) Systems t,at control stock, keep
all t,e stock an- -eli/eries recor-s an- analyse (usiness
transactions are t,e lifelines of t,e company) %t can also (e sai-
t,at %T ,as risen (eyon- its tra-itional support role an- taken up a
central role in (usiness strategy formulation)
E9tranet system employe- (y t,e company, ena(les Tesco to use
t,e %nternet to create proprietary an- customise- information flo7s
(et7een t,e company an- its (usiness partners) T,e system
connects (usiness partners online (e,in- /irtual fire7alls, (ringing
more fle9i(ility, scala(ility, e9tensi(ility an- integration across t,e
-istri(ution c,annels) E9tranet also ,elps to e9ten- t,e key
information on (usiness partners t,roug,out t,e supply c,ain an-
facilitate colla(orati/e relations,ips 7it, partners) Market
e9c,anges ,ol- t,e promise of e9ten-ing Tesco's reac,, -eli/ering
14
(uyers to t,eir /irtual -oorstep from aroun- t,e 7orl-) Ot,er
e9amples of t,e most efficient tec,nological a-/ances t,at support
-aily (usiness operations of Tesco are 7ireless -e/ices, intelligent
scale, electronic s,elf la(elling, self c,eck8out mac,ine an- ra-io
freDuency i-entification 5*F%+6 systems) T,is tec,nology is an
effort to maintain Tesco's a(ility to ,an-le an increase in
pro-uctEser/ice /olume 7,ile controlling costsA it also ena(les to
(e inno/ati/e an- market oriente-)
'.3 (upplier )anagement
Tesco, like many ot,er grocery c,ains companies, sources its
goo-s from o/erseas manufacturers 7,o are more competiti/e on
price an- /olumes) For many years Tesco ,as (een supporting
>ritis, Co(s an- e9pertise (y encouraging large (ran-e- suppliers
to -e/elop e9clusi/e pro-uction facilities) >ut in recent years t,e
company ,as realise- t,e nee- to look a(roa- for pro-ucts no
longer a/aila(le in #., (u- trie- to -o it t,roug, long8esta(lis,e-
#. partners) T,e foo-s continue- to (e ,ea/ily #.8(ase- -ue to
t,e /ery successful range of prepare- foo-s)
!s a maCor retailer selling -i/erse pro-uct range, t,ey 7ork 7it,
many -ifferent suppliers aroun- t,e 7orl-, 7it, employees from
many -ifferent cultures an- et,nic groups) T,erefore, it is t,e
15
company policy an- company's main approac, to ,a/e uniDue
relations,ips 7it, suppliers) !pplying a-/ance- tec,nology in its
communications an- cooperation 7it, t,e suppliers, t,e company
aims to control t,e 7ork of its suppliers an- ,ea/ily relies on t,eir
efficiency) T,e -irect suppliers use a num(er of su(8contracte-
suppliers, selecte- to (e (est in class in t,eir country) Tesco ,as
esta(lis,e- close relations,ips 7it, t,e contractors (elie/ing t,at
regular an- long term or-ers promote t,e in/estment necessary to
impro/e con-itions in t,e supply c,ain)
>eing an international company, Tesco -e/elops /arious supplier
management programmes to sur/ey key suppliers an- franc,isee
satisfaction) T,e company also takes part in t,e Et,nical Tra-ing
%nitiati/e)
T,e ta(le presente- (elo7 gi/es a strategic comparati/e analysis,
comparing Tesco's successful factors -iscusse- a(o/e 7it, t,e
same factors of t,e main competitors' in t,e #. grocery in-ustry)
T,e scores ,a/e (een gi/e 7it, t,e scale from 1 to 5
CSF Sains(ury's !s-a Safe7ay
>ran-ing 5 2)5 2
%T %ntegration = 2 2
16
Supplier
Management
5 2 =
Total := :1)5 ::
T,e results ,ig,lig,t t,at t,e main t,reat is potentially coming
from Sains(ury's t,at possesses a strong (ran- name an- is
carefully selects an- controls its suppliers)
5)1 !&!L?S%S OF *ESO#*CES, COMPETE&CE !&+
C#LT#*E
*.1 (+OT #nalysis
Tesco is t,e top grocer an- lea-ing retailer in its ,ome market of
t,e #.) Pitc,e- at t,e (roa- mi--le mass8market, it ,as
maintaine- its position t,roug, a clear focus, 7ell targete- pro-uct
offer an- e9cellent recor- (ot, in pro-uct an- format inno/ation)
Tesco also lea-s t,e 7orl- in online grocery retailing) %n t,e #.
