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1FAKULTI OF BUSINESS AND MANAGEMENTSEMESTER 3 / TAHUNBBP4103 PENGURUSAN STRATEGIK NO. MATRIKULASI : 710624025377001
NO. KAD PENGNEALAN
: 710624025377
NO. TELEFON : 019 4146812
E MEL : [email protected]
PUSAT PEMBELAJARAN : PPW KEDAH
2
NO CONTENT PAGES 1.0 INTRODUCTION 2 32.0 TOWS Matrix of TESCO 4 53.0 SWOT ANALYSIS 5 134.0 CRITICAL SUCCESS FACTORS 14 185.0 CONCLUSION 18 196.0 REFERENCES 19 21
3 1.0
INTRODUCTION Jack Cohen founded Tesco in 1919 when he began to sell surplus groceries from a stall at WellStreet Market, Hackney, in the East End of London (ironically, the market is now much smaller than in those days; a large Tesco Metro store now sits on the site.)The Tesco brand first appearedin 1924. The name came about after Jack Cohen bought a shipment of tea from T.E. Stockwell .He made new labels using the first three letters of the supplier's name (TES), and the first twoletters of his surname (CO), forming the word TESCO The first Tesco store was opened in 1929in Burnt Oak,Edgware, Middlesex. Tesco was floated on the London Stock Exchange in 1947as Tesco Stores (Holdings) Limited . The first self service store opened in St Albans in 1956(which remained operational until 2010, with a period as a Tesco Metro), and the firstsupermarket in Maldon in 1956.During the 1950s and the 1960s Tesco grew organically, and also through acquisitions, until itowned more than 800 stores. The company purchased 70 Wi ll iams on s stores (1957), 200 Harr owSto r e s outlets (1959), 212 Ir w i n s stores (1960, beating Express Primier Supermarkets to thedeal), 97 Char le s P hi ll ips stores (1964) and the Victor Value chain (1968) (sold to Bejam in1986).Originally specialising in food and drink, it has diversified into areas such as clothing,electronics, financial services,telecoms, home, health, car, dental and pet insurance, retailing andrenting DVDs, CDs,music downloads,internet services and software..The food and drink retail sector represents the largest industry in the UK, providing employment
4 for over three million people in primary production, manufacturing and retailing. In 2003 retailaccounted for 9% of gross domestic product (Datamonitor, 2003). In recent years UK supermarkets have come under increased scrutiny over their treatment of suppliers, particularlyof own label products, yet the development of strategic supply networks has been an integral partof most supermarket strategies for the past decade.The report below provides an insight into the supermarket company, Tesco, with emphasis on itsexternal 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 andemploying 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, includingclothing and other non food lines. The company's own label products (50 percent of sales) are atthree levels, value, normal and finest. As well as convenience produce, many stores have gasstations, becoming one of Britain's largest independent petrol retailers. Other retailing servicesoffered include Tesco Personal Finance.
5
2.0. TOWS Matrix of TESCO Strengths WeaknessOpportunities y
Increasing market share y
Tesco's general growth and ROI showno sign of abating. y
Insurance. y
Tesco online. y
Brand value. y
UK market leadership reinforced. y
N on food retail. y
Health and beauty. y
Further international growth. y
Top Grocer and largest retailer at UK Brand value,good HR logistic,different marketformat.All this can help to increase the marketshare at N on food segment,and higher marginnew markets. y
Perceived high brand value can help atexpansion. y
Reliance upon the UK market. y
Debt reduction. y
Signs point to serialacquisitions. y
Dependency at UK market is the weakness thatshould be over come toexpand and exploit other geography. y
Moving to higher margin markets can minimizethe weakness associated withless captured N on foodmarket.
6
Threats y
Different market formats,Brandvalue,customer centric approach,and new product and services can minimize the major threat of descrease in market share either due toentry of Wall mart,acquisition by Asda,WmMorrison Bid. y
UK structural changecould spark a price war. y
Wal Mart/Asdachallenge. y
Internationalexpansion. y
Focusing on the N onFood segment along with theexpansion to differentgeography can minimize thethreat and weakness. 3.0 SWOT ANALYSIS3.1 Strengthsa. Increasing market share. Tesco holds a 13% share of the UK retail market. Its multi format capability means that it willcontinue to grow share in food, while increasing space contribution from hypermarkets willallow it to drive a higher share in non food. b. Tesco's general growth and ROI show no sign of abating.
