He Same Strategic Group Tesco And Sainsbury Marketing Essay

In general, we can say that Tesco and Sainbury is classified as part of the same strategy group with the two companies mean for the retailer in the UK and industry and for some reason, these companies may include the same strategic planning processes and incentives to retain focus and near the market and is a field cycle of how the retail trade in the United Kingdom.

Companies have the opportunity to be in the same strategic position to maintain intact the macroeconomic environment of the retail business in the UK, probably share similar marketing strategies, segmentation, analysis of industry and business environment these external and internal forces into trafficking cases and the involvement of such indicators to deal with these pests and the SWOT analysis pointed to a well-organized and operational structure, and therefore, the four companies involved in a spirit supermarkets in the UK market areas.

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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 on its external environment analysis and company’s analysis of resources, competence and culture. Two future strategic options are suggested in regards to the resources based strategies.

Tesco is one of the largest food retailers in the world, operating 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 Finance.

J Sainsbury plc is a leading UK food retailer with interests in financial services. It consists of Sainsbury’s Supermarkets, Sainsbury’s Local, Bells Stores, Jacksons Stores and JB Beaumont, Sainsbury’s Online and Sainsbury’s Bank. The decision to diversify into convenience stores is discussed further within a Porters 5 forces analysis. Their objective is “to serve customers well and thereby provide shareholders with good, sustainable financial returns. They aim to ensure all colleagues have opportunities to develop their abilities and are rewarded for their contribution to the success of the business. The company’s policy is to work with all of our suppliers fairly, recognising the mutual benefit of satisfying customers’ needs; a concept which is considered in the Porter’s 5 forces analysis. They also aim to fulfill responsibilities to the communities and environments in which they operate” (Sainsbury’s, 2008) a point which is discussed within a PESTEL analysis.

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Sainsbury’s serves 16 million customers each week in 455 supermarkets and 301 convenience stores across the country. The company employs 148,000 colleagues committed to delivering ‘Great Food at Fair Prices’. Yet more examples that can be included as a strengths in a SWOT analysis.

Sainsbury’s sells £6bn of British food every year, an obvious strength in a SWOT analysis. The company works closely with smaller-scale suppliers to expand local sourcing wherever possible, and has a network of over 3,500 local suppliers. In May 2006, Sainsbury’s launched Supply Something New, an innovative scheme to make it easier for small and medium-sized suppliers to gain access to Sainsbury’s and make locally produced food available to more customers

Furthermore, a report from Mintel’s Retail Intelligence, there states that food retailing in UK is one of the most dynamic and innovative retail sectors, with steady sales forecasted at 17 percent within the year 2004 and 2006 and that sales by these food retailers were comprised of £92.3bn ( 2000) as strategies like for instance, Tesco will incorporate the value of customer loyalty and be distributed throughout UK as there allows access to economies of scale as acquired by grocery company with policies that are designed in enhancing productivity from work environment like the share schemas for the employees. There involves sequence loop as products are developed from views of customers in determination of retail success as attributed to UK global growth and that customers can look forward for stable prices and enjoy job chances and tough with fierce competition and continued service for the customers in achieving better availability. (2000)

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B) Analyze the macro environment that these companies must operate within

There can be better retailer business within as the Tesco runs over eight hundred stores around Europe as Tesco has been providing such range of business services that is for the business in distribution process of warehousing as well as advertising and the integration of financial service as possible as well as the transportation and interaction of such services. Aside, there indicates that Tesco continues in leading over. Tesco, being the largest British retailer having global supermarket chain as Tesco being UK’s successful retailing firm in the supermarket industry is able to reduce its unit cost of production as the scale of operation increases. ( 2006;2006; ) It is able to use its commercial or market power to bid down prices to obtain preferential rates thus enjoying large discounts for manufactured goods, vegetables, raw materials and transport via bulk buying and allowed Tesco to enjoy productive efficiency thus allowing cost advantage.

There was a greater cost advantage therefore means total cost of production is minimized hence securing and maintaining higher profit margins. Then, in Tesco, there identifies such factors effecting the structure of business in terms of exposing Tesco’s harmfulness as well as helpfulness to the business as there involves planning for the macro-environment role in effective functioning. (2006; 2006; 2006) There involves the distribution process to shareholders as dividends and with Tesco’s growth reflects stability in supermarket chain in UK. There can be use of Mintzbergs management strategy as there stating of deliberate strategy as a realized option of the strategy and has emerged from the changes upon certain review of marketing environment. (2007) Tesco uses such strategy such as the main UK business, the retail service as well as the non food and global strategy as Tesco have grown in profitability due to the strategy used as there saw an increase of 12.7 percent in group sales as well as retail profits of £40m also, the non food has a 4 percent market share and growth in sales comprising of 25.6 percent and if being closely examined, ( 2007) Tesco’s success strategy have the need to emphasize the value of business mechanisms along with its desirable market cycle for a sound business milieu concerning UK’s retail schemes in better pursuit of growing market share.

