Tesco has been able to strengthen and expand into new markets

Introduction

Tesco plc is a well-established and consistently growing food retailer global company operating in UK and many other countries like USA, Europe, Thailand, China, Japan and so on. It was established in 1919 by Jack Cohen, when he sold some groceries in the stall in East London and then it later lead to the opening of the first Tesco store in 1929 in North London. Using the well-researched and consistent strategy for growth, Tesco has been able to strengthen their core UK business and lead them to expand into new markets. Tesco has already been declared as the no.1 superstore in UK against its rivals Asda, Sainsbury and Morrison. Tesco is still aiming to broaden the scope of their business to enable it to deliver strong sustainable long-term growth by following the customers into the basic and the large expanding markets at cheaper price. Currently, Tesco has over 2200 stores in UK and has been able to reach every possible customer through its different types of outlets as superstore, metro, extra, express and by various means as online shopping through Tesco direct, Reserve and collect plus loyalty/club cards, insurance, clothing, banking and financial services, telecoms, insurance.

So this report will be identifying Tesco’s vision, Mission, its current strategic objectives, evaluates them and analyses the factors that will be affecting strategic plan. The purpose of this case study is to review and determine the organizational strategic aims and objectives identify and analyse the progress towards organizational strategic aims and objectives and to determine and evaluate strategic options to support a revised strategic position.

1.1 Identify the current strategic aims and objectives

TESCO’S STRATEGY

Our well-established and consistent strategy for growth has given the business momentum to grow through the downturn. (1)

Long term Strategy

According to Tesco’s official website it is clearly evident that Tesco has a well-established and consistent strategy for growth. The rationale for the strategy is to broaden the scope of the business to enable it to deliver strong, sustainable long-term growth by following customers into large expanding markets at home – such as financial services, non-food and telecoms – and new markets abroad, initially in Central Europe and Asia and more recently in the United States.

Objectives:-

The objectives of the strategy are:

Successful global retailer

Tesco aims to be one of the most successful global retailer organisation in the world. With this idea in mind they have opened stores in many other countries like Canada, USA, Europe, Thailand, China and Middle East.

Growth in core UK business

Tesco also aims on growing its business as the core UK business as it is originated here. It had 1500 stores in UK in 2007 whereas the number has reached to over 2000 by now. And it has diversified its market from only being a food retailer to selling fuel, clothes, housing, finance, banking, insurance, mobile broad band and electronics.

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Strong non food retailer

As Tesco has been known for its food items and is the leader in food retailing, Tesco also aims to develop the rest of the retailing it has been doing. They are working hard to be as strong in non-food as they are in food.

Developing banking and finance

Tesco is also working for developing retailing services – such as Tesco Personal Finance, Banking, Telecoms and Tesco.com. This is showing that Tesco is determined to help its customers even with the financial and banking services. As the name specifies, Tesco is all set to deliver ‘Every little helps’.

Community friendly Approach

Tesco is determined to put community at the heart of what they do and help maintain the natural balance.

Values and aims

According to the official website, Tesco feels that: ‘No-one tries harder for customers than Tesco’ They have mentioned that they understand their customer’s needs and they want to be the first to meet their needs and at the same time they want to act responsibly to their community in order to avoid any kind of degradation in the environment and ethnicity.

Tesco promises to treat people as we like to be treated:

”Work as a team…Trust and respect each other…Listen, support and say thank you…Share knowledge and experience….so we can enjoy our work.”

Tesco has been taking regular feedbacks from customers by asking them and the staff what can be done to make shopping with them and working with them better.(2)

1.2 Undertake an evaluation of the component parts of a strategic plan

Tesco’s strategy to diversify the business in 1997 has been a very important landmark and the base to the success of the company. Product Diversification from being only food retailer to non-food retail was the best decision that has made Tesco to be the market leaders in many of their markets in and outside UK.

According to Tesco’s official website (www.tescoplc.com), its vision and mission are:

Vision- Every little helps.

Tesco’s vision is very simple as it is stated. It simply focuses on providing every little helps to the customers. Tesco is willing to follow the customer’s and their basic needs and be the only retailer to help them out with every kind of help they need -small or big

Mission

Tesco aims to broaden the scope of their business to enable it to deliver strong long-term sustainable growth by following their customer into large expanding markets at home – such as financial services, non-food and telecoms – and new markets abroad, initially in Central Europe and Asia, and more recently in the United States

Chairman s statement

Over the past decade Tesco has transformed itself into a diverse international business- we are well-positioned for long-term growth.