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In the UK, Tesco's late 2002 investment into West midlands based convenience store groupT&S was billed as the most aggressive move into the neighborhood market by a big nameretailer so far. The deal has turned Tesco into the country's second biggest convenience storechain after the Co operative Group, and the company also plans to open up 59 new stores in theUK this year. Tesco has grown its non food division to the extent that its revenues now total 23%of total group earnings. Tesco's international business segment is growing steadily, and is predicted to contribute nearly a quarter of group profits over the next five years. If geographicalspread continues to grow, this will ensure Tesco's continued regional strength. c. Insurance. In fiscal 2003 Tesco Personal Finance reached the milestone of one million motor insurance policies, making it the fastest growing motor insurance provider ever. Thegroup's instant travel insurance allows Clubcard holders to buy their holiday insuranceconveniently at the checkout. Pet insurance now has over 330,000 cats and dogs covered, whilethe life insurance policy followed on from the success of last year, when it was voted The MostCompetitive Life Insurance Provider in the MoneyFacts Awards 2003. d. Tesco online. Tesco.com is the world's biggest online supermarket and this year the group had sales of over £577 million, an increase of 29% on last year. Tesco online now operates in over 270 storesaround the country, covering 96% of the UK. With over a million households nationwide havingused the company's online services, the company has a strong platform to further develop thisrevenue stream.
8 e. Brand value. Profits for Tesco's operations in Europe, Asia and Ireland increased by 78% during the last fiscalyear. The company has a strong brand image, and is associated with good quality, trustworthygoods that represent excellent value. Tesco's innovative ways of improving the customer shopping experience, as well as its efforts to branch out into finance and insurance have alsocapitalized on this. f. UK market leadership reinforced. Since acquiring number one ranking in 1996, Tesco has developed a successful multiformatstrategy that has accelerated its advantage. Its UK sales are now 71% larger than Sainsbury's.Also the Competition Commission's report makes it very difficult for a competitor to challengeits scale and has effectively scuppered Wal Mart's chances of stealing UK leadership. Therefore,Tesco is in an enormously strong position in its domestic market. 3.2 Weaknesses a. Reliance upon the UK market. Although international business is still growing, and is expected to contribute greater amounts toTesco's profits over the next few years, the company is still highly dependent on the UK market(73.8% of 2003 revenues). While this isn't a major weakness in the short term, any changes inthe UK supermarket industry over the next year for example, like the Morrison's groupsuccessfully purchasing the Safeway chain could alter the balance of UK supermarket power,and affect share.
9 b. Debt reduction. Tesco is not expected to reduce its debt until at least 2006. Tesco has a large capital expenditure program mainly due to its huge investment in space for new stores.Since its expansion is so aggressive, Tesco has little free cash for any other operations. Signs point to serial acquisitions. With an enterprise value of £23 billion, Tesco clearly has enormous firepower. Also, its productrange is vast and almost any acquisition can be justified, particularly in the UK. While 'fill thegap' strategy would be useful to the company, as has been the case with the UK conveniencemarket, there is the danger of Tesco becoming a serial acquirer, as this tends to reduce earningsvisibility and quality. 3.3 Opportunitiesa. Non food retail. The growth in Tesco's hypermarket format in the UK means that there are expectations of seeingits 13% share of retail sales climb sharply over the next few years. It can use its footfall and lowcost structure together with improved merchandising skills to add another leg to growth. Equally,its growth overseas will further increase earnings and scale, taking Tesco onto the virtuous circleof growth. It is estimated that Tesco's non food sales will double over the next four years.Worldwide it has sales of £7 billion in non food, some 23% of the total. Its aim to be 'as strongin non food as we are in food', no longer sounds like the consultancy speak that it once did, and
10 they are getting there using the basic tenets of value, choice and convenience that have been sosuccessful in food. Around half of new space opened in the UK last year was for non food andthe result has been to increase its market share from 5% to 6% and its overall share of UK retailsales has increased by 100 basis points to 12.8%.The company's telecoms venture is the latest stage in its strategy to develop popular retailservices. It has repeated its approach in banking, by capitalizing on its brand. b. Health and beauty. Tesco's UK health and beauty ranges continue to grow, and it is currently the fastest growingskincare retailer in the market. The company has a volume market leading position in bothtoiletries and healthcare and is number one retailer in the baby goods markets. Across all healthand beauty ranges Tesco continues to invest in price to deliver the value customers have come toexpect and this year invested £27 million on health and beauty pricing alone. The company nowhas 19 stores with opticians and nearly 200 stores with pharmacies. c. Further international growth. 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. Seven years ago, its International sales were £770million. N ow, they are nearly 10 times larger, at almost£7 billion, with profits of £306 million. In the current year, Tesco will add 2.5 million square feetto sales area and could well enter another major market. Growing internationally has forced