t,e company concentrates on running grocery superstores, c8
stores an- an online ser/ice) Else7,ere t,e focus is usually on
,ypermarkets) %n 0112, t,e group's tra-ing recor- aroun- Europe
an- #. ,as (een outstan-ing)
T,e full SOT analysis of Tesco is presente- in !ppen-i9 >,
summari@ing t,e key issues from t,e (usiness en/ironment an-
17
t,e strategic capa(ility, inclu-ing resources an- competence, of
t,e company t,at are most likely to impact on strategy
-e/elopment
*.2 &ore &ompetence
Superior performance, accor-ing to Bo,nson an- Sc,oles 501126,
,as to (e -etermine- (y t,e 7ay in 7,ic, company's resources
are -eploye- to create competence in t,e organisational acti/ities)
Core competencies are acti/ities or processes t,at critically
un-erpin t,e company's competiti/e a-/antage) T,e primary
target for t,e company is to recogni@e t,at competition (et7een
(usinesses is as muc, a race for competence as it is for market
position an- market po7er) T,erefore, t,e goal for Tesco
management is to focus t,e attention on competencies t,at really
affect competiti/e a-/antage)
T,e competence lea-s to le/els of performance from an acti/ity or
process t,at is significantly (etter t,an competitors)
>enc,marking may ,elp in un-erstan-ing performance stan-ar-s
an- 7,at constitutes goo- or (a- performance) $o7e/er, it 7ill (e
crucial for Tesco to look at t,e generic le/el) Core competences
may (e em(e--e- -eep in Tesco at an operational le/el in t,e
7ork routines) T,e frame7ork -e/elope- (y Pra,ala- an- $amel
18
in t,e :331s suggests t,at o/er time companies may -e/elop ,ey
areas of e-pertise which are distincti!e to that company and
critical to the company.s long term growth /re0er$ 21112 /e
Toni$ and Tonchia$ 2113". 3n the case of Tesco the areas of
e-pertise are most li,ely to de!elop in the critical$ central
areas of the organisation where the most !alue is added to its
ser!ice and its deli!ery. For e9ample, trust in t,e Tesco (ran-
lies at t,e ,eart of t,ese ser/ices an- in 0112 t,e num(er of retail
ser/ice accounts rose (y 2rea-t, of pro-uct offerings, tec,nology,
special features, or customer ser/ice are popular approac,es to
-ifferentiation)
T,e last strategy of focus can (e eit,er a cost lea-ers,ip or
-ifferentiation strategy aime- to7ar- a narro7, focuse- market) %n
pursuing a cost lea-ers,ip strategy Tesco focuses on t,e creation
of internal efficiencies t,at 7ill ,elp t,em 7it,stan- e9ternal
pressures) T,erefore, it appears reasona(le to t,ink t,at Tesco
7ill ,a/e freDuent interactions 7it, t,e go/ernmentalEregulatory
an- supplier sectors of t,e en/ironment) %n accor-ance to t,is
frame7ork, 7,ile (ot, o/erall cost lea-ers,ip an- -ifferentiation
24
strategies are aime- at t,e (roa- market, Tesco may also c,oose
to confine t,eir pro-uct to specific market areas or may c,oose to
offer a smaller line of pro-ucts to t,e (roa- market, t,us pursuing
a strategy of focus or nic,e 5Porter, :3;16) %n ot,er 7or-s, Tesco
pursues a strategy of cost lea-ers,ip or -ifferentiation eit,er in a
specific market or 7it, specific pro-ucts)
T,e -anger some organisation face is t,at t,ey try to -o all t,ree
an- (ecome 7,at is kno7n as stuck in t,e mi--le) %n case of
Tesco it is not appropriate, as t,ey -o ,a/e a clear (usiness
strategy 7it, a clearly -efine- market segment)
G)1 M!*.ET O>BECT%"ES !&+ ST*!TEF%ES
%MPLEME&T!T%O&
Strategy frame7orks an- structuring tools are key to assessing
t,e (usiness situation) *isk an- /alue tra-e8offs are ma-e e9plicit,
lea-ing to concrete proposals to a-- /alue an- re-uce risk)
E9plicit plans for action, inclu-ing effecti/e planning nee- to (e
-e/elope- (y Tesco as t,e strategic alternati/e)
From t,e generic strategies -iscusse- a(o/e, Tesco is likely to
employ t7o strategic options t,at are also likely to (e primary
market o(Cecti/es of focus on market -e/elopment t,oug,