Tesco is scanning the external environment as much as possible in order to develop its mission and vision. All these efforts from Tesco is making them able to meet their strategic plan to be everywhere, to sell everything and sell to everyone . Managers are taking further actions to full fill their promise. They are satisfying and identifying customer needs through affordable prices, quality products, home delivery, 24 hrs service, recycling, business expansion and technological developments such as online shopping and home deliveries. These evidences shows that; there is a clear alignment between their mission. Vision and strategies. This helps tesco in being market leader in UK retail super markets.

1.3 Analyse the factors affecting the strategic plan

For any business to run and meet its long-term strategic aims and objectives, there is a great involvement of the environment. The environment is divided into Macro/external and Micro/internal environment and there factors which are affecting the long-term organisational strategic planning. Some factors both external and internal for Tesco are discussed below:

Internal factors are those factors which come from the business and affect it without any regards to the external factors like suppliers, customers, distributors and so on. Some examples are Research and Development, Employee Turnover/employee satisfaction, Physical assets, mission and objectives and so on. The internal environment consists of variables (Strength, Weakness, Threat and Opportunities) that are within the organization itself and are not usually within the short-run control of the Top management. This variables form the context in which work is done. They include the cooperation’s structure, culture and resources, Key strength form a set of core competencies which the organization can use to gain competitive advantage.

(Thomas L. Wheelen, J. David Hunger (2000). Strategic Management Business Policy. p10)

By analyzing PEST Analysis, it is observed that Tesco’s strategic plan is affected by various external factors. They are:

1. POLITICAL FACTORS

Government interferes in the economy of every company. Factors such as tax policy, labour law, environmental law, trade restrictions, tariffs and political stability makes the major impact on the business and the society as well as the global market. This year the government has increased the tax from 17.5% to 20%. This has affected the profit of Tesco and is affecting the long-term aims, mission and vision of Tesco.

2. ECONOMICAL FACTORS

Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a Tesco’s revenue and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy.

Example: increased fuel tax, impact of credit crunch on sales.

SOCIAL FACTORS

Social factor includes the cultural aspects and include growth rate of population, age distribution, health consciousness, career attitudes and health and safety. Changes in the social factors affect the demand for a company’s products and how that company operates. For example, the new trend of health consciousness has resulted in Tesco to produce more organic and low fat foods such as skim milk, organic milk, organic vegetables, Lighter choices with nutritional value mentioned in the product and local charities and getting Thailand over fit- 3 million people involved in aerobics Tesco has changed various management strategies to adapt to the social trends such as recruiting older workers and long term unemployed people as a part of social responsibility; Regeneration: where people who are unemployed for more than 6 months had been trained for several weeks and were guaranteed jobs; Community Champions and many volunteers helping the community and local charities. (UK supporting cancer research with race for life to fight against cancer) (4)

4. TECHNOLOGICAL FACTORS

Technological factors include technological aspects such a Research and development activity, technology incentives and the rate of technological change. Technological changes in Tesco can affect costs, quality, and lead to innovation. Example: Use of self check out service, online shopping and reserve and collect service(new) has saved huge amount of labour cost, has avoided customers from being charged for same product more than one time plus has saved time of the customers. Or use of security system and CCTV cameras has prevented Tesco from having huge amount of stock variances and made the staff more work efficient with the fear of being caught while doing irresponsible activity during their duty hours.

5. ENVIRONMENTAL FACTORS

Environmental factors are growing awareness of the potential impacts of climate change is affecting how tesco operates and the products they offer, both creating new markets and diminishing or destroying existing ones. Zero carbon foot prints, Recycling, sustainability are the areas of focus for tesco, so that the products have been labeled with the message of recycling. Using local resourced products is attracting customers towards the specific food products.Example: climate change affecting Tesco’s supply and transport.

6. LEGAL FACTORS

Legal factors include discrimination law, consumer law, data protection law, antitrust law, employment law, and health and safety law. Assuring Health and safety in all the regions wherever it is expanded is one more challenging Legal responsibility of Tesco. These factors can affect how Tesco operates, its costs, and the demand for its products.

Example: Tesco to avoid the legal opposition to expand on the high streets

LO2: Evaluate alternative strategies to meet the desired future strategic position.

2.1 Apply a range of strategic analysis tools to audit progress towards strategic aims and objectives

SWOT ANALYSIS FOR TESCO

INTERNAL FACTORS

Strength Weakness

· Giant Leader in superstores

· Financial stability

· Huge Brand name

· Bulk goods importers and sellers

· Product Diversification from being food retailer to non food plus electronics, telecom, insurance, banking and finance

· Competitive pricing-providing goods and services in low price

· Ensuring Health and Safety in different parts of the world

· Maintaining Quality issues as the goods are supplied from different suppliers abroad, out of which some are not very experienced with maintaining high quality.

