Strategic Analysis Of Tesco PLC In Retail Business Sector (essay).

Conduct a strategic analysis of both the internal and external environment relating a company operates in the retail business sector. Students are required to examine the strategic choices facing this organisation and evaluate these choices as to their suitability, acceptability and feasibility. Students should also provide a critique of contemporary strategic management research and practice within the report.

The purpose of this report is to study the relationship and the requirement to know about the compatibility between corporate strategies and functional management policies. The various aspects of the corporate strategies look into the external and internal influences of the corporate objectives and strategies of the company. The report further shows the flexibility in the strategic management and the practical limitations of quantifying the same.

For the purpose of this study and UK-based supermarket chain Tesco PLC has been selected. It was founded in the year 1920 in the East London region. The company is known to be one of the largest British retailers in terms of global sales and domestic market share. It operates more than 2440 stores and has a workforce of more than 400000 people. The ecommerce section is recognized to be one of the largest online networks of customers with more than 250000 orders a week. The company has decided to move into areas such as clothes, consumer financial services, electronics, consumer telecoms and gas stations (Tesco plc. 2016).

Assessment of strategy purpose

Mission

Mission statement of Tesco PLC is to create value for the existing customers and earn their loyalty for lifetime.

Vision

The vision at Tesco is to be among the most valued brand by the customers served by the company, serving the operating communities, to be loyal and have a committed workforce and shareholders; the company aims to be growth oriented applying modern and innovative skills both locally and globally.

Values

The value of the company focuses on understanding the customers, giving top priority to meet their needs and having a high amount of responsibility for the communities. Tesco lays an augmented focus towards understanding and listening to people. It also believes in working as a team, trusting and showing the respect for individual customers. It works for recognition and reward for both colleagues and their customers. The values of the company further includes to reduce wastage on a global scale and ensure the surplus food is provided to the needy population of the society, it works for providing a lifestyle for the people. The company also works for sourcing good quality sustainable products for all class of people the society and hence it works to make a positive change in the operating communities.

Assessment of strategy purpose

From the beginning of the year 1997, the company has taken several steps to expand its business both at local level and international under the leadership of Terry Leahy which focused on the welfare of both the customers and the employees. This shows the direct relationship of the strategic vision with the functional operations of the company. The primary expansion strategy has always been to make use of innovation in its expansion policies. In order to justify its mission the marketing team initially led by Grant Harrison introduced loyalty club cards. The benefit of this facility led to receiving of extra point on purchase of every pound worth of goods. As the customers kept on adding points on purchase of products, the company provided the scope of discount on next purchase. This policy of company shows creation of value and earning loyalty from their valued customers. (Taylor 2012).

Macro environmental analysis

The PESTLE analysis has been used show the macro environmental factors affecting the competitive advantage of the company.

Political factor

The rise of retail companies has an influential role in defining the political factors and performance of Tesco PLC. The present tax rate, legislation policies encourage the retailers for creation of jobs on a domestic basis. Considering the size of the organization like Tesco, the company plays a crucial role in creating employment opportunities on a local basis and this also leads to increasing the demand for its products and diversification of role of the employees (Contributor 2014)

Economic factors

Tesco PLC is mostly dependent on the market share of UK, as it has more than 30% market share in the country. The changes in the economic factors are most likely to affect locally rather than globally. The economic factors may affect the average cost, profits, and prices of the various types of products available with the company. It is important for the company to be of your of changes in the policies in the taxes and the factors which could affect the availability of liquid flow of money for the company. The internationalization and diversification focuses on advertising economic products of the company rather than luxurious items. This strategy was undertaken by the company create a balance in the disposable income levels and household incomes. (BBC 2014)

Social factors

There has been a lot of change in the present trend of shopping. The society of UK prefers one-stop shopping rather than shopping in bulk. Due to this change in the social pattern the company has added more number of nonfood items for sale. The nature of goods and services demanded by the customers is mostly dependent on the attitudes and beliefs which is further influenced by the social condition. This change in the behavior is due to the awareness of rising health issues among the consumers and this is the change the demand for items. In order to adapt to these changes the company is working on meeting the demand for organic and healthy products. (BBC 2014)

Mission

Technological factors

With the advent of e-commerce and online shopping Tesco PLC has experienced a lot of opportunities by the advancements in technology. The facility of online shopping and home delivery has led to broadening of the customer base. Moreover the self-service checkout point offered by the company provides the convenience for a quick transaction with the customers. In order to meet the long-term objectives Tesco has implemented energy efficiency projects to reduce the carbon footprint (Neville 2013)

Ecological factors

The company is committed to reduce the carbon footprint as much as 50% by the year 2020. It also aims to reduce the waste produced in the individual stores by creating happiness on the customers and promoting clinginess inside the stores.