11 Tesco to become serious about hypermarkets and this has had seriously positive implications for growth in the UK. Tesco has formed a strategic relationship with US supermarket, Safeway Inc,to take the tesco.com home shopping model to the US. Telecoms are the latest stage in itsstrategy to develop popular retail services. It has repeated its approach in banking, bycapitalizing on its brand. In 2004 the company plans to enter the Chinese market, as China is oneof the largest economies in the world with tremendous forecast growth and will present manyopportunities for Tesco. 3.4 Threatsa. UK structural change could spark a price war. The price followers in the UK market are about to become aggressive investors in price,Safeway because of new ownership and Sainsbury because of new management. Morrison isreducing Safeway's prices by up to 6% and Sainsbury is bound to see lower prices as one of the basic changes necessary to drive its recovery. With both Asda and Tesco committed to priceleadership, this could result in a step down in industry profitability. b. Overseas returns could fall. The buy case for Tesco is predicated around investment overseas driving higher group returns aseach country moves past critical mass. This might not happen, either because of economicconditions, competitor action, or failure in Tesco's business model. It also could come as aconsequence of an aggressive move into a larger market, such as China or Japan. c. Wal Mart/Asda challenge.
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Since the US shopping giant Wal mart purchased Asda, Tesco's rank as the top UK supermarkethas been threatened. Asda can now compete extremely well on price and range of goods. For themoment, Asda is the third largest supermarket in the UK, just behind Sainsbury's and then Tesco.However, Asda closed the gap on Sainsbury's in 2003, leaving the company to directly challengeTesco's dominance.Tesco is well aware of this, and has so far been quick to keep up with price cuts or special offersat Asda. Wal mart may also decide to wield its buying power more heavily in the UK, and thiscould spell the end of Tesco's brand dominance in the future. d. International expansion. International growth is expensive. Entering new markets with a new brand requires heavyinvestment and marketing, as well as land prices (which are currently low) and extra distributionand operation expense. Tesco's debt may increase before it begins to decline.Korea is contributing a good proportion of Tesco's international profit growth. If profits continueto grow in this way, Korea will probably represent one third of Tesco's international profits in2003. Korean consumer spending is currently quite low, and coupled with the country's currentunrest, and Tesco's large investment, this represents a high risk area for Tesco to bank on.e. Tesco faces threat to land bank. Tesco could be forced to sell its controversial land bank under proposals being pushed bymembers of a Competition Commission review into supermarkets.The regulator is due to publishits initial findings next week and sources close to its deliberations say at least two of the six
13 panel members are arguing that its vast unused property portfolio stymies rivals from enteringlocal markets.One senior source said hawks on the panel had been pushing their case hard in recent weeks. "Itwould be odd if they were interested in land banks and they didn't do anything about it," added asecond person following the case.Of the big four supermarkets, Tesco has by far the biggest land bank. The Office of Fair Trading(OFT), which kicked off the investigation into supermarkets, found that Tesco held 55 per centof the 319 land bank sites it had identified.Tesco believes it is doing nothing wrong. A spokesman for the company said: "The land that wehave is essentially a pipeline of new stores and that's the only reason we hold it. The other supermarkets also have a pipeline of land, although it is well documented that we have a larger one," he added.The Competition Commission already has a draft version of its so called emerging thinking, butit is still putting the final touches to the wording that will represent the consensus view of the six member panel, headed by Peter Freeman, the regulator's chairman. N ext week's report is just the first stage in the long inquiry process and is unlikely to target anyone supermarket by name. But if the regulator formally decides that the use of land banks is anti competitive, it could order Tesco to sell off sites in the summer.When it presents the findings next week, the regulator will also release an independent poll of supermarket suppliers, which is expected to be good news for the biggest retailers.
