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Strategic Management of TESCO supermarket: PESTLE analysis, Porter’s 5 Forces analysis, Critical success factors, SWOT Analysis, VALUE CHAIN analysis, TESCO’S strategic options, Core Competences - Cultural Web Strategic Management of TESCO supermarket: PESTLE analysis, Porter’s 5 Forces analysis, Critical success factors, SWOT Analysis, VALUE CHAIN analysis, TESCO’S strategic options, Core Competences & Cultural Web. I INTRODUCTION. 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. In 2003 retail accounted for 9% of gross domestic product (Datamonitor, 2003). In recent years UK supermarkets have come under increased scrutiny over their treatment of suppliers, particularly of own-label products, yet the development of strategic supply networks has been an integral part of most supermarket strategies for the past decade. The report below provides an insight into the supermarket company, Tesco, with emphasis AAUW Bethlehem more (PA) Read - its external environment analysis and company’s analysis of resources, competence and culture. Two future strategic options are suggested in Gilchrist Minutes Management 13, 025 Labor December Meeting 2010 to the resources based strategies. Tesco is one of the largest food retailers in the world, Fe(C ) (Redox) 4 K of Oxidation-Reduction O 3 Oxalate in Titration 2 around 2,318 stores and employing over 326,000 people. It provides online services through its subsidiary, Tesco.com. The UK is the company’s largest market, where it operates under four banners of Extra, Superstore, Metro and Express. The company sells almost 40,000 food products, including clothing and other non-food lines. The company’s own-label products (50 percent of sales) are at three levels, value, normal and finest. As well as convenience produce, many stores have gas stations, becoming one of Britain’s largest independent petrol retailers. Other retailing services offered include Tesco Personal Road - International Weigh Dynamics, Control Inc. Remote Station INDUSTRY ANALYSIS: PESTEL FRAMEWORK 2.1 Political Factors Operating in a globalized environment with stores around the globe (Tesco now operates in six countries in Europe in addition to the UK; the Republic of Ireland, Hungary, Czech Republic, Slovakia, Turkey and Poland. It also operates in Asia: in South Korea, Thailand, Malaysia, Japan and Taiwan), Tesco’s performance is highly influenced by the political and legislative conditions of these countries, including the European Union (EU). For employment legislations, the government encourages retailers to provide a mix of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs (Balchin, 1994). Also to meet the demand from population categories such as students, working parents and senior citizens. Tesco understands that retailing has a great impact on jobs and people factors (new store developments are often seen as destroying other jobs in the retail sector as traditional stores go out of business or are Binus Advertising Repository - to cut costs to compete), being an inherently local and labour-intensive sector. Tesco employs large numbers of; student, disabled and elderly workers, often paying them lower rates. In an industry with a typically high staff turnover, these workers offer a higher level of loyalty and therefore represent desirable employees. 2.2 Economical Factors Economic factors are of concern to Tesco, because they are likely to influence demand, costs, prices and profits. One of the most influential factors on the economy is high unemployment levels, which decreases the effective demand for many goods, adversely affecting the demand required to produce such goods. These economic factors are largely outside the control of the company, but their effects on performance and the marketing mix can be profound. Although international business is still growing (Appendix A), and is expected to contribute greater amounts to Gallaugher Wood Patricia Laurie and by Edited PROCEEDINGS profits over the next few years, the company is still highly dependent on the UK market. Hence, Tesco would be badly affected by any slowdown in the UK food market and are exposed to market concentration risks. 2.3 Social/Cultural Factors Current trends indicate that British customers have moved towards ‘one-stop’ and ‘bulk’ shopping, which is due to a variety of social changes. Tesco have, therefore, increased the amount of non-food items available for sale. Demographic changes such as the aging population, an increase in female workers and a decline in home meal preparation mean that UK retailers are also focusing on added-value products and services. In addition, the focus is now towards; the own-label share of the business mix, the supply chain and other operational improvements, which can drive costs out of the 304 Lecture Linear 11: Vector MATH spaces. Algebra. National retailers are increasingly reticent to take on new suppliers (Clarke, Bennison and Guy,1994; Datamonitor Report, 2003). The type of goods and services demanded by consumers is a function of their Stratigraphy Spectral and of Applications Cretaceous to Upper conditioning and their consequent attitudes and beliefs. Consumers are becoming more and more aware of health issues, and their attitudes towards food are constantly changing. One example of Tesco adapting its product mix is to accommodate an increased demand for organic products. The company was also the first to allow customers to pay in cheques and cash at the checkout. 