A Case Study Documenting Tesco’s Success and Challenges.
Tesco is one of the world’s leading retailers with over 2100 supermarkets, in Europe, US and South East Asia. The group has interests in grocery, non-food items, financial services and telecommunications. It is committed to reducing prices for customers and offering the best value. It seeks to help customers spend less. For 2007, sales were £42,633.4 (mill) and it experienced sales growth of 21.9%. Tesco has over 400,000 employees.
Some of the key reasons for Tesco’s success include:
Tesco has been particularly successful because of its powerful brand. It has a reputation for value, low prices and for being customer focused. Its brand equity and associations have helped the company to expand into new sectors and markets. Tesco has also been strong in public relations, advertising and building profile in catchment areas on a local level. This local approach to marketing appears to be a key driver for success.
Tesco has a good range of products, including own label products. It seeks to provide excellent customer service, and ensure high levels of customer satisfaction. The own label products have helped strengthen profits for the group, and it broad appeal through good, better, best (finest ranges) caters for the widest consumer audience.
Aggressive overseas expansion has helped to keep profits high. The organisation has expanded into Eastern Europe, emerging nations such as China and South Korea and even the US, through mid market supermarkets known as, “fresh and easy”. Its strategy of being close to the customer has been assisted in the UK specifically, when Tesco developed different formats for shopping (convenience, metro, express, superstores). It has been the best retailer for format delivery and obtaining some of the best retail positions.
It gained a first mover advantage when it launched Tesco.com, which is one of the biggest and most successful online retailers. This part of the business continues to grow market share and has provided a channel to sell non-food items and other areas of the business including finance.
Information technology has revolutionized the retailer, not only in stock-control and distribution worldwide, but also in terms supplier management. It has enabled better I) retailer-manufacturer innovation ii) shorterning of decision making and greater knowledge sharing.
Tesco is one of the most advanced companies in consumer understanding aided by IT (e.g. Dunhumby and Tesco Clubcard data). Consumer data has i) shaped product offerings ii) ranges iii) given Tesco a better understanding of consumer segments and shopping profiles and iv) helped marketing to build loyalty and develop promotion offerings that suit target groups. This level of sophistication has helped Tesco to remain leader within the UK market.
Suppliers are internationally sourced, and Tesco gains scale economies from its large buying volumes. This has enabled the company to keep prices down and supported its low price strategy aimed at the broad consumer market.
However, the company has been criticized for its management of suppliers and clashes with the farmers union. There has been growing opposition to the supermarket because of its size, and the government (through the Monopolies and Mergers Commission) has been involved in ensuring competitive markets in the UK. Recent acquisitions such as T&S stores, have led to a high concentration, with only few dominant players within the market.
The organisation has a diversified product portfolio, which includes telecommunications, finance, insurance, which provides cross and up sell opportunities to customers. Profits have been invested to support research and development, and its aggressive international expansion plans.
Challenges and outlook for the Tesco Stores Ltd:
Intense competitive rivalry within the UK retail market is forcing retailers to look at cost savings and ways that they can differentiate from competitors. The retail market is mature and oligopolistic in its nature, with a few major multiple retailers dominating the market. Intense competition between the large retailers has to price wars with Asda and Tesco and low price competitors – Netto and Lidl are reducing margins for the industry as a whole.
Tesco has looked to increasing efficiency and effectiveness. Cost savings have been sought from the supply chain, through better use of IT, and from policies and management of suppliers to ensure the greatest value to the business and customer.
The market is highly regulated. The monopolies and mergers commission has been monitoring the market to ensure fair competition.
The government has also been active in planning restrictions for new store openings. Growth appears to come from gaining new customers, improving product offerings, and from higher margin items such as clothing, appliances and other non-food offerings. Many retailers have looked overseas to fuel growth.
Customers are still king. Success in the industry is still dependent on how well the retailer can meet the customer needs. Price, particularly in the UK has become a dominant feature. If the UK and US enter a recession, this will put added pressure on retailers to keep prices low. Household budgets may tighten, which could lead to reduced consumer spending.
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