Tesco’s Market Position Analysis

This is a report on Tesco PLC which is one of the largest grocery and general merchandising retailer in the UK and in other countries around the world. Tesco is the third largest retailer in the world; the first two largest retailers are wall-mart which is also known as Asda in the UK and Carrefour which is a French international retail organisation. Tesco is the 2nd largest retailer in the world in comparison of profits which is leaded by Wal-Mart. This report looks at the organisation on how it was formed to how it has become successful around the UK and the rest of the world.

Tesco is a highly reputable organisation which has been growing over the last 8 decades and is still growing. Tesco is a highly profitable organisation and evidence has been shown of this in this report. In this report I will use a range of models and strategic analysis both internal of the organisation and

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externally as well as strategy formulation. I this report I have use a rage of model and tool to demonstrate what TESCO is all about. Tesco’s has over 4,330 stores around the world but mainly around the UK. In this report I have used the strategic tools like PESTEL, Porters Five Forces, SWOT analysis and a value chain analysis.

2. Background how and when TESCO was introduced and its current position in the market

Tesco initial was founded by Jack Cohen early in the 1920’s. The brand was initially named when jack Cohen bought a shipment of tea from T.E.Stockwell and by using the initials of T.E.Stockwell Cohen added the first two letter of his surname to create the brand TESCO. The first Tesco was open in 1929 in the north of London in the area of Brunt Oak.

Tesco first started by selling food and drinks and over the year has diversified its product range from clothing, insurance, telecommunications and retailing and renting DVD’s to online services like music download and software. The organisation has also diversified geographically as it is a well known brand around the UK which was the primary focus to the rest of the world and is now operating in 14 major countries around the world.

TESCO is on the London stock exchange as the FTSE 100 Index which shows Tesco is one of the 100 most capitalised organisations in the UK. In 2009 Tesco’s has staggering revenue of 54biillion and the organisation employs over 472,000 employees worldwide. Tesco have over 960 Tesco express stores around the UK which sell around 7,000 products which include fresh food around the Tesco express local stores. Tesco also has around 170 metro stores which sell a diverse range of food products around city centres. Tesco currently has over 450 superstores which

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Sell all their product rage including services such as DVD rental and Tesco Mobile. Tesco provides financial services called Tesco Personal Finance (TPF) as well as providing broadband internet connections. The position of Tesco’s in regards to shares with other market leaders have been put into a PIE chart below:

Market share

Tesco

ASDA

Sainsbury’s

Morrison

Others

% of market share

30.60%

16.60%

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16.30%

11.10%

25.40%

Fig 1: Share of leading organisations in UK Food Retail Market

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3. PESTEL

Political

With the immersion of 10 more countries in the European Union (EU) in 2004 had promoted the trades between Western and the Eastern European countries (BBC, 2009). This has allowed Tesco to expand in the retail markets around the EU.

Last year it was signed off by Tesco with china that Tesco will be able to open a chain of shopping malls in China. This joint project included three main malls to be built in Qinhuangdao, Anshan and Fushan. A total of 18 hypermarkets were also expected to open this year. This information was provided by Tesco last year. The growth of the international market is on the rise and is predicted to account for 25% of the company’s profit.

In the Straits Times 2010 article it is motioned that due to China’s accession with the World Trade Organisation (WTO) it has promoted a free flow for foreign trades this was done by removing all barriers which would encourage companies from the west including Tesco to make it way to the most profitable market which would encompass over 1.3 billion people.

Economic

The economic factor is a point of concern for Tesco since the UK was officially declared as being in the recession in 2008. This has affected the consumers directly as they became insecure about their financial income. The buying behaviour of Tesco’s customers meant since the recession consumers were more selective on what they bought. The reduction of the interest rates helped in the reduction of the growth of unemployment in 2009. As a result the spending power of the consumers in on the rise again as people became more secure about their financial positions. However there is still allot of people under threat and so are likely to spend less money on the ready prepared meals, this will affect the sales value and the profit margins adversely.

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On a positive note in regards to the recession consumer are more likely to cook at home compared to eating out and this would have a positive effect on the amount of sales in the grocery retailers like Tesco’s. Consumers are less likely to cut down on food expenses instead the percentage of spending on food has risen over the years. Below is a graph showing this form Euromonitor 2010:

Fig 2: The % of UK consumers spending on food from 2004 – 2008

The economic recession has been brought to radiance with the help of the following GDP growth graph since 1990 (BBC news 2010):

Fig 3: UK GDP Growth 1990-2010

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Social

In an analysis UK population it shows that there are more people in the UK who are retired compared to the children in the UK. The elder generation tends to eat less and tend to travel less to supermarkets compared to the younger generation. It has been predicted that the internet shopping is more convenient to the elder generation but due to the low amounts of food required by the elder generation deliveries are less profitable.

In the recent decade the number of people choosing has increased and Tesco have identified this and have increased their product range to meet customer demands.

Payments by cheque and cash were 1st made achievable by Tesco.