· Stabilizing itself as a good non food retailer.

· Maintaining their presence and growing customer loyalty in the recently expanded countries

€ € € € € € · Expansion in more developing c countries

·€ € € € The competitors: Asda being competitively cheaper Sainsbury, Morrison being food retailers with comparative pricing

·€ € € € Environmental issues and corporate Governance responsibility

Opportunities Threats

EXTERNAL FACTORS

Strengths

Giant leader in superstore and financial stability

Tesco has over 2200 stores and Tesco holds more than 71% share in the UK retail market

Its strategic capability explains that it will continue to grow share in food, while increasing space contribution from supermarket will allow it to drive a higher share in non-food.

Tesco’s business growth shows no sign of failing. In the UK, Tesco’s late 2006

investment into West-midlands based convenience store group T&S was billed as the

most aggressive move into the neighbourhood market by a big-name retailer so far. They are aggressively expanding and going with acquisitions with the local food stores.

The deal has turned Tesco into the country’s biggest convenience store chain, and the company also plans to open up 95 new stores PLC in the UK this year which includes 6 stores purely based on Regeneration Scheme. Tesco’s general growth shows no sign of failing.

Health & safety issues and maintaining quality

Maintaining health and safety is a major challenge for Tesco. From the suppliers to warehouses and to the store, there is always a risk associated. Plus making sure that the stock is properly handled in the store by stacking them properly and the use of trolleys and their proper management is also the major responsibility of Tesco. They must make sure that every single person who is linked to Tesco should be safe while they operate their operations.

Maintaining the quality and standard of goods they supply is also a major challenge to a bulk good retailer like Tesco as they have to get goods from their suppliers all around the world. They have been very fair to their suppliers and they want them to be decent to them by maintaining the standard of the goods they produce and supply.

Opportunities

Business growth and expansion in Europe is successful but it still has to work in some other parts of world. They have just started exploring Asia but being all over Asia and the rest part of the world is a strong opportunity. Being established as a non-food retailer is another very good opportunity for Tesco. Since the start of diversification, they are working to prove Tesco not only as a grocery store but a superstore providing customers with every little helps.

Weaknesses

2.2 Review and assess the expectations of major stakeholders and their influence upon the organisational strategy

Engagement with stakeholders is helping Tesco identify new risks and opportunities and to ensure that their long-term goal and strategy is sustainable. In some cases, they have found that working with stakeholders in partnership can help deliver shared goals. Tesco feels that they might not be able to satisfy all stakeholder concerns all the time but through proper engagement they can do their best to balance competing demands. Tesco is very committed to having a productive dialogue with its stakeholders inorder ensure that they understand what is important to them. This is allowing themselves the opportunity to maintain their position. Engaging with stakeholders includes customers, employees, suppliers, investors, government, regulators and non-governmental organisations.() (www.tesco.com/cr2010)

The major stakeholders of Tesco plc.are:

Customers

Customers need to be able to trust tesco’s business and they will only trust only if they believe that there is appropriate engagement in regular basis with the stakeholders. Tesco has been using various strategies to able to win the trust of its stake holders by following various strategies such as Cost leadership, diversification,

Tesco believes that if they can offer what the customer needs than surely they will come back and purchase again. This is helping to establish and gain lifetime loyalty of the customers. The launch of Club cards is helping customers satisfy their needs and quality services are the functional business strategy of Tecso. They have been innovating more than 2000 new products (food/non-food) every year depending upon the demand of the customers. Example: Launching organic, dietary and healthier food options, Nutritional values in the packaging and making sure that the quality of the food is maintained by doing mystery audits in the supplier’s factories. And the new self check out system where customers can grab whatever they want and go has helped the customer to manage their time and made it simple to operate.

According to the Tesco website, Tesco says ‘No-one tries harder for customers:

Understand customers.

Be first to meet their needs.

Act responsibly for our communities.

Treat people as we like to be treated: Work as a team. Trust and respect each other. Listen, support and say thank you. Share knowledge and experience….so we can enjoy our work.

We regularly ask our customers and our staff what we can do to make shopping with us and working with us that little bit better.”

This proves Tesco has been treating their customers as the core of their business and are providing every simple and small helps by being fair to them.

(http://www.tescoplc.com/plc/about_us/values/)

EmployeesSonu2010-10-13T11:24:00

Include stakeholder analyis and explain the CSR of tesco towards major stakeholders

Tesco employees 285,000 employees. Philip Clarke, Chief Executive from 2011 says ‘If we don’t look after our staff the chances are they will not look after our customer.’