14 The big four have been accused of using their combined muscle to squeeze suppliers in an anti competitive way. Last week David Cameron, the Tory leader, waded into the debate, sayingsupermarkets used their power to squeeze producers' margins and calling this an unacceptable practice.Cameron urged the Competition Commission to crack down on such practices, but theindependent poll is said by those close to the inquiry to show that the suppliers themselves areless critical of the supermarkets.Tesco's competitors Asda, J Sainsbury and Wm Morrison have openly criticised the growingdominance of Britain's biggest retailer and put the planning regime at the heart of theCompetition Commission's investigation.Led by Asda, whose advisers got planning on the agenda of the initial OFT investigation, thesupermarkets want a relaxation of the regime, while Tesco favours the status quo.Asda and the others have argued that there should be a competition element to planningdecisions, which would allow local authorities to authorise more development in areasdominated by just one supermarket ± usually Tesco, which has a 31.4 per cent market shareOne of the major aims of every business is to maximize profit. Tesco wanted toincrease its operational capacity at the front end and at the same time save cost hencethe use of the self checkout. For instance instead of employing five cashiers to operatefive cashier checkout, only one cashier will be required to assist customers on five
1 5 self checkouts. 4.0 CRITICAL SUCCESS FACTORS After a close evaluation of the external analysis of the grocery industry and SWOT analysis, it iscrucial to consider internal operational effectiveness of Tesco in the formof identifying criticalsuccess factors of the company within the food retailing sector. 4.1 Branding and Reputation There are companies that have always understood that they were selling brands before the product.Tesco is a brand and also serves as the core strategic advantage.The company was spreading like wildfire transforming the generic into the brand specific,largely through carefully branded packaging and the promotion of an ³every penny counts´environment.The company has a strong brand image, and is associated with good quality,trustworthy goods that represent excellent value.The product and service development processes of the company have been substantially re engineered, to facilitate bette rmanagement of product lifecycles and more efficient deliveryofwide ranges of products to customers.Product activity has focused on enhancing core ranges and introducing quality products.Tesco'sinnovative ways of improving the customer shopping experience, as well as its efforts to branchout intofinance and insurance have also capitalized on strong brand reputation.
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The company is also very successful in terms of customer loyalty due to its loyalty cards systemand its general approach tocus to mizing services to the needs of every customer.This istrulyevident in terms of tremendous growth of on line sales where the company has a strong platform to further develop this revenue stream.After considering the fact the nowadays majorityof people have less time for shopping, Tesco employed this on line systems and now became the biggest online supermarket. 4.2 IT Integration Today companies act in an increasingly dynamic and complex environment, giving moredifficulties making forecasts and adapting themselves to the continuous changes.In order to beable to compete in this kind of world, it is necessary to innovate atan extraordinary speed,continuously improving the products,services and processes.For Tesco operations have become necessities rather than luxuries.Systems that control stock,keep all the stock and deliveries records and analyse business transactions are the lifelines of thecompany.It can also be said that IT has risen beyond its traditional support role and taken upacentral role in business strategy formulation.Extranet system employed by the company, enables Tesco to usethe Internet to create proprietaryand customised information flows between the company and its business partners.The systemconnects business partners online behind virtual firewalls, bringing more flexibility, scalability,extensibility and integration across the distribution channels.
1 7
Extranet also helps to extend the key information on business partners throughout the supplychain and facilitate collaborative relationships with partners. Market exchanges hold the promiseof extending Tesco's reach, delivering buyers to their virtual doorstep from around theworld.Other examples of the most efficient technological advances that support daily businessoperations of Tesco are wireless devices, intelligent scale, electronic shelf labelling, self check out machine and radiofrequency identification (RFID) systems.This technology is aneffort tomaintain Tesco's ability to handle an increase inproduct/service volume while controlling costs;it also enables to be innovative and market oriented. 4.3 Supplier Management Tesco, like many other grocery chains companies, sources its goods from overseas manufacturerswho are more competitive on price and volumes.For many years Tesco has been supportingBritish jobs and expertise by encouraging large branded suppliers to develop exclusive production facilities.But in recent years the company has realised the need to look abroad for products no longer available in UK, bud tried to do it through long established UK partners.Thefoods continued to be heavily UK based due to the very successful range of prepared foods.As a major retailer selling diverse product range, they work with many different suppliers aroundthe world, with employees from many different cultures and ethnic groups.Therefore, it is thecompany policy and company's main approach to have unique relationships withsuppliers.Applying advanced technology in its communications and cooperation with thesuppliers, the company aims to control the work of its suppliers and heavily relies on their