Technological

One of the main macro ecological variables that have inclined the supply chain, operation and process of grocery and food retailers is technology. The operations of supermarkets are being affected by the use of services like internet shopping. Internet shopping has been growing and is still growing in the UK. The subscription of internet has developed by over 50% and it is estimated to have 70% of UK being users of the internet. (Office for National Statistics, 2010).

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The use of loyalty schemes which are used by online retailer helps to retain customer as people are discouraged to shop elsewhere (Sun, 2009).

Online shopping is also available on phone so people can shop anywhere at any time.

Due to the increase of the access of broadband internet shopping is increasing in the UK.

15.5 million Number of users is in UK who is broadband users and this account for 70% of the total market (Keynote 2010).

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Environmental

The environmentally friendly solution of reducing packaging is promoted by the UK Government. In a study by the Office for National statistic, the number of people using reusable bags has raised by 3% from 71% to 74% and those consumers using normal bags and are trying to cut down has also increased from 65% to 68%. This has helped in reducing the cost and it also good for Tesco CSR image.

Tesco has recently started adding carbon footprint data to dairy product, orange juice and potatoes and plans to expanding this data onto bread and non-food items in the future (Tesco 2010)

There are customers who are reusing bags, recycling old mobile phones and aluminium cans and also prefer bagless deliveries. These customers are being awarded for their contributions through the Tesco’s Clubcard points (Datamonitor, 2010).

Supermarket Tesco have put wind turbines on one of the stores roof this produces enough energy to run all 15 tills.

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Fig 4: Consumers actively being Green 2007-2010

Legal

Due to the rise of the VAT in January to 20% by the government to reduce the budget deficit, Tesco non-food products will be affected such as clothing and electrical goods.

In recent years the national minimum wage has been increased by 15.5% this has increased the supermarkets running and operating costs.

Porter’s Five Forces Analysis

Threat for substitute products and services

In the retail market the threats for grocery retail products is low compared to non-food products.

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Substitute food products are available from local convenience stores and shop but are not seen as a threat for Tesco as Tesco is able to provide higher quality for lower prices due to buying power and other factors. Tesco are also opening express stores which take most of the business form local convenience stores.

The threat for non food items is high as consumers are inclined to by discounted products like clothing form other retailers, however due to the recession Tesco’s is benefiting compared to the specialised clothing outlets.

Threat of entry of new competitors

Threats in the food retail industry are low for new competitors.

To succeed in the food retail market a huge investment is required to be competitive against Tesco or other food retailers as the new organisation would have to build a brand name. Major retailer of food like Tesco, Asda, Morrison’s and Sainsbury account for 80% of shopping for food in the UK (Mintel 2010).

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In order to compete against the established brads the new brad must either produce a higher quality or sell the product for lower prices or even both to be any threat to the big players.

To gain permission from the local government to establish a new supermarket could take a considerable amount of time so therefore there is a key barrier for new entrant in this business.

Intensity of competitive rivalry

Competitive rivalry is quite high in the food retail industry.

Due to the high level and the growing levels of rival market share’s Tesco is at risk of losing its market leadership. All the major competitors like Asda Morrison’s and Sainsbury have had an increase in the market share for 2009-2010.

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All the major retailers are being very competitive against each other as they are always lowering prices and promoting products.

In the rural areas of the UK consumers are inclined to go to places like Somerfield and Co-op due to the distance of the major retailers.

The highly discounted food products from retailer like Aldi and Lidl are inclining customers to go there especially in times of financial difficulties due to the recession. These retailers have grown by 25% during 2008. (Keynote, 2010).

Bargaining power for buyers

The Bargaining power for the buyer is high.

Consumers are inclined to buy cheaper products and with the use of the internet for comparing product prices consumers are inclined to switch to cheaper alternatives.

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Where products are more standardised and have little differentiation consumers can easily switch from one brand to a different one.

Bargaining power for suppliers

Bargaining power for suppliers is low

Suppliers are attracted to sell their products to major retailer like Asda and Tesco as the supplier would not want to lose their contacts with these major suppliers due to their selling power and so the negotiations with suppliers are strengthened and the major retailers are likely to come with a positive outcome when it comes to buying at lower prices.

Detailed SWOT Analysis

Below I have done a SWOT analysis for Tesco.

Strengths

Tesco is the 3rd largest retailer in the world.

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Tesco holds 30.7% of shares for the UK grocery market.

In a research done by Datamonitor 2010 Tesco has a turnover of £54 billion this in an increase of 14.9% compared to 2008.

Tesco has done this by customising products and services to meet the demands of the consumers.

Tesco has focused on reducing product prices without compromising on quality.

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Online services in the non-food retail market; Tesco Direct has seen an increase by 50% (Tesco, 2010).

Tesco has retained its customer with the use of Clubcard. The information from Clubcard has been used to promote products and other promotional techniques.

Fig 4: Tesco – annual Growth in Key Performance Indicators

Weaknesses

Tesco has not performed well over the last year compared to the competitor in a report by Mintel (2010).