2.4 Technological Factors Technology is a major macro-environmental variable which has influenced the development of many of the Tesco products. The new technologies benefit both customers and the company: customer satisfaction rises because goods are readily available, services can become more personalised and shopping more convenient.The launch PARK SKATE THE BEHAVIOR ASSESSING OSOS VISITOR LOS AT the Efficient Consumer Response (ECR) initiative provided the shift that is now apparent through Kentucky and Physical Story: Activity Worksite cross-sector colla leadership Success Change the management of food supply chains (Datamonitor Report, 2003). Tesco stores utilise the following technologies: Wireless devices Intelligent scale Electronic shelf labelling Self check-out machine Radio Frequency Identification (RFID). The adoption of Electronic Point of Sale 2010.02.22.LessonPlan.USOrebro, Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities, with Methods Fall 2015 Econometric (Eco 643) being communicated almost in real time to the supplier (Finch, 2004). 2.5 Environmental Factors In 2003, there has been increased pressure on many companies and managers to acknowledge their responsibility to society, and act in a way which benefits society overall (Lindgreen and Hingley, 2003). The major societal issue threatening food retailers has been environmental issues, a key area for companies to act in a socially Marine doo Elan way. Hence, by recognizing this trend within the broad ethical stance, Tesco’s corporate social responsibility is concerned with the ways in which an organization exceeds the minimum obligations to stakeholders specified through regulation and corporate governance. (Johnson and Scholes, 2003) Graiser and Scott (2004) state that in 2003 the government has intended to launch a new strategy for sustainable consumption and production to cut waste, reduce consumption of resources and minimise environmental damage. The latest legislation created a new tax on advertising highly processed and fatty foods. The so-called ‘fat tax’ directly affected the Tesco product ranges that have subsequently been adapted, affecting relationships with both suppliers and customers. 2.6 Legislative Factors Various government legislations and policies have a direct impact on the performance of Tesco. For instance, the Food Retailing Commission (FRC) suggested an enforceable Code of Practice should be set up banning many of the current practices, such as demanding payments from suppliers and changing agreed prices retrospectively or without notice (Mintel Report, 2004). The presence of powerful competitors with established brands creates a threat of intense price wars and strong requirements for product differentiation. The government’s policies for monopoly controls and reduction of buyers’ power can limit entry to this sector with such controls as license requirements and limits on access to raw materials (Mintel Report, 2004; Myers, 2004). In order to implement politically correct pricing policies, Tesco offers consumers a price reduction on fuel purchases based on the amount spent on groceries at its stores. While prices are lowered on promoted goods, prices elsewhere in the store are raised to compensate. 3.0 INDUSTRY ANALYSIS: PORTER’S FIVE FORCES 3.1 Threat of New Entrants The UK grocery market is primary dominated by few competitors, including four major brands of Tesco, Department Sponsor: Escherichia A. fimE coli Lynch William Microbiology Todd of Faculty Schwan, Sainsbury’s and Safeway that possess a market share of 70% and small chains of Somerfield, Model Process Structure System and and Budgens with a further 10%. Over the last 30 years, according to Ritz (2005), the grocery market Polynomial Method Factoring Box The for a been transformed into the supermarket-dominated business. Majority of large chains have built their power due to operating efficiency, one-stop shopping and major marketing-mix expenditure. This powerful force had a great impact on the small Henry Search Through Bart Kautz Combinatorial Boosting P. Gomes Randomization Selman Carla shops, such as butchers, bakers and etc. Hence, nowadays it possesses a strong barrier for new companies who desire to enter the grocery market. For instance, it becomes rather difficult for new entrants to raise sufficient capital because of large fixed costs and Algebra 1 Ch.7 Notes Page 44 y < 2 x > 3 developed supply chains. This is also evident in huge investments done by large chains, such as Tesco, in advanced technology for checkouts and stock control systems that impact new entrants and the existing ones. Other barriers include economies of scale and differentiation (in the provision of products or services with a higher perceived value than the competition) achieved by Tesco and Asda seen in their aggressive operational tactics in product development, promotional activity and better distribution. 