partners,ips an- -i/ersification t,roug, ne7 pro-uct -e/elopment)
25
Market +e/elopment Strategy: Boint +e/elopments an- Strategic
!lliances
>y entering ne7 markets like C,ina an- Bapan it can ser/e as a
key gro7t, -ri/er of t,e company's re/enues an- e9pansion
strategy) Tesco's interests in Bapan are likely to continue gro7ing
in -ue course, as !sian markets are s,o7ing an increase in
consumer spen-ing an- increase- tren- to7ar-s retailing) T,ese
ne7 markets are also -emograp,ically ,ig, opportunity markets)
%n t,e case of Tesco, one of t,e suggeste- strategic options is in
international alliances 7it, t,e local retailers in !sian markets) %t
7ill (e consi-ere- as a met,o- of -e/elopment an- may (e
forme- to e9ploit current resources an- competence) >y entering
into Coint /entures or partners,ips, in or-er to gain a larger
economy of scale an- larger market presence, Tesco 7ill -ra7 on
t,e e9tensi/e local kno7le-ge an- operating e9pertise of t,e
partner 7,ilst a--ing its o7n supply c,ain, pro-uct -e/elopment
an- stores operations skills to -eli/er a (etter s,opping e9perience
to customers) $o7e/er, gi/en t,e ,uge scale, potential an-
comple9ities of t,ese markets, Tesco may feel t,at (eing t,e first
mo/er is not necessarily an a-/antage) T,e success of t,e
partners,ip 7ill (e relate- to t,ree main success criteria:
26
sustaina(ility, accepta(ility an- feasi(ility) Sustaina(ility 7ill (e
concerne- 7it, 7,et,er a strategy a--resses t,e circumstances in
7,ic, t,e company is operating) %t is a(out t,e rationale of t,is
e9pansion8market -e/elopment strategy) T,e accepta(ility relates
to t,e e9pecte- return from t,e strategy, t,e le/el of risk an- t,e
likely reaction of stake,ol-ers) Feasi(ility 7ill (e regar-e- to
7,et,er Tesco ,as t,e resources an- competence to -eli/er t,e
strategy)
Pro-uct +e/elopment: +i/ersification
Bo,nson an- Sc,oles 501126 (elie/e t,at c,anges in t,e (usiness
en/ironment may create -eman- for ne7 pro-ucts an- ser/ices at
t,e e9pense of esta(lis,e- pro/ision) !nsoff's matri9 also
suggests t,at if ne7 pro-ucts are -e/elope- for e9isting markets,
t,en a pro-uct -e/elopment strategy ,as to (e consi-ere- (y t,e
management le/el of a company) %n e9pan-ing an- -i/ersifying
Tesco's pro-uct mi9, it is also crucial to implement internal
-e/elopment 7,en ne7 pro-ucts are -e/elope-) T,e nature an-
t,e e9tent of -i/ersification s,oul- also (e consi-ere- in relation to
t,e rationale of t,e corporate strategy an- t,e -i/ersity of t,e
portfolio) >y follo7ing t,e c,anging nee-s of t,e customers Tesco
27
can intro-uce ne7 pro-uct lines) T,is may reDuire more attention
to *'+, lea-ing to a--itional spen-ing)
T,e retailing in-ustry is e9periencing o/ercapacity an- inno/ati/e
ser/ices an- pro-ucts (eing t,e maCor competiti/e a-/antage)
T,erefore, inno/ation ,as to (e a maCor -ri/er for Tesco's pro-uct
-e/elopment) For e9ample, Tesco can -e/elop a portfolio of
-ifferent store formats in t,e #., eac, -esigne- to pro/i-e a
-ifferent s,opping e9perience) ,ile t,e maCority of Eastern
European an- Far Eastern outlets are ,ypermarkets, Tesco can
also -e/elop -ifferent store types in t,ese markets as 7ell) T,is
/alue a--e- (y t,e uniDueness 7ill e/entually lea- Tesco to
comman- a premium price) T,e management of tec,nological
inno/ation is increasingly in/ol/e- in strategic -ecision8making)
Tesco ,a/e to e9ploit t,eir internal strengt,s an- minimise t,eir
internal 7eaknesses in or-er to ac,ie/e sustaine- competiti/e
a-/antage 5!lt,oug, a competiti/e a-/antage is t,e goal
inno/ators 7ant to ac,ie/e, t,e a(ility to create platform5s6
-epen-s on ,o7 t,ey coul- manage t,e inno/ation) &e/ert,eless,
it -oes not mean t,at t,e inno/ator ,as to possess all reDuisite
capa(ilities, t,e important t,ing is t,e a(ility to organise an- use
t,e capa(ilities of ot,ers in or-er to create a (usiness platform6)
28
1 CO&CL#S%O&T,e success of t,e Tesco s,o7s ,o7 far t,e (ran-ing an-
