Introduction
This report first will look at Michael Porter (1980) five forces concept, however for this report only competitive rivalry will be looked at in more detail and applied to Tesco to analyse what strategies they have in place to combat their competitors.
Next the report will apply Igor Ansoffs (1957) Matrix to the Virgin Group, however only diversification will be looked at in more detail and will show how they used this strategy for exponential growth.
Finally the report will evaluate Halfords £100m turnaround strategy which has helped them reach sales of over £1bn for the first time (Armstrong, 2015).
Methodology
Research has been conducted to produce this report in the form of textbooks, journals and websites.
Findings
Porter’s five forces Tesco
The Grocery market has always been a highly competitive one, dominated mainly by the ‘big four’, Tesco, Asda, Sainsbury’s and Morrisons, who according to the latest 2015 results from Kantar Worldpanel take up 71.6% of the market.
This figure however has been rapidly declining, with Tesco’s market share dropping down to only 28.1% today (Kantar-Worldpanel, 2015), the lowest in almost a decade. The figures suggest that the reason for not only Tesco’s fall in market share but the big four as a whole, is due to a rise in shoppers at the discount stores Aldi and Lidl, who now represent 9pc of the British grocery market, up from just 5.4pc in 2012 (Ruddick & Spence, 2015), however (Simms, 2014) states that people had become sick of a ‘weekly mega-shop and there was a growing awareness of the impact of big supermarkets on local economies’.
As there is little or no differentiation between what the grocers sell, customer choice is driven on price and service, therefore Tesco has had to come up with a number of strategies to compete and win back customers.
Tesco’s latest strategy to win back customers is the brand guarantee scheme which will see customers refunded with cash straight from the till if their basket of goods is cheaper elsewhere (Armstrong, 2015), there has been criticism of this however as customers are entitled to a refund only if they buy more than 10 items and it only matches against its Big Four rivals (Armstrong, 2015) therefore does not address the issue of the discounters, the whole reason for the strategy.
Tesco cutting prices however cannot be seen as a long term solution to compete with the discounters whose whole business model is based on being cheaper than Tesco. They stock only around 2,000 lines against Tesco's 40,000 (Dryburgh, 2014), which allows them to reduce store sizes (and hence less staff) meaning lower overheads.
Along with the brand guarantee scheme, Tesco announced that it will close 43 unprofitable stores across the UK, shelve plans to open a further 49 new "very large" stores and will make cuts of £250m (Miller, 2015) a point further backed up by (Yeomans, 2015) as Tesco raises £250m from the sale of 14 sites.
This shows that Tesco has recognised that it needs to change if it is to win its customers back, as in a mature, saturated market, market share can only be gained by taking it from competitors (Brooks, 2015).
Ansoffs Matrix Virgin Group
Over the past few decades the Virgin group have succeeded in breaking into new markets with their unrelated diversification strategies which involves entering new markets with new products that are totally unrelated to their current business (Hill, Jones, & Schilling, 2014).
Although this strategy has the highest risk involved, potentially it can be seen as the most profitable if successful since the company has a whole new market to tap into. This strategy has sent the company in completely opposite directions from where it first started however given the rapidly changing nature of the music industry since it started out as a record store, it is possible the company would not have survived and may have gone into administration such as competitor HMV (Gosden & Ruddick, 2013) due to the rise in downloads.
By operating in several different markets means the company can benefit from both economies of scope and also corporate level intellect, giving them a competitive advantage due to already knowing how to run a successful multimillion pound business who can then use the same advertising and other departments to lower costs.
Through Diversification, Virgin also has the luxury of lending profits from their other businesses if needed, which is currently what is funding Virgin Galactic since launch delays exhausted funds put up to establish the business (Waters & Kerr, 2014) however diversification is far from full proof as seen with Virgin Cola whose market share peaked at 0.5% in the three years it was on sale in the US, and in 2012, the UK producer went bust and no one else acquired the licence (Topham, 2014).
Turnaround strategy
Since the London Olympics in 2012 and the success of GB cycling team winning 12 medals in total (Wynn, 2012), Halfords have seen a 14.7% increase in cycle sales in the three months to the end of September (Neate, 2012), however the retailer suffered a 25pc fall in pre-tax profits to £71m due to increased costs, with then CEO Matt Davies stating the fall in profitability “illustrates the pressing need for sustainable revenue growth to offset ongoing cost inflation” (Ruddick, 2013). This contradicts what the official figures show however that cycle use remained unchanged last year despite an apparent surge in interest after the success of Team GB (Pank, 2013).
For this reason, Halfords implemented their Getting into Gear turnaround strategy which involves spending £100m over three years on modernising stores, improving staff training, and investing in its digital infrastructure (Ruddick, 2013).
The strategy looks to be working, as for the first time Halfords have seen annual sales top £1bn (Armstrong, 2015), however there has been some criticism as to how it is being funded as Halfords has been accused of squeezing small businesses after it sent letters asking suppliers to pay up to 10pc of their annual sales with the retailer in what effectively amounts to a rebate on already agreed contractual payments (Ruddick, 2014), although the company state it’s a small contribution as recognition of the benefits they will secure from their long-term growth.
Conclusion
To conclude this report, after analysing Tesco, Virgin and Halfords strategies it is clear to see the challenges the companies face and how they go about combatting them. Firstly the report looked at Tescos price cutting strategy which may boost sales in the short term however cannot be seen as a long term solution for the company as they simply cannot compete on price alone so needs another strategy, possibly improving customer experience, service or quality if it is going to fully recover. Although they have recognised this by selling off stores and halting plans for new stores to be built.
Next the report analysed Virgins diversification strategy which has seen the company grow exponentially, excelling in a large number of markets however this strategy does not always work as seen with Virgin Cola and a downside to diversification is that if a customer has a bad experience with one of the Virgin Brands then potentially they could chose not to use the others even though they are unrelated.
Finally the report analysed Halfords Getting into Gear turnaround strategy which Chairman Dennis Millard stating ‘We are delighted to have exceeded £1bn of group revenue, a year ahead of plan, and are building a sustainable platform for future growth’ (Armstrong, 2015) showing the strategy is bearing fruit, helped mainly from the surge in cycling from the 2012 Olympics.