Legislative factors

The various types of government policies and legislative measures have a direct impact on the performance of the company. In the past government policies taken by food retailing commission in the year 2004 suggested to introduce a code for practice which would then abolish many current practices including making changes in price without notice and demanding payments from the suppliers. In order to facilitate these changes the companies provided its customer price reduction on purchase of fuel and spend the same amount on grocery stores. The company also implemented several promotional offers which offered products at a lower price ( Mankiw 2012).

The general model of implementation of Porter’s five forces has been shown below as follows:

Figure 1: Components of Porter’s five forces

(Source: E. Dobbs 2014)

Threat of substitute products and services

The threat of substitute products in a grocery retail chain like Tesco PLC is considered to be low for the items and medium to high for the non-products. The food retail chain operated by small chains of convenience stores, organic shops, off licenses shops are not seen as a major threat to supermarkets like Tesco which is known to offer high quality of products at economic price. (Magretta 2013).

On the other hand the threat of substitutes for nonfood items like clothing is considered to be quite high. Due to the prevailing recession in the country the customers are inclined to obey discounted prices, hence the company is a major threat to the specialty shops. (Winnett 2012)

Threat of new entry of competitors

As it needs huge capital investment to establish a brand name the threat of new entrants in the retail industry to compete with Tesco PLC is relatively low (Poulter 2014).

Vision

Intensity of competitive rivalry

The intensity of competitive rivalry is fairly high due to the existing competition from companies like Waitrose, Asda, Morrisons and Sainsbury. Some of the discount retailers like Aldi and Lidl is also known to surpass the sales of Tesco PLC during recession. (Reuters 2014)

Bargaining power of buyers

The customers are more attracted towards the low prices hence bargaining power of buyers is fairly high. The customers can make the switch to a different brand very easily. (Merchant 2014)

Bargaining power of the suppliers

The suppliers are always concerned for their contracts with large supermarkets and retailers like Tesco, Sainsbury and Asda. The suppliers tend to offer the lowest possible price to survive in the cutthroat competition. Hence the bargaining power of suppliers is fairly low (Reuters 2014)

Comparison of the basic and the unique resources

The basic resources of the company includes the general line of products in the nonfood items such as clothing, electronics, petrol station, telecom services and financial services through Tesco bank. The food items of the company includes the fast-moving consumer goods required for daily usage and. Some of the unique features of the company include international growth in the non food and retail industry.  The increasing market share, insurance and brand value through to school online services has added to the uniqueness of the company (Mentis 2012)

The main business function of the company lies in proper customer service, research and development, administration, providing human resources facilities, sales, distribution, marketing and implementation of Internet communications technology. The company aims to create value for collaboration of its core functional areas with IT services.

Figure 2: Functional areas of Tesco

(Source: Reuters 2014)

The Porter’s generic strategy is used to show the competitive advantage of the company over other existing markets. It is one of the traditional methods to examine the environment and know about strategy position of a particular firm. The critique of porter’s generic strategy formulated by Bowman is believed to be more effective to understand the requirements of the customer. In relation to the porters generic strategy the company holds the position of cost leadership unless it can manage to differentiate its line of clothing and introduce charge premium price on their apparels.

In relation to the Bowman strategy clock the company is best suited to adopt hybrid strategy with element of both cost leadership and differentiation. A hybrid strategy is known to achieve lower price than its competitors simultaneously it can be argued Tesco needs to keep the prices on the higher side if differentiation needs to be achieved by the company.

Values

Figure 3: Bowman’s strategy clock

(Source: Shakhshir 2014)

Application of Ansoff’s Matrix

6.1.1. Market Penetration - the company can look forward to increase the market share by increasing the share of grocery business at the expense of its competitors like Sainsbury.