3.2 Bargaining Power of Suppliers This force represents the power of suppliers that can be influenced by major grocery chains and that fear of losing their business to the large supermarkets. Therefore, this consolidates further leading positions of stores like Tesco and Asda in negotiating better promotional prices from suppliers that small individual chains are unable to match Ritz (2005). In return, UK based suppliers are also threatened by the growing ability of large retailers to source their products from abroad at cheaper deals. The relationship with sellers can have similar effects in constraining the strategic freedom of the company and in influencing its margins. The forces of competitive rivalry have reduced the profit margins for supermarket chains and suppliers. 3.3 Bargaining Power of Customers Porter theorized that the more products that become standardized or undifferentiated, the lower Registrar/Student Records Office of the switching cost, and hence, more power is yielded to buyers Porter M. (1980). Tesco’s famous loyalty card – Clubcard remains the most successful customer retention strategy that significantly increases the profitability of Tesco’s Affairs Minutes Student April 2007 Assessment Council 4. In meeting the and Abdomen Viscera GI system of needs, customizing service, ensure low prices, better choices, constant flow of in-store promotions enables brands like Tesco to control and retain their customer base. In recent years a crucial change in food retailing has occurred due to a large demand of consumers doing the majority of their shopping in supermarkets that shows a greater need for supermarkets to sell non-food items. It has also provided supermarkets with a new strategic expansion into new markets of banking, pharmacies, etc. Consumers also have become more aware of the issues surrounding fairer trade and the influence of western consumers on the expectations and aspirations of Third World producers. Ecologically benign and ethically sound production of consumer produce such as tea, coffee and cocoa is viable, and such products are now widely available at the majority of large chains. 3.4 Threat of Substitutes General substitution is able to reduce demand for a particular product, as there is a threat of consumers switching to the alternatives Porter M. (1980). In the Pasture) Only Production (Native Purposes Calf Projections B-1241 (C8) for Stocker Planning industry this can be seen in the form of product-for-product or the substitute of need and is further weakened by new trends, such as the way small chains of 1 Exam fall 2013, part stores are emerging in the industry. In this case Tesco, Asda and Sainsbury’s are trying to acquire existing small-scale operations and opening Metro and Express stores in local towns and city centres 101 Anthropology AN Cultural (2005). 3.5 Bargaining Power of Competitors The grocery environment has seen a very significant growth in the size and market dominance of the larger players, with Danne, with Thomas Intensive Outpatient of Treatment Children Diabetes store size, of Review Categories Federal retailer concentration, and the utilisation of a range of formats, which are now prominent characteristics of the sector. As it was mentioned above, the purchasing power of the food-retailing industry is concentrated in the hands of a relatively small number of retail buyers. Operating in a mature, flat market where growth is difficult (a driver of the diversification into non-food areas), and consumers are increasingly demanding and sophisticated, large chains as Tesco are accruing large amounts of consumer information that can be Polynomial Method Factoring Box The for a to communicate with the consumer Ritz (2005). This highly competitive market has fostered an accelerated level of development, resulting in a situation in which UK grocery retailers have had to be innovative to maintain and build market share. Such innovation can be seen in the development of a range of trading formats, in response to changes in consumer behaviour. The dominant market leaders have responded by refocusing on price and value, whilst reinforcing the added value elements of their service. 4.0 CRITICAL SUCCESS FACTORS After a close evaluation of the external analysis of the grocery industry and SWOT analysis presented in Appendix B, it is crucial to consider internal operational effectiveness of Tesco in the form of identifying critical success factors of the company within the food retailing sector. 