Strategic Management Analysis: Tesco and the Supermarket Industry in the UK - Case Study Example

Running head: STRATEGIC MANAGEMENT ANALYSIS 13th December Tesco and the supermarket industry inthe UK Introduction In the modern world, competition is very stiff in the supermarket businesses. Tesco is a supermarket based in United Kingdom. The supermarket is headquartered in Cheshunt, Hertfordshire. Tesco is the third largest retailer in the world in terms of the profit and the second largest world retailer measured in terms of revenue generation. Tesco operates in more than 12 stores in Asia, Europe and in North America making it the biggest and the leader of grocery market in United Kingdom. This paper seeks to discuss Tesco’s strategic purpose, industry analysis, resources and capabilities, business and corporate strategies. Tesco strategic purpose For any business to survive and reach its full potential in the market, it must establish sustainable objectives. Legislations in the UK and in Europe require any business to state the overall purpose of the business. Tesco has the core purpose of creating value for the customers so that they can earn their lifetime loyalty. The purpose is realistic and reasonable and this is the reason why they are the largest operating retailers in UK. The employees work together with the top management. They improve the business success through handling the customers in the right way and encouraging them to buy more thus ensuring that profit is maximized. The employees play a major role in the business success that includes maintaining a good relationship with their customers and provide favorable environments which facilitate customers to buy more. Tesco offers wide range of products to their customers thereby attracting different customers with different taste and preferences. This strategy has played a great role in maintaining their loyal customers making sure that the customer makes repeated purchases. By creating value for their customers in their lifetime loyalty, Tesco has a strategy which they embrace so that they can attain its core purpose. The strategy used is to understand their customers; this is by providing unique and different products that suits different interest of the customers thereby satisfying their need and wants. Another strategy that Tesco has employed is making the need for the customers a priority. This is achieved through a promise that the product that the customer’s needs are available and if they are not available they are ordered immediately since the customer has the right to acquire them. Another strategy that Tesco embraces is to attain the main purpose of creating a value for the customers to earn their lifetime loyalty by acting in the communities responsibly. For example, in 2013, the company pledged action on food waste in UK. This is mostly attained through corporate social responsibility where they help the less privileged in the society. By working as a team Tesco has been able to achieve their core purpose. Respect and trust that is encouraged towards the employees has played a major role in the company daily routines and thus able to provide respect and trust to their customers. Tesco industry analysis Tesco being a major supermarket in UK can be analyzed using PESTEL Analysis that include political factors, economic factors, social aspects, technology environment and legislation factors that affect Tesco supermarket. Political Tesco operates worldwide and thus global political factors tend to affect the performance of the giant supermarket. Tax rates and acts of legislation are the major forces that tend to affect Tesco in the supermarket industry. Being the largest supermarket in UK, Tesco plays a major role by creating job opportunities. For example the Chinese government has removed all the barriers and encourages western companies including Tesco to venture in the market. Other supermarkets like Asda, Sainsbury’s, Morrisons and Aldi among others have been encouraged to venture in different market segmentations. Economic In 2008, the economy of UK was under recession, this made the government to reduce the substantial rates so that unemployment rate could be reduced in 2009. Due to the recession, the supermarket industry was negatively affected. Tesco was affected since the consumer power was low though the positive aspects towards Tesco loyal customers was that they used to eat out less but grocery retailers had the opportunity to get high sales since at home they consumed a lot. Social Due to the social issues, customers in UK have emulated bulk shopping and one stop shopping. This has made Tesco and other supermarkets to increase non-food items. Due to the beliefs and attitudes of the customers, the supermarket industry in UK is not yielding high profit. The customers are aware of the health implications and this is the reason why Tesco is adapting organic products to accommodate the interest of social beliefs of the customers. Technology Advanced technology which is embraced by Tesco supermarket has made it possible to increase the sales volume. For example, the development of online shopping services has made it possible to increase the sale volume. The self selection of the products is another strategy that has contributed to Tesco improvement in the supermarket industry. For example, due to technological advancement the supermarket companies in UK has attained different market share, for example, Asda which has a market share of 17.3%, Aldi has a market share of 4.8% while Tesco has 28.7%. Environment Environmental degradation is not allowed by the UK government and this is the reason why Tesco is addressing environmental issues. For example, Tesco has an outlined strategy of reducing carbon footprint by 50%. On the other hand, wastes that are produced by the stores are being reduced to ensure clean environment. Legislative Government and other agencies like Food Retailing Commission (FRC) have applied an act which ensures that Tesco and other supermarkets are not allowed to change the prices without notice to the government and the customers. This has made Tesco to provide their customers with the price of oil and other products. Tesco resources and capabilities Tesco supermarket was established in 1919 by Jack Cohen, the company has market capitalization worthy £20.5 billion in 2014. The company is among the listed companies in the London Stock Exchange. Tesco has more than 2,500 stores globally. In UK where it operates in 12 stores, it has an approximate 30% of the market share. The company’s employees as at 2013 stood at approximately 597,000 worldwide. Comparing with other supermarket in the industry Asda that is competitive with Tesco has approximately 150,000 employees worldwide. 90,000 employees in Asda are part-time workers while 60,000 are full-time workers. Tesco board comprises of chairman, chief executive, financial officer and the ten independent and non executive directors. Sir Richard Broadbent is non executive chairman, Dave Lewi acts as the group chief executive while Alan Stewart is the chief financial officer among other top leaders (Nash, 2006). Due to capable and competent employees and good leadership from the top management, Tesco has enjoyed high revenue for the last 14 years as indicated below. Tesco profitability Year Turnover (£m) Profit before tax(£m) Profit per year(£m) Earning per share 2014 70,880 3,050 2,249 32.06 2013 64,827 3,546 3,451 35.89 2012 64,540 3,986 2,813 34.99 2011 67,571 3,536 2,672 33.09 2010 62,537 3,175 2,337 31.67 2009 54,200 3,129 2,167 28.93 2008 47,299 2,802 2,132 26.96 2007 46,700 2,654 1,900 22.35 2006 38,200 2,211 1,577 19.60 2005 33,975 1,963 1,367 17.45 2004 30,814 1,601 1,101 15.06 2003 26,338 1,360 947 13.55 2002 23,654 1,202 840 12.06 2001 20,989 1,055 769 11.30 2000 18,799 934 675 10.08 Source-(Nash, 2006) One of the capabilities that Tesco has embraced is advancing of technology where they have adopted the use of online shopping. Online shopping has made Tesco to attain high profit since customers only need to buy online, and then the employees transport the product to the customers. Good ethical practices which are portrayed by the employees create trust for the customers. Through the career development and training opportunities that is ensured by the top management, the workforce is trained on how it can help the consumers to buy products using the online method. In addition, the employees are trained management courses so that they can acquire personal development plan. For example, Tesco academy is an institution that is used by the employees to learn so that they can gain their own personal development. Self serving in Tesco supermarket makes customers to make repeated purchases of their best brands that meet their need and preferences. The self selection criteria used encourages the consumers to shop more though there are monitoring machines which have been installed in the company so as to reduce cases of theft. Technology has made Tesco to be competitive in the market as compared with other supermarkets in UK such as Aldi which has a market share of 4.8%, Booths, Budgens that have zero percentage share in the market. Additionally, some of the competitors do not have online market services like the one adopted by Tesco. Tesco business and corporate strategies Tesco is a leading food retailer which has expanded globally. The biggest supermarket in UK is committed to creating a good shareholder value that can only be implemented through innovative customer focused strategy. The corporate strategy is based on the following, first the value of money that ensures that Tesco has the role of providing customers with high quality and unique products that are not provided with other supermarkets in UK. The products are provided to the consumers at unbeatable prices so that customers can feel as part and parcel of Tesco. Another corporate strategy that Tesco provides to the customers is customer services. For example, Tesco is focused on the customer’s unique products and it is concerned with delivering products that are first class to the customers. Comparing with other supermarkets in UK, Tesco has more improved services that make it unique thus easily attracting local and foreign customers. To keep in touch with their customers, Tesco has Clubcard that they use to appreciate loyal customers. Tesco rewards their loyal customers according to their level of loyalty while engaging with them. Based on its success, Tesco realized that they will have to thank and appreciate their customers through Clubcard which is part of its corporate strategy (Humby and Phillips, 2006). Another corporate strategy that is embraced by Tesco is the products. Tesco works closely with suppliers and thus they provide products that are of high quality that meet the needs of the customers. Uniqueness and high quality brands make Tesco to achieve a competitive edge in the UK supermarket industry. For example, comparing with other supermarkets like Morrison, Sainsbury and Asda among other supermarkets, Tesco highly values product innovation to improve their brands. The last corporate strategy that Tesco embraces is the stores which are opened in different locations so that they can bring their brands close to their customers. In this way, they will attract customers from different parts of the country. The stores that are strategically located in various parts of the country provide the customers with a better shopping experience. Tesco being a UK based company ensures that the products that they usually offer are wanted and needed globally and this is the reason why Tesco provide online services for the customers in foreign countries to identify the products offered by the company. Since Tesco is a modern supermarket in UK, it is innovative and the management has diversified ideas that make it possible to achieve their goals. Tesco continues to grow and develop due to different opportunities that are available in the global retail business. Conclusion As compared with other supermarkets in UK, Tesco remains the most innovative supermarket in UK. Different stores are opened to facilitate customers shopping experience and this is the reason why they have expanded globally. Uniqueness gives Tesco a competitive advantage as compared with other supermarkets in UK. References Humby, C and Phillips, T. 2006. Scoring points: How Tesco continues to win customer loyalty. London & Philadelphia: Kogan Page. Nash, B. 2006. Fair-Trade and the growth of ethical consumerism within the mainstream: an investigation into the Tesco consumer. Leeds: University of Leeds. Read More