Furthermore, according to research by Data monitor during the year 2002, it mentioned that the British grocery shoppers spent £395 million online that was more than half that can be due to such amount of data as precise to the competitors of the retail business. ( 2001) For the PEST analysis, such companies as Morrison’s’, and Tesco for its political matter, the UK government are in control of the supermarket prices and provide sanctions for advertisements by means of print ads and media tools such as TV and radio as UK in those companies market, the operation process tries to explore the marketing activities in contributing retail success for better customer needs. There involves the coordinating function as a means to achieve certain market objectives as well as using some approach in lieu to effective communications but the quality product value that the customers want from those companies. ( 2007; 2006) There needs also knowing the cost upon the selectiion of workers and thus, such several surveys as there found certain negative relationship among such turnover as well as customer satisfaction. For the SWOT, several UK retailers have learned that brand identity is important than the products being sold and is essential for the future as such, Tesco was aggressive and increased market share steadily behind Sainsbury’s as the share overtook that of Sainsbury for 25 percent lead as there needs to build leadership in continuing

Swot analysis of Tesco:

SWOT Analysis – Strengths

Begin your SWOT analysis by producing a picture of Tesco’s strengths using strategic marketing reports and other business resources. Specific analysis techniques to employ:

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From the earliest stages of your research,  generate an ongoing SWOT analysis diagram of Tesco’s strengths, weaknesses, opportunities and threats. This will act like a mind map and brain storming tool that can lead you to ask more questions and generate more ideas than an unwieldy set of rough notes. Also, by the end of the process, you will have a diagram that could not fail to impress clients!

Visit a Tesco store and look for strengths in Tesco’s direct marketing. Compare Tesco with other stores. As questions like: Does Tesco have the best product line? Which supermarket group has the the best advertising?

Look at SWOT analysis case studies for Tesco, and for other companies. These can be found offline and online. Find online sources by pursuing a Google search. For offline sources of information use your local university and public libraries and ask for help from the librarians in finding what you need.

SWOT Analysis – Weaknesses

In performing a SWOT analysis of Tesco’s weaknesses, think about the weaknesses that other companies share with Tesco. For instance, comparing Tesco with British Airways might get you thinking about how dependent Tesco is on the UK market (73.8% of 2003 revenues.) Comparing Tesco with Amazon might reveal flaws in its attempts to move into new markets.

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SWOT Analysis – Opportunities

Some of Tesco’s main opportunities are on the internet. Look at the Tesco website, and compare it to the opposition. Ask yourself: What opportunities is Tesco missing? Which opportunities are Tesco exploiting? For instance, compare tesco.com and amazon.com. How do the prices of books compare? Which site has the best features? What opportunities can Tesco take that Amazon might be missing?

SWOT Analysis – Threats

Having already investigated the strengths, weaknesses and opportunities facing Tesco you should have some good ideas about the threats facing it. Concentrate especially on strategic planning to counter threats from other companies. For instance, investigate how Tesco’s financial products compare with those from more established providers. A SWOT analysis of Tesco must consider all the competition in detail.

INDUSTRY ANALYSIS:

PESTEL FRAMEWORK OF TESCO:

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 forced 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.

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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 Tesco’s 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.

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 business. National retailers are increasingly reticent to take on new suppliers (Clarke, Bennison and Guy,1994; Datamonitor Report, 2003).

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The type of goods and services demanded by consumers is a function of their social 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.

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 of the Efficient Consumer Response (ECR) initiative provided the shift that is now apparent in the management of food supply chains (Datamonitor Report, 2003). Tesco stores utilise the following technologies:

Wireless devices

Intelligent scale

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Electronic shelf labelling

Self check-out machine

Radio Frequency Identification (RFID).

The adoption of Electronic Point of Sale (EPoS), Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities, with needs being communicated almost in real time to the supplier (Finch, 2004).

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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 responsible 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

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.

INDUSTRY ANALYSIS:

PORTER’S FIVE FORCES TESCO

Threat of New Entrants

The UK grocery market is primary dominated by few competitors, including four major brands of Tesco, Asda, Sainsbury’s and Safeway that possess a market share of 70% and small chains of Somerfield, Waitrose and Budgens with a further 10%. Over the last 30 years, according to Ritz (2005), the grocery market has 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 traditional 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 highly 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.

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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.

Bargaining Power of Customers

Porter theorized that the more products that become standardized or undifferentiated, the lower 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 business. In meeting customer 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.

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 grocery 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 convenience 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 Ritz (2005).

Bargaining Power of Competitors

The grocery environment has seen a very significant growth in the size and market dominance of the larger players, with greater store size, increased 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 used 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.

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