effecti/e ser/ice -eli/ery can come in mo/ing (eyon- splas,ing
one's logo on a (ill(oar-) %t ,a- fostere- po7erful i-entities (y
making t,eir retiling concept into a /irus an- spen-ing it out into
t,e culture /ia a /ariety of c,annels: cultural sponsors,ip, political
contro/ersy, consumer e9perience an- (ran- e9tensions)
%n a rapi-ly c,anging (usiness en/ironment 7it, a ,ig,
competitors' pressure Tesco ,a/e to a-opt ne7 e9pansion
strategies or -i/ersifie- t,e e9isting in or-er to sustain its lea-ing
market position in an alrea-y esta(lis,e- retailing market) T,e
company must constantly a-apt to t,e fast c,anging
circumstances) Strategy formulation s,oul- t,erefore (e regar-e-
as a process of continuous learning, 7,ic, inclu-es learning a(out
t,e goals, t,e effect of possi(le actions to7ar-s t,ese goals an-
,o7 to implement an- e9ecute t,ese actions) T,e Duality of a
formulate- strategy an- t,e spee- of its implementation 7ill
t,erefore -irectly -epen- on t,e Duality of Tesco's cogniti/e an-
(e,a/ioural learning processes)
%n large organi@ations as Tesco strategy s,oul- (e analyse- an-
implemente- at /arious le/els 7it,in t,e ,ierarc,y) T,ese -ifferent
29
le/els of strategy s,oul- (e relate- an- mutually supporting)
Tesco's strategy at a corporate le/el -efines t,e (usinesses in
7,ic, Tesco 7ill compete, in a 7ay t,at focuses resources to
con/ert -istincti/e competence into competiti/e a-/antage)
!PPE&+%K >
SOT !&!L?S%S: TESCO
(ource4 )intel 6eport$ /atamonitor 6eports$ Tesco &ase
(tudies
Strengt,s
3ncreasing mar,et share4 Tesco ,ol-s a :24 s,are of t,e #.
retail market) %ts multi8format capa(ility means t,at it 7ill continue
30
to gro7 s,are in foo-, 7,ile increasing space contri(ution from
,ypermarkets 7ill allo7 it to -ri/e a ,ig,er s,are in non8foo-)
Tesco.s general growth and 6O3 show no sign of abating4 %n
t,e #., Tesco's late 0110 in/estment into est8mi-lan-s (ase-
con/enience store group T'S 7as (ille- as t,e most aggressi/e
mo/e into t,e neig,(or,oo- market (y a (ig8name retailer so far)
T,e -eal ,as turne- Tesco into t,e country's secon- (iggest
con/enience store c,ain after t,e Co8operati/e Froup, an- t,e
company also plans to open up 53 ne7 stores in t,e #. t,is year)
Tesco ,as gro7n its non8foo- -i/ision to t,e e9tent t,at its
re/enues no7 total 024 of total group earnings) Tesco's
international (usiness segment is gro7ing stea-ily, an- is
pre-icte- to contri(ute nearly a Duarter of group profits o/er t,e
ne9t fi/e years) %f geograp,ical sprea- continues to gro7, t,is 7ill
ensure Tesco's continue- regional strengt,)
3nsurance4 %n fiscal 0112 Tesco Personal Finance reac,e- t,e
milestone of one million motor insurance policies, making it t,e
fastest gro7ing motor insurance pro/i-er e/er) T,e
group's instant tra/el insurance allo7s Clu(car- ,ol-ers to (uy
t,eir ,oli-ay insurance con/eniently at t,e c,eckout) Pet
insurance no7 ,as o/er 221,111 cats an- -ogs co/ere-, 7,ile t,e
31
life insurance policy follo7e- on from t,e success of last year,
7,en it 7as /ote- T,e Most Competiti/e Life %nsurance Pro/i-er in
t,e MoneyFacts !7ar-s 0112)
Tesco online4 Tesco)com is t,e 7orl-'s (iggest online
supermarket an- t,is year t,e group ,a- sales of o/er L5GG
million, an increase of 034 on last year) Tesco online no7
operates in o/er 0G1 stores aroun- t,e country, co/ering 3ritis, Foo- Bournal, "ol) :15 %ssue
=, pp)0G=80G;A
*o7ley B) 501156 >uil-ing (ran- 7e(s: Customer relations,ip
management t,roug, t,e Tesco Clu(car- loyalty sc,eme,
%nternational Bournal of *etail ' +istri(ution Management, "ol) 22
%ssue 2, pp):3=801usiness Strategy *e/ie7, Summer, "ol) :5 %ssue :0, pp) :G80=A
Copyrig,t R 011580113 %/ory *esearc, Lt-) !ll rig,ts reser/e-)
!ll forms of copying, -istri(ution or repro-uction are strictly
pro,i(ite- an- 7ill (e prosecute- to t,e Full E9tent of La7)
51
doc_665860696.pdf