Tesco PLC is a global grocery and merchandise retailer based in the UK. It is the ninth largest retailer in the world measured by revenues and third largest retailer in the world measured by profits. (Dhiraj, 2017). Tesco became the UK's biggest retailer with 79 million shopping trips made every week. (Tesco PLC, 2017).
This report includes an internal and external analysis of the company as well as the background of it and the strategies that are being used by Tesco in order to maintain its market advantage against the competitors.
Company name Tesco PLC
Founded in 1919 – by Jack Cohen
Industry area Retailing goods and services
Overall, there are 6,553 stores all over the world with 3,433 based in the UK
3. External Analysis
Figure 2 PESTEL
• Tesco operates in 11 countries all over the world so the performance of the business might be affected by the local political conditions.
• Because of the financial uncertainty around the world, governments are encouraging businesses to create jobs for the local population
• Discuss Brexit in detail
• Cost of labour is a main economic factor that affects the revenues of the company. Tesco spends annually £4.5 billion on salaries. An increase by 1 percent of the cost of labour costs the company around £45 million. (Farrell, 2017)
• In 2016, the national minimum wage was increased to £7.20. This means that this decision cost Tesco £495 million. (Farrell, 2017)
• The macroeconomic situation in the UK, rate of inflation, monetary and fiscal policies announced by the government affected Tesco revenues.
• Healthy eating is becoming very popular nowadays and it is an important factor that affects food and grocery industry. Tesco needs to concentrate on selling and promoting healthier food.
• Customers are becoming more interested in the ethical and sustainable sourcing of products. This is a social factor that is neglected by the majority of supermarket chains. Tesco is trying to focus on this factor by increasing Organic Fair Trade products. (Tesco Plc, 2017)
• Another social factor that affects Tesco is demographic changes, change in consumer awareness and attitudes to eating patterns and media's opinion of the brand.
• One of the most recent social impact in this day is consumer need for convenience and price.
• Technology development has helped Tesco to discover opportunities. One of them is online shopping which is spread in two categories: Click & Collect delivery to customers' house.
• Another factor is self-check-out points which have helped to reduce labour cost.
• Advanced technologies that Tesco uses improved customer satisfaction. Technologies that Tesco uses are:
Electronic shelf labelling
Electronic fund transfer system
Radio frequency identification
• Air pollution, global warming, thickening of the ozone layer are all factors that affect Tesco's performance.
• Nowadays, companies are expected to look into environmental issues. For example, Tesco is trying to reduce its carbon footprint by 7% by 2020. (Tesco Plc, 2017)
• Tesco is affected by some legal factors such as trade regulations, data protection regulations and so on.
• Health and safety regulations, consumer protection laws and employment laws need to be followed by Tesco. Changes in these laws could affect Tesco performance.
3.2 Porter's Five Forces
Figure 3 Porter's Five Forces
Threat of substitute products or services
This is irrelevant for Tesco because Tesco sells various products such as:
• Health and beauty
• Home electrical
• Clothing and jewellery
• Baby and toddler
• Home electrical
Tesco sells various products, as well as, subsites for most of the products which means that the danger of substitute products and services for Tesco is not relevant.
Rivalry among existing firms
Rivalry in supermarkets chain is fierce. The major factors affecting the competition between grocery retailers are: the amount of money spent on advertising and the differentiation of products and services. As it is shown below in Figure 1, even if there are various competitors in the UK's grocery retail industry, Tesco remains a market leader.
(BBC News, 2017) Figure 1 Market Share Chart
Bargaining power of suppliers
Bargaining power of Tesco suppliers is low. Tesco has a lot of suppliers and the cost of changing the supplier is very small or sometimes it doesn't exist. The company is known for using its large buying influence in order to delay the payment to suppliers. In this way, the company can improve its operating profit margins (BBC News, 2016). These incidents attracted media coverage that damaged the brand image.
Threat of new entrants
The threat of new entrants is not substantial. Starting a business in the grocery retail industry requires a lot of money to be invested in so because of this the threat of new entrants is reduced. Also, this is not the best time to enter the grocery retail market because the market is almost saturated in most of the countries.
Bargaining power of buyers.
Bargaining power of Tesco buyers is immense. Because of the level of competition in the market and the absence of switching cost for buyers, their bargaining power is increased. Also, the customers of Tesco are focused on prices and they have thorough information about the products.
4. Internal Analysis
4.1 Value Chain
Figure 4 Value Chain Analysis
The inbound logistics of Tesco are complex due to the large number of Tesco stores all over the world. As a result of the big scope of Tesco's operations, economies of scale is very important in order to create brand value. Tesco invests a lot of money to expand the capacity of logistics so that the economies of scale can be exploited more. For instance, in 2013 government wanted to test the effectiveness of longer trails. Tesco received 25 brand-new 51 foot Gray & Adams refrigerated units which could carry 51 cages (UK transport units), six more than a 45-foot trailer. The logistics productivity increased by 13% thanks to this change (O'Reilly, 2013).
Tesco operations can be split into three segments:
1. Retail. This is the fundamental of TESCO. There are 79 million shopping trips made around the world and extensive and this made the scope of Tesco's retail operations extensive (Tescoplm.com, 2017). The stores are ran in the following set-up:
a. Express. This is the smallest sized store. The Express store tries to offer convenience by selling fresh food as close as possible to work and home. These stores are designed for small shopping visits.
b. Metro. These stores sell various food and some general items like greetings card and cookware.
c. Superstore. These stores offer a wide range of food and other products. Every Tesco Superstore has a bakery.
d. Extra. This is the largest sized store. The Extra stores sells a great variety of products which includes clothing, electrical equipment and health and beauty services.
2. Manufacturing. Tesco has its own products called Everyday Value. Last year, Tesco released 76 lines with fictional farm names across seven brands in order to revamp its budget (Smithers, 2016). This move also helps Tesco to compete against Aldi and Lidl.
3. Banking. Tesco Bank is a bank which is 100% owned by Tesco. Currently, there are 3000 employees which are serving around 7 million customers (Tesco plc, 2017). Originally, Tesco Bank was a joint venture with the Royal Bank of Scotland but the bank was totally owned by Tesco PLC in 2008. In 2014, Tesco Bank had a trading profit on £194 million with a net interest margin of profits B of 4.4% which was double that Lloyds Banking Group (Head, 2014).
The key sources of Tesco's outbound logistics are profitability of home deliveries and flexibility. Tesco offers home delivery options for purchases that are made on their online platform called Tesco Direct. The minimum order is £40 and £4 charge will be applied to all orders that are under £40. To make things easier for customers, Tesco offers a delivery plan called Delivery Saver which includes unlimited deliveries for one month.
Marketing and sales
According to its slogan ‘Every Little Helps', Tesco's marketing strategy tries to associate the brand with competitive prices, the best quality/price balance and a variety of products. Tesco uses both offline and online selling channels and two-thirds of the sales come from the UK.
During 2016, there was a decrease by 2.5% in customer loyalty based on the average weekly spend (Tescoplc.com, 2017). Although of the main reasons of this decline is Tesco's commercial income scandal, it can be said that the problems related to the provision of customer services were also very important.
One of Tesco's business strategy is cost reduction which would not allow exceptional customer service because it is expensive. Thus, it is very hard for Tesco and for other competitors to have low prices and very good customer services both in the same time.
Tesco's infrastructure includes various supporting systems such as finance, quality control and general senior management. Every big Tesco store has a food, non-food and personnel division. These divisions are supervised by division managers and each division is then divided into sections.
Human Resource Management
Tesco hires 460,000 people. The UK's employee turnover during the financial year 2014/2015 was 13.57%.
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