(http://www.tescoplc.com/plc/media/board_announcement/)

Tesco has been using the term ‘A great place to work’ in which they include;

”Our staff have told us what is important to them – to be treated with respect, having a manager who helps them, having an interesting job and an opportunity to get on. Helping achieve what is important to our staff will help us to deliver an Every Little Helps Shopping Trip for our customers.”

(http://www.tescoplc.com/plc/about_us/values/)

The statement clearly states that they treat everyone with respect and dignity. At the same time they have great managers who are always ready to help the team and make their job interesting everyday and giving them good opportunities by job rotation, job enrichment and job enlargement. These activities take the employees off from the regular job pattern, motivates them to learn and do new things everyday. And staff are the basic point of contact to customers and it is very important to get them right to gain satisfaction and loyalty of all our customer.

Employees are the most important and basic level of contact with customers. Every customer remembers his first experience when he visits the store and the way he had been assisted. A good and motivated employee always treats them very well. So Tesco has been very focused to make sure the employees do their duties in the right way and makes sure that every customer and even the employee is being treated in the right way.

Rewards wise also Tesco is the only organization which has been giving bonuses to their staff on doing their regular jobs. For maintaining the accuracy of stock level they get 15% bonus, till accuracy 5% bonus and Mystery shoppers result 5% bonus. Apart from this there are more benefits and rewards the employees are getting like holiday pay, outstanding service award, discount in shopping, career breaks, free company shares.

Tesco has recently given a huge amount of share profit to its employees (02/06/10). More than 216,000 Tesco staff, from checkout operators to drivers and managers found out that they will share a £105 million bonus pot as the company announced details of its biggest ever ‘Shares In Success’ scheme(http://www.tescoplc.com/plc/media/pr/pr2010/2010-06-02/).

Supplier

Tesco has been supplying goods from different parts of the world as the bulk retailer has to meet the demands of huge retail market segment like Kenya, South Africa, Spain, Scotland, Wales, and has high expectations of its suppliers. They have built a strong relationship with their suppliers, have given them the best value for their customers and given their customers the confidence of maintaining good standard through out their chain. They are very focused in treating the people in the right way so that they perform better and which will automatically helps in improving sustainability in their supply chain by encouraging suppliers to make proper investment in products and stable work. Due to their decent pricing, Tesco is confidient to keep the trading for longer period of time and is willing to get enough support from its supplier by being with them and helping them maintain their ethical and food standards. Tesco has been sourcing products from the countries which has cheaper good employment practices, cheap labour and less regulations to maintain the level of margin. (http://cr2010.tescoplc.com/en/buying-and-selling-our-products-responsibly.aspx) Tesco has been paying more for the diary suppliers. Kenayen suppliers had been supplying goods since long time. Tesco launched an awarding agenda where they had been launching surprise visits and evaluating the hard work done by the suppliers and rewarding them afterwards. Tesco has also been providing necessary training to the supplier’s staff in Kenya, South Africa.

The following diagram shows the competitive rivalry and shows the effect of stake holders in the business.

2.3 Analyse, interpret and produce a structured evaluation of the organisational strategic position

Note: The challenges faced by the organisation may be identified, for example, competitive environment, external climate and globalisation (if applicable) may be examined. The knowledge gained by studying Porter’s three generic strategies and PESTAL analysis may be applied.

Political view reflects that the economic downturn- credit crunch has lead to high number of unemployment. But Tesco has been able to help a number of people by providing them jobs.

and therefore helping the unemployment.

Regeneration: People who are unemployed for more than 6 months had been trained for several weeks and were guaranteed job. Three new stores were opened and 320 people were employed. 6 more stores will be opening this year.

Community Champions: Tesco has Community Champions and many volunteers helping the community and local charities,

Healthy living for customers: is one of key promise by Tesco and is celebrated by producing healthy products like lighter choices, nutritional value mentioned in the product, getting fit-Thailand over 3 million people involved in aerobics, UK supporting cancer research with race for life to fight against cancer. Tesco is also instrumental as a retailer in supporting carbon reductions and have also encouraged their customers to make low carbon choices .They created a £100 million Sustainable Technology Fund for this purpose.

At the same time they are maintaining the eco-friendly approach by helping reducing the pollution-they are passing the message to their customers to reuse and recycle the wastages.

LO3: Decide upon a strategy and identify how, if required, you would justify your selection to meet the required future strategic position.

3.1 Identify and develop a range of alternative strategic options to meet strategic aims and objectives

Note: This section requires the candidate to apply his/her own judgement so that a few alternate options are visualised and discussed,. For example the candidate may propose emphasis on alternate products, or increased after sale service, or following aggressive marketing strategy etc.

