Current managerial Strategy Pursued By Tesco Plc
Tesco has a well established and coherent strategy for growth that allowed Tesco to strengthen their basic matters of United Kingdom and drive the expansion in the new markets. The reasoning for the strategy is to widen the range of the matters to be capable enough to deliver the strong growth in the long term such as the financial services, non-food and the telecommunications. The strategy to diversify the business was initiated in 1997 and has been the key feature of success of Tesco in previous years. The new businesses developed during the last 12 years are part of this strategy; in fact they are the leader of the market now in a lot of the markets inside and outside the United Kingdom.
The essential features of the strategy are:
To become an international successful retailer
To grow the business in UK.
To become strong in non-food.
To develop services distribution - such as Tesco Personal Finance, Telecoms and Tesco.com
To give importance to the community.A Successful International Retailer:
Tesco international business has delivered strong performance despite feeling the impact of the recession. The business has made good progress in delivering for customers today as well as for the future. The business is benefiting from International sourcing, discount brands, F&F clothing and with more Tesco Club card holders internationally than in the UK. In 2009/2010 Tesco opened 5.1m sq ft of new stores and in 2010/2011 the plan is to open8.5m sq ft in addition to 9 shopping malls in China. In Asia, the stores acquired in South Korea in 2008 are now profitable. Europe market delivered robust growth against unemployment and deflation. By means of cost reduction and lower prices for customers Tesco has made market share gains. In the US F&F has made good progress, although weakness in California, Nevada and Arizona economies.Growth of Core UK Business:
Tesco's market leading business has shown growth due to helping customers spend less every day. The increase in business is due to some steps taken by the company over the past year. The steps included better stock management, efficient ordering system and better in store monitoring to reduce evening gaps in fresh foods section by 18%. Tesco has also stayed ahead of its competitors in vital customer service measures by investing in self scan checkouts which now account for 1/4 of the total transactions. During the period of recession Tesco introduced discount brands and affordable treats like finest restaurant ready meals and pizza's and the launch of 2,600 new own food lines. Tesco has also improved its standards for food safety its staff training its merchandising in order to cope up with the quality standards particularly in fresh foods. Due to these initiatives Tesco won 'Fresh Produce Retailer of the Year' award in 2009.Strong in Non-Food as in Food Business:
Tesco's general merchandise is growing with improved ranges and prices. In some key categories the company has made significant improvements for example the sale of toys has shown rapid growth of up to 25% this year. In 2010 another major deal was signed with DreamWorks for the rights of Merry Madagascar an animated film and over 1million copies were sold on Christmas. Tesco introduced technical support staff in large stores in the UK and due to introduction of this staff the Tesco turnover has been doubled in electrical in the past four years. The company has also two websites available for its customers to shop online for non-food products. It includes a clothing and entertainment website where customers can buy clothes, CD's and DVD's and the items bought online are later delivered to their doorstep.Retailing Services:
Tesco's retailing services consist of Tesco Bank, Tesco.com and Tesco Telecoms. Tesco Bank has delivered good performance by increasing profits by 13% to £250 million, although bad debt level rose but remained below industry average, the number of customer accounts grew by 400,000 to a total of 6.2 million across different products. Tesco.com sales rose by 14% and profits rose by 26% to 136 million. The number of active customers also rose to over a million. Tesco mobile customers has increased by 14% Tesco has also entered pay monthly market and the company is planning to open more phone shops in the near future, the company also signed broadband contract with Cable & Wireless to enter the broadband market.Community:
Tesco has continued to lead in caring for environment, support of the local community and healthy lifestyle. The company has significantly reduced it carbon emission, the business opened the first supermarket with zero carbon emission of the world in Ramsey Cambridgeshire.PESTLE Analysis Tesco:Political:
Tesco is operating globally so the company is mainly influenced by political and legislative conditions of these countries and also European Union is also enforcing its governing rules. The government legislation appreciates supermarkets to employ people from lower paid people to highly skilled people from local community. Government step to increase VAT will also have a significant impact on Tesco sales and its profitability.Economical:
The recession has drastically increased unemployment. It has also influenced the profits, costs and prices. Although Tesco diversified in international market but UK is still the most important market for Tesco and if the unemployment continues to soar, the slowdown in the UK market would have severely detrimental effect on Tesco's.Social:
Increase in immigration from Eastern Europe resulting in demand for new goods. Due to this Tesco has been able to successfully diversify into different markets. Now apart from grocery shopping Tesco customers can also purchase insurance services, electrical goods, toys, clothing mobile phone contracts and many more.Technological:
Due to the introduction of Tesco.com, self service checkouts, Tesco club card the level of customer satisfaction has increased. Customers can shop for their groceries and other products online and these products are delivered to the customers doorsteps. However use of technology has increased unemployment as face to face customer interaction has been replaced by self service checkouts.Environment:
Tesco has committed itself to be a carbon free business by 2050 and to reduce the carbon impact of its products by 30% by 2020. The company has also increased recycling, giving incentives for bag reuse in order to discourage plastic use and also reduction in packaging. In the past year Tesco gave over £60 million in donations to charities and several community projects. The target set by the company to put nutritional labelling on own-brand products has almost been achieved to 100% providing customers with information they require to make healthy choices.Legal:
Tesco has to abide by the rules and regulations laid down by the government and other bodies such as Food Retailing Commission for food safety and others. Principles of monopoly and competition also affect Tesco.Porter's 5 Forces Analysis of Tesco:Threat of Substitutes:
The grocery industry is overwhelmed by limited number of retailers including Tesco, Sainsbury, Asda and others. Tesco is in direct competition with all these retailers. This competition drives the prices of the products to go down. However Tesco prices and quality are better than most of these retailers. As the market is captured by a number of retailers so the threat of substitutes available is relatively low. Tesco and other retailers are taking over small businesses and local stores to capture the market.Buyer Power:
Buyer power acts to get the prices down. Fortunately for Tesco's there are few other supermarket retailers available like Sainsbury. As a whole the market is disciplined and it prevents these companies to destroy each other's profit. Under these conditions the buyer power is considered to be medium.Supplier Power:
Tesco and other supermarkets have a overwhelming advantage over small shopkeeper so Tesco dictates prices which it pays to its supplier and if the products are not specifically sold to Tesco's and other supermarkets by the suppliers than the suppliers are left with minimal or no option to sell their products because the market is dominated by a number of suppliers. In these circumstances the supplier power is significantly low.Barriers to Entry
A new supermarket has barriers imposed implicitly or explicitly due to existing supermarkets. Tesco has cornered the market for some goods and the new supermarket will not be able to find cheap suppliers. Tesco also take advantage from economies of scale because it buys in bulk quantities from its suppliers. Barriers to entry are relatively medium under the circumstances.Rivalry and Competitors:
Competition is considered as high threat. Supermarkets like Asda and Sainsbury and other no-food retailers and retailers who are involved in the same concept are in direct competition with Tesco.Strategic Recommendations:
A.T. Kearney's Global Retail Development Index (GRDI) indicates that Tesco's future success will depend on two major factors; firstly on when and how to move into key smaller cities in different parts of the world and secondly on Tesco's ability to understand consumer readiness in different countries worldwide. Given the saturation of main cities in the world Tesco should target the emerging cities worldwide especially coastal cities of China and India.
Tesco's finance business is worth £2bn and holds key shares in different markets including 7.5% of credit card industry and 4.5% of car insurance industry. The availability of distribution network and better understanding of its customers than most of the other businesses gives Tesco a competitive advantage than all of the major banks. So Tesco should expand its retail banking business not in the UK but also worldwide.Balance Scorecard Analysis
According to Tesco's CEO, Sir Terry Leahy, the adaptation of balanced scorecard research by Robert S. Kaplan in to the Tesco 'Steering Wheel' helped the business to remain focused on its strategy in the last twenty years. The wheel has five 90 degree arcs which represent the four balanced scorecard performance areas Finance, People, Operations and Customers as well as Community, a field recently added by Tesco.
Sir Terry Leahy, CEO of Tesco exemplifies Tesco's mission in the following statement "Tesco does not want one leader. We want thousands of leaders who take imitative to execute the strategy"
Tesco's slogan 'Every little helps' can be translated in to constantly incremental improvements on the steering wheel's five arcs. Steering wheel is updated monthly and a report tailored to each store with individual feedback on its performance areas is sent to individual store. In addition 'Shopping Lists' are also attached to describe the stores in simple terms key elements of the wheel so that the employees can incorporate them in their daily activities.
Tesco has a strong commitment of putting customer's interest first. The main focus is on its cost leadership strategy of helping the customers spend less every day in combination with other promotions. The goal is to regularize low prices for Tesco customers and offer low prices not as a strategic option, but on a daily basis.
Tesco's arc to the steering wheel shows that Tesco recognizes its corporate social responsibility for the community. Therefore, it initiates different activities like summer soccer camps, a national basketball tournament contest which was held in October 2008. Tesco recently opened a greener store in Ramsay Cambridgeshire and it plans to substantially reduce the carbon emission.
In 2010 Tesco's UK sales growth was 4.2% and its international sales growth was 8.8%. According to new research conducted by International food and grocery expert IGD Tesco's turnover will increase by £30bn to almost £74bn within 5 years and store numbers will double, as rapid overseas expansion fuels growth. By 2012 a third of Tesco's revenue and 2/3 of its floor space will be outside UK. Overall Tesco's business will treble in size to £24bn. By 2012 Tesco will have a portfolio 6,628 stores double the current figure of 3,262. Tesco's operations in UK and Ireland will account for 67% of sales rather than current percentage of 79%.
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