A large number of goods were recalled which has resulted in finical loss. This has also had negative impact on the brands image.

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The main operations of the organisation are in the UK where it is recorded more than 75% of its revenue is generated in the UK in 2009. This was mentioned in a report by Tesco (2010).

The organisation lack’s geographic diversification and this shows a key weakness for Tesco to systematic risks of the UK market.

Opportunities

In a report by Mintel (2010) it is recorded that Tesco have opened over 620stores in 2009 and 435 of them were in international locations. The geographic growth will help the firm to improvising its economy of scale, while it is also reducing the exposure of the systematic risk.

In the Guardian (2010) it is mentioned that Tesco.com has over 1 million customers, this has provided the firm to attract new customer’s which is helping to increase profits due to overall costs.

The company is focusing in expanding geographically; this will strengthen its global market position. Tesco has signed off a new deal with Tata group which is one of the major industrial organisations based in India (Daily Mail, 2010)

The food retail market is expected to grow from £125 billion in 2009 to over £145 billion by the year 2014 as it is important to have enough food. (Euromonitor, 2010)

Threats

Due to the reduction to consumer’s income and the rise of unemployment the buyer’s behaviour is affected and non-food products are being adversely affected.

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Tesco has been the market share leader for over 15 years and is now facing difficult times due to the intense competition of its competitors like Asda and Morrison’s (Mintel, 2010).

Bellow is an abridged SWOT analysis of which can be summarised in the illustration below:

Fig 5: Tesco reduced SWOT Analysis

Value Chain Analysis for Tesco

The value chain shows the strength and weakness in the value accumulation process.

The value chain for Tesco has been illustrated below:

Fig 6: Value chain for Tesco

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Primary Activities

Inbound logistics

The primary stage of the value chain is where the opportunity arises to create value for the business. The first stage is known to be upstream for activities. Inbound logistics is where products are bought from the supplier and are and are handled and transported to the shelves. Tesco adds value by maintaining the level of choice while it is also improving the efficiency of distribution system. Quality control measures are taken to remove the damaged goods and reducing the cost which may be incurred to its consumers.

Operations

In the day to day running of the stores Tesco has to maintain its service levels by selling the products and services and making sure they are open for business in accordance to their trading hours. Tesco would have to also make sure products are available on shelves for their day to day business, this is done overnight daily. In order to keep their competitive advantage Tesco may have to consider opening more hours or even opening metro and express stores.

To do this Tesco must seek permission from the council and sometimes this may not be possible, this would take away their competitive advantage.

Outbound logistics

Outbound logistic is the third stage of the value chain and Tesco add value by providing deliveries to customers. Tangibles such as parking facilities, trolley collection, staff at till and systems are also used to gain the competitive advantage by saving time of consumers if done properly. The implementation of trolley deposit stations and keeping them orderly helps customers to get to and from the stores premises allot quicker as well as making these facilities available to use.

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Marketing and sales

The marketing and sales side of the value chain is more downstream. The Tesco club card provides discounts and help to keep customers loyal. Tesco also advertise on the radio, newspapers as well as TV adverts to attract customers with their pricing and promotions available. In regards to selling environmentally friendly products there are some constrains however Tesco can take advantage of this by providing products that are environmentally friendly which could help attract new customers.

Support Activities

Company Infrastructure

To help maintain the price of the products the implementation of security systems are in place as well as anti fraud systems to prevent people acting fraudulently. To reduce costs departments such as profit protection are employed by Tesco to reduce losses. The reduction of crime and its prevention helps Tesco keeps is low prices low.

Human resource management

Human resource management would be regarded as a downstream activity. The job of HRM is to make sure staff are recruited and trained properly so benefits are passed to the customers. Tesco are always trying to maintain is high level of customer’s service by putting in programs for employees which are performance related. Employees are paid more by providing a better service to its customers and so employees are encouraged to do this.

Technology development

This activity is also downstream and Tesco’s ability to provide product ranges which are new and innovative products has to be maintained. The product vitality adds value to the brand of these products.

Conclusion

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The report has clearly showed the success of Tesco’s from a small enterprise to a large PLC. Tesco success depends on their brand name which has always been evolving. Tesco’s brand name has hit the world like a virus but mainly in the UK. Tesco have managed to get the right message across to its consumers by making sure their CRS was to focus on their stakeholders.

In order to succeed in the future Tesco has to diversify its products ranges and also diversify geographically as it has done over the last 8 decades, this will continue to create new customers as well as retaining its existing customers. Also to continue to succeed Tesco must adapt to any changes which may occur like a change in the services like broadband, BT have started to install fibre optic to increase its broadband seed. If Tesco wants to continue to grow its must adopt to all changes in real time, not only with this help retain customers as the services and products are up to date but this will also attract new customers. The strategy formulation for Tesco is to continue to learn.

Large organisations like Tesco the strategy should be analysed and implemented on all levels of the hierarchy. The strategy of the different levels must be common throughout the hierarchy in order to have the competitive advantage.

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