During the 1980s Professor Michael Porter from Harvard Business School developed the model of generic competitive strategies. He called the strategies generics as they can be undertaken by businesses of any size or type, even if they are non-profit organisations (Hunger and Wheelen [2001]p82).

He argued that companies only have three strategies to choose from:

Cost leadership

Differentiation

Focus

Porter also believed that before a company decides which strategy to adopt, it must know its competitive scope: the breadth of its target market, the range of products it wishes to produce, the distribution channels, the type of buyers and geographic areas it wants to serve and the related industries it will be competing in (Hunger and Wheelen [2001]p82).The cost leadership strategy is aimed at the broad mass market and requires actions like cost minimisation in research and development, services, sale forces, advertising and so on. By doing this the company will sell its product for smaller price than its competitors but still achieve reasonable profit. This also creates entry barrier for the new market entrants, as it would be difficult for them to match the low cost of the existing producer. (Hunger and Wheelen [2001] p83).

The differentiation strategy is aimed at the broad mass market as well, but this time creating a product which must be perceived as unique by its customers, for example through design,

The strategy aims to gain customer loyalty and therefore making the buyer insensitive image, technology, customer service, dealer network and so on to a higher price. This again will also make entry more difficult for new entrants (Hunger and Wheelen [2001] p83).

(Hunger and Wheelen [2001] p83) argue, ‘differentiation strategy generates high profits as it creates a better entry barrier. Low cost strategy however creates increase in market share.

Focus strategy concentrates on serving only a certain niche market as either a cost leader or with a differentiation strategy. In cost focus a firm seeks a cost advantage in its target market only, in differentiation focus a firm seeks differentiation in its segment (Lynch [2000]p.568)

The following diagram may illustrate Porter’s model in more detail:

Fig: Porter’s Generic Model

(http://www.quickmba.com/strategy/generic.shtml)

Tesco has been implementing the cost leadership strategy since its establishment. And after going to non-food retail in 2004, it also applied the diversification strategy in their business to meet the customers every needs. Tesco launched its own broad band in 2004 followed by Home plus in 2005. Globalisation has been another important step taken by Tesco. Though Tesco’s Fresh n easy did not do very well in USA in the first 2 years of its establishment, now it is maintaining its grip among the customers, according to Sir Terry Leahy Chief Executive. Tesco has been very successful in Europe and in Asia. To flourish more of its business in South Asia, Tesco has an exclusive franchise agreement with Trent, the retail arm of Tata Group to support the development of their Star Bazaar format by the end of 2010 in India.

Since Tesco has already used the first two strategies, it still has the Focus strategy in hand. Tesco can still aim on the niche markets and work on that segment of the market in order to gain more market share. Tesco has recently opened their first baby store in Manchester which provides all the necessary materials to the toddlers including clothes, push chairs, strollers, car seats, high chairs etc. Similarly, the start of DRIVE-THRU store has covered another segment of people who drive and have very strict time schedule.

Apart from that Tesco should also work on its weaknesses. Maintaining Health and safety in all parts of the world with its globalisation and maintaining quality of goods upto the Tesco standard at all times is the major challenge. Tesco should make sure that their ware house, supplier’s factories and even the shop floor should be Health and Safety approved and should have all kinds of equipments that helps in maintaining it such as use of helmets, gloves, safety goggles and also training the people with right procedures of lifting weight, handling chemicals and so on.

Tesco must make sure that every product they sell is 100% hygienic to the customers and has the same quality and standard at all times. Because of having different suppliers all over the world and buying goods on bulk, Tesco might not be have been able to keep proper maintained standard at all times(as some issues were raised last year regarding the bread supplier) So focusing strategy is not only a good idea to get a grip over the niche market segments but also to maintain its brand value among the existing customers.

3.2 Determine and justify the strategic option that meets the revised strategic position

Note: Out of the alternate options in 3.1 above, the one which is considered to be most suitable to meet the new strategic position, may be identified. Justification may be given as to how this selected option is likely to fit in the present position.

Out of the various strategies suggested above in 3.1,Focus on maintaining quality and brand value at all times all over the world without a single compromise is the most important option which is most suitable to meet new strategic position and is likely to fit in the present position.

Tesco has already been market leader in Cost leadership and has used Differentiation strategy to its limit by understanding the needs of people to the basic extent and providing them the services and satisfying them. They have already started working in the niche marketing strategy by starting DRIVE-THRU store and Kids store. Tesco is aiming to launch mortgages in the first half of 2011, followed by current accounts in the second half of 2011/2012 financial year.