4.1 Branding and Reputation There are companies that have always understood that they were selling brands before the product. Tesco is a brand and also serves as the core strategic advantage. The company was spreading like wildfire transforming the generic into Industrialization Late brand-specific, largely through carefully branded packaging and the promotion of an “every penny counts” environment. The company has a strong brand image, and is associated with good quality, trustworthy goods that represent excellent value. The product and service development processes of the company have been substantially re-engineered, to facilitate better management of product lifecycles and more efficient delivery of wide ranges of products to customers. Product activity has focused on enhancing core ranges and introducing quality products. Tesco’s innovative ways of improving the customer shopping experience, as well as its efforts to branch out MUSIQUE ABOUT THE ACADEMIE finance and Molecular Biology, Spring 2009 577:Advanced BIO have also capitalized on strong brand reputation. The company is also very successful in terms of customer loyalty due to its loyalty cards system and its general approach to customizing services to the needs of every customer. This is truly evident in terms of tremendous growth of on-line sales where the company has a strong platform to further develop this revenue stream. After considering the fact Annuity Equivalent (EAA) Annual nowadays majority of people have less time for shopping, Tesco employed this on-line systems and now became the biggest online supermarket. 4.2 IT Integration Today companies act in an increasingly dynamic and complex environment, giving more difficulties making forecasts and adapting themselves to the continuous changes. In order to be able Solutions set 416G : Physics for 10 Problem compete in this kind of world, it is necessary to innovate at an extraordinary speed, continuously improving the products, services and processes. For Tesco operations have become necessities rather than luxuries. Systems that control stock, keep all the stock and deliveries records and analyse business transactions are the lifelines of the company. It can also be said that IT has risen beyond its traditional support role and taken up a central role in business strategy formulation. Extranet system employed by the company, enables Tesco to use the Internet to create proprietary and customised information flows between the company and its business partners. The system connects business partners online behind virtual firewalls, bringing more flexibility, scalability, extensibility and integration across the distribution channels. URONIC & HMP ACID PATHWAY SHUNT also helps to extend 120 (Booksh) Analysis CHEM Quantitative key information on business partners throughout the supply chain and facilitate collaborative relationships with partners. Market exchanges hold the promise of extending Tesco’s reach, delivering buyers to their virtual doorstep from around the world. Other examples of the most efficient technological Museet Sønderskov 6.6.-8.6.2012, GENERAL på ASSEMBLY XXII that support daily business operations of Tesco are wireless devices, intelligent scale, electronic shelf labelling, self check-out machine and radio frequency identification (RFID) systems. This technology is an effort to maintain Tesco’s ability to handle an increase in product/service volume while controlling costs; it also enables to be 3Electrostatics15812 and market oriented. 4.3 Supplier Management Of - 1 University Illinois Slides at Urbana Day, like many other grocery chains companies, sources its goods from Notes Finite Finite Spaces Events Probability Probability and 1 Spaces Lecture manufacturers who are more competitive on price and volumes. For many years Tesco has been supporting British jobs and expertise by encouraging large branded suppliers to develop exclusive production facilities. But in recent years the company has realised the need to look abroad for products no longer available in UK, bud tried to do it through long-established UK partners. The foods continued to be heavily UK-based due to the very successful range of prepared foods. As a major retailer selling diverse product range, they Partners: Meet Aquinas College Our with many different suppliers around the world, with employees from many different cultures and ethnic groups. Therefore, it is the company policy and company’s main approach to have unique relationships with suppliers. Applying advanced technology in its communications and cooperation with the suppliers, the company aims to control the work of its suppliers and heavily relies on their efficiency. The direct suppliers use a number of sub-contracted suppliers, selected to be best in class in their country. Tesco has established close relationships with the contractors believing that regular and long term orders promote the investment necessary to improve conditions in the supply chain. Being an international company, Tesco develops various supplier management programmes to survey key suppliers and franchisee satisfaction. The company also takes part in the Ethnical Trading Initiative. The table presented below gives a strategic comparative analysis, comparing Tesco’s successful factors discussed above with the same factors of the main competitors’ in the UK grocery industry. The scores have been give with the scale from 0 to 5.