The Development of Tesco - Essay Example

Tesco PLC Tesco PLC is the largest British retailer based on both global and local shares. Traditionally, the UK-based international retailer specializes only in the distribution of food products but it currently adds other goods and services to its product portfolio which ranges from clothing to consumer electronics to consumer financial services to internet services to internet service and consumer telecom. Last February 26, the company announced a total annual turnover of 33.974 billion and reported a pre-tax profit of 1.962 billion. It is estimated that in every 8 UK retail sales, 1 is spent on Tesco. Tesco is currently one of the world recognized retailers. Historical Timeline Table 1 shows the historical timeline of Tesco. The first column shows the year when the events happened. The second column gives more details by revealing the developments which occurred in the business organization. The development of Tesco can be divided into three distinct phases: formation; postwar development; and expansion. The first phase starts with the foundation of the company in 1919 and ends with formal opening of the first Tesco store in Burnt Oak, Edgware, London. Postwar development commences with the retailer's initial public offering (IPO). Rapid growth was witnessed as Tesco opens its first supermarket and superstore. The last phase features the rapid expansion of Tesco PLC both in new product areas and geographic region. Throughout this stage, the company utilized the new trends in global retailing to enhance its products and services. Historical Timeline of Tesco PLC Year Events/ Development 1919 Jack Cohen founded Tesco, when he began to sell surplus groceries from a stall in the East End of London. His first day's profit was 1 and sales 4 1947 Tesco Stores (Holdings) Ltd floats on the Stock Exchange with a share price of 25p 1956 The first Tesco self-service supermarket opens in a converted cinema in Maldon Tesco takes over a chain of 212 stores in the North of England and adds another 144 stores in 1964 and 1965 1961 Tesco Leicester enters the Guinness Book of Records as the largest store in Europe 1968 The term 'superstore' is used when Tesco opens its store in Crawley, West Sussex 1974 Tesco opens its first petrol stations at major sites 1977 Tesco introduces a price-cutting campaign under the banner 'Checkout at Tesco' 1979 Annual sales reach 1 billion 1982 Computerised checkouts introduced into the first Tesco stores 1983 Tesco Stores (Holdings) Ltd becomes Tesco PLC 1985 Tesco becomes the first major retailer to emphasise the nutritional value of its own-brand, to customers, through the 'Healthy Eating' initiative 1991 Tesco becomes Britain's biggest independent petrol retailer 1992 Tesco launches its Organic range Computers for Schools is launched The first Tesco Metro store opens at Covent Garden, London 'Every Little Helps' is launched 1995 'Would I Buy It' initiative is launched to ensure that products are always of the highest quality for customers Tesco becomes the market-leading food retailer Tesco Clubcard is launched 2000 Tesco.com is launched 2003 Tesco mobile phone is launched Tesco Home Phone is launched 2004 Tesco launches own-brand Fairtrade range Tesco becomes the first supermarket to introduce Glycaemic index (Gi) labelling Tesco Broadband is launched Tesco.com becomes first major British supermarket to enter music download market Main Uncertainties in the Business Environment As with any other business organization, the retailer is also exposed to the risks and challenges present in the current global business arena. It is irrefutable that environmental factors are pivotal in shaping the landscape where each organization operates. As Kotler puts it, organizations are now operating in a hypercompetitive business environment where there is a more intense rivalry among industry players and higher buyers' leverage. These factors become the main challenges and uncertainties within which each competitor like Tesco must tailor its strategy for. With its expansion stage, Tesco began to step out of its home country and began its geographic expansion to other lucrative markets. Nowadays, its operation reaches out from the United Kingdom to embrace huge markets like Japan, Turkey, China, and others. It should also be noted that it had announced its strategic plan to conquer the US market. This decision will make Tesco battle head on with the top retailing giants like Walmart, Carrefour, and Home Depot. It is expected that this will bring about tougher competition and uncertainty. As these companies are globally renowned, Tesco should be gearing itself for the new set of strategies that these competitors might launch. There is also an irrefutable question whether Tesco will be warmly welcomed by the markets that it wished to cater to. Expanding into new markets also often means a modification or alteration of the company's present strategy to take into account the different behavior and preferences of buyers. With this, Tesco is challenged with the uncertainty of the success of its current strategy in the global arena. The rapid growth of Tesco has been criticised by commentators which sees the presence and operation of the retailer as degradation in the market environment. Smith (2006) had boldly commented on the marketing strategies launched by Tesco especially its Loyalty Card which is solely used for the benefit of the retailer by gathering more information than what is willingly given by the customer. Furthermore, he states that Tesco uses deceptive advertising by not telling half of the whole story. Another drawback of Tesco's rapid growth is its effect on the industry competition. As the company is able to price lower than its competitors who have a relatively small share in the market through economies of scale, the presence of Tesco is seen as detrimental to food producers, suppliers and smaller competitors. As these players in the industry do not have bargaining leverage held by Tesco, they become vulnerable to its tactics. Some are forced to lower prices or close down in order to avoid huge losses. As buyers are now more informed and are concern about the societal issues faced by their companies, Tesco is trying to address these issues and uncertainties. One of the possible things it can