1 8 efficiency.The direct suppliers use a number of sub contracted suppliers, selected to be best inclass in their country.Tesco has established close relationships with the contractors believing thatregular and long term orders promote the investment necessary to improve conditions in thesupply chain.Being an international company, Tesco develops various supplier management programmes tosurvey key suppliers and franchisee satisfaction.The company also takes part in the EthnicalTrading Initiative.Tesco has developed a differential advantage by focusing on relationship marketing andcustomer experience.Tesco¶s focus on relationships is a key factor for future and currentsuccess.They are doing a good job of segmenting their current customer base and personalizingtheir experience.I believe that they should do more.The process of sending out e mails andcoupons is a good relationship tool.However Tesco could do more to reach customers on a personal level.To keep its current success, Tesco.com needs to be an innovator in internetmarketing as well as internet business.One suggestion I would have for the company is to develop some sort of online chatrooms where customers can go and talk directly to employees.Without direct communication, arelationship will only grow so far.This online communication would take tesco.com to a wholenew level.Tesco also has room for improvement on the experience it provides.An online chat roomwould definitely improve the Tesco experience.However, the company could go even further and develop a personal touch to their website.The Tesco experience would provide the
1 9 company with a significant competitive advantage.This would make the site even easier tonavigate and would help the customer develop a deeper connection with the company.Tesco.com provides a good experience and has good customer employee relationships.However,they can not become content with where they are at.The company needs to keep itsfocus onserving the customer by catering to their specific needs and wants.With a focus onservicethrough relationships and experience, Tesco.com can continually provide a positive and personalservice for their customers. 5.0 CONCLUSION Tesco being one of the largest retailers world wide a complete study was made and analysedthat,Tesco in the category of I N TER N ALIST it suggests that once they moved into theinternational arena most likely as a result of push factors from the domestic market theyexperience in operating on an international basis grew and hence this makes them a cautiousinternationalist. The dimensions of location decision making is very extensive. Locationaldecisions engage the different deciplines of strategic marketing, the geography of retailing, town planning , operations research ,consumer behaviour and economics. Tesco embarked upon thesefactors to develop smaller stores. These stores were developed at different locations which was aserving advantage to different consumer demands. Theese out of town , edge of town superstoresoffer one stop shoping services for weekly outings, the smaller in town stores offer top upshopping facilities. Thus the Tesco¶s portfolio was complemented.
2 0 6.0 REFERECES: Acur N . and Bititci U. (2004), A balanced approach to strategy process¶, I nte r n a t i on a l Jou r n a l of O p e ra t i on s & P r oduct i on M a n ag e m ent, Vol. 24(4),
pp.388 408Armstrong, M., (1990), Management Processes and Functions, Exeter, Short RunPressArmstrong, M.,(2006), Human Resource Management¶, London, Kogan PageClarke I., Bennison D. and Guy C. (1994), The Dynamics of UK Grocery Retailingat the Local Scale¶,
I nte r n a t i on a l Jou r n a l of Ret ai l & D is t rib ut i on M a n ag e m ent , Vol.22(6), pp.11 20Clift, D.J., (2007), Lean World: The D N A of the Success and the Path to Prosperity¶Ipswich, Lean World LtdDatamonitor (2003), SWOT analysis of Tesco¶.http://www.datamonitor.com,accessed on 26/7/09Datamonitor (2003), Company Profile: Tesco PLC analysis¶,http://www.datamonitor.com, accessed on 26/7/09
2 1 Datamonitor (2004), Company Profile: Tesco PLC analysis¶.http://www.datamonitor.com, accessed on 01/8/09 Food and Drinks, (2003), Tesco begins self checkout trail,http://www.foodanddrinkeurope.com/Retail/Tesco begins self checkout trial, accessed on 15/7/09McKenna, E,. and Beech, N ., (2008), Human Resource Management: A conciseAnalysis¶ 2nd ed., FT, Prentice HallMintel Report (2004), Food Retailing:UK, Retail Intelligence¶,http://www.mintel.com, accessed on 25/7/09 Montana,P,J., and Charnov, B.H., (2008), Management¶ 4thed.Leavitt,h,j(1989), Managerial psychology¶, Chicago, University of ChicagoTargett, D., Grinshaw, D, J., and Powell,P., (1999), IT in Business: A Manager¶sCasebook¶, Oxford, A Butterworth HeinemannTupper, C, S., and Deszca, G., (2008), Toolkit for Organizational Change¶, London,Sage Publication (2800 WORDS)
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