6.1.2. New Product Development- the expansion of business in petrol sales and development of financial services can bring about this intended change by the company.

6.1.3. New Market Development - Tesco PLC can look forward to bring market development by moving into convenience to market and expansion in international market

6.1.4. Diversification- the diversification strategy comprises of high-risk. This includes Tesco exploring its business horizons such as automobile industry.

In order to choose the Ansoff’s matrix for suitability the company needs to ensure market penetration strategy and product diversification. This should be done as per the suitability of the consumers (Taylor 2012).

Conclusion and recommendations

Based on the several findings of the report it can be concluded that porter’s strategy is relevant to identify the company positioning of the company. By knowing the competitive advantage researchers have been able to identify Tesco as the third-largest grocery retailer in the world. The company needs to work on its strength such as high brand value, use of technology and international presence in more than 13 countries. At the same time Tesco should reduce its dependency on the UK market and work on reducing the high transportation cost. The company can work on his opportunities such as strategic alliance with other companies and entering Asian markets for further expansion and growth.

Reference List

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BBC 2014. UK Economy Grew 0.9% in Second Quarter, says ONS [online]. Available from: https://www.bbc.com/news/business-29422267 [Accessed 1 October 2014].

Contributor, P. 2014. PESTLE Analysis for Tesco discusses its Business Environment. [online] PESTLE Analysis. Available at: https://pestleanalysis.com/pestle-analysis-tesco/ [Accessed 20 Jul. 2016].

2014. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.

Magretta, J., 2013. Understanding Michael Porter: The essential guide to competition and strategy. Harvard business press.

Mankiw, N. G. 2012. Principles of Economics. Sixth Edition. Mason: South-Western Cengage Learning.

Mentis, P., 2012. Tesco PLC's entry mode in the Slovenian retail market.

Merchant, H., 2014. Configurations of governance structure, generic strategy, and firm size: opening the black box of value creation in international joint ventures. Global Strategy Journal, 4(4), pp.292-309.

Neville, S. 2013. 'Tesco is still UK's Top Retail Brand despite Horsemeat Scandal, says Report', The Guardian [online]. Available from: https://www.theguardian.com/business/2013/mar/19/tesco-retail-brand-horsemeat-scandal [Accessed 2 October 2014].

Poulter, S. 2014. 'Price War at the Checkout: Rival Supermarkets Forced to Fight Back after Morrisons Slash £1 Billion off the Cost of Basic Food', Daily Mail [online]. Available from: https://www.dailymail.co.uk/news/article-2579920/Morrisons-vows-Lidl-Aldi-slashing-prices.html [Accessed 3 October 2014].

Pratley, N. 2013. 'Tesco and the Horsemeat Scandal: Answers Needed Quickly', The Guardian [online]. Available from: https://www.theguardian.com/business/nils-pratley-on-finance/2013/jan/16/tesco-horsemeat-scandal-reaction?guni=Article:in%20body%20link [Accessed 1 October 2014].

Reuters 2014. Financials: Tesco PLC (TSCO.L) [online]. Available from: https://www.reuters.com/finance/stocks/financialHighlights?symbol=TSCO.L [Accessed 2 October 2014].

Shakhshir, G., 2014. Positioning Strategies Development. The Annals Of The University Of Oradea, 977, pp.416-437.

Taylor, E.C., 2012, January. COMPETITIVE IMPROVEMENT PLANNING: USING ANSOFF'S MATRIX WITH ABELL'S MODEL TO INFORM THE STRATEGIC MANAGEMENT PROCESS. In Allied Academies International Conference. Academy of Strategic Management. Proceedings (Vol. 11, No. 1, p. 21). Jordan Whitney Enterprises, Inc.

Tesco plc. 2016. Core Purpose and Values. [online] Available at: https://www.tescoplc.com/about-us/core-purpose-and-values/ [Accessed 20 Jul. 2016].

Winnett, R. 2012. 'Supermarkets Face Large Fines for Abusing Farmers', The Telegraph [online]. Available from: https://www.telegraph.co.uk/earth/agriculture/supermarkets/9720989/Supermarkets-face-large-fines-for-abusing-farmers.html [Accessed 2 October 2014].