do it intensifying its effort in promoting marketing ethics program such as Computer for Schools initiative. The Computers for School initiative of Tesco has become the benchmark for CRM in the UK. Through the program 84 million worth of information communication technology equipment were delivered in the entire Britain for the last 10 years. This was made possible by the shoppers who have collected vouchers which were then exchanged to equipment by their respective schools (Ramrayka 2004). Another thing which it can do is the promotion of societal marketing which will give the customers accurate information, education, and protection on a specific product. Tesco and Innovation Innovation has become an important aspect of companies' operation. A company's ability and capability of innovation often determines its survival and even mere existence. However, it can be seen that the level of innovation is often dependent on the nature of business. For example, computer manufacturers strongly need to innovate as a key success driver is their ability to launch products with new features. In contrast, manufacturers of salt often need less innovative ideas in order to remain competitive. Aside from being a retailer of household goods and other grocery products, Tesco has already ventured into other businesses like financial services, clothes, consumer electronics, selling and rental of CDs and DVDs, compact discs, music downloads, and internet service and computer telecoms. With this, the company is expected to innovate not only in its product line but in its marketing strategy. Tesco has been recognized in its effort to deliver more customer value by its various inn ovations. It should be noted that the company is unmatched in terms of price because of its very efficient value chain. Tesco is also able to introduce new store concepts. Instead of continuously pursuing its "pile it high, sell it cheap" strategy, the company has made a leap into catering the needs of the high-end and middle market by selling products which are not traditionally sold in discount stores. Another innovation led by Tesco is the launching of the Clubcrad, which becomes beneficial not only to customers but to the company. It should be noted that this innovation allows the company to track the purchases made by the customers and provide rewards. Tesco is also able to launch directed marketing as it becomes acquainted with the product preference of a client. The company is also able to cultivate customer loyalty as well as foster good relationship with them. The company is also innovative as it continues to offer a wide range of products and services not typically offered by other retailers. Instead of just focusing on retailing, Tesco continue to offer a wide range of service to give more convenience to customers. The retailer even opened a website where customers can make online purchases. The retailer backs this up with excellent customer service. It is irrefutable that Tesco is utilizing innovation not only to promote a good image and brand equity. The company was able to capture its customers with its innovative products and store formats. Looking closely, Tesco's survival in the industry is due to its unique ability of strategically adapting to the needs and preferences of its clientele. Lex Column With the current trend of globalization, which company does not desire to conquer large markets like China and United States Tesco is going with the flow by trying to set out its strategy within its borders. Tesco is currently expanding around the globe in order to find new markets and boost its sales trend. To date, Tesco has 814 stores spread throughout the globe in major economies like Japan, China, South Korea, and France (Tesco 2006). The retailer reports that it is eyeing to enter the United States and battle head-on with Wal-mart, the world's largest retailer (Clarke 2006). In fact, international food and grocery analyst IGD forecast that Tesco will continue to look for growth abroad and that by 2010, nearly half of its stores will be operating overseas (IGD 2006). As an international retailer, Tesco should consider certain factors and issues when doing business abroad. The company recognized this by laying out six elements in its entry to foreign markets. Be flexible - each market is unique and requires a different approach Act local - local customers, local cultures, local supply chains and local regulations require a tailored offer delivered by local staff - less than 100 of Tesco's International team are ex-pats Keep focus - to be the leading local brand is a long term effort and takes decades, not just a few years Be multi-format - no single format can reach the whole of the market. A whole spectrum from convenience to hypermarkets is essential and you need to take a discounter approach throughout Develop capability - developing skill in people, processes and systems and being able to share this skill between markets will improve the chances of success in challenging markets Build brands - brands enable the building of important lasting relationships with customers. From here, we can see that Tesco's operations abroad are significantly different in its operations in the United Kingdom. As the company tries to blend with the local culture and market, the company essentially diverts from its local operations. These are advantageous as these strategies follow the core marketing principle of focusing on customers needs (Kotler 2001). Two different operations are given by Tesco: 1. In Thailand, customers are used to shopping at traditional wet markets, interacting with vendors and rummaging through piles of produce to choose what they want. Rather than adopting the Western approach of neatly packaged, convenient portions, our Rama IV store in Bangkoktries to meet local customers' expectations. 2. In Tokyo, customers like to shop for small amounts of extremely fresh food, every day. Existing hypermarket formats don't meet the needs of local customers, so Tesco's entry into the Japanese market was through the acquisition of a discount supermarket operator. In its quest for supremacy, Tesco should wage war globally. Battling head on with giant retailers will require more than just pricing efficiently. It needs a strategy which fully takes into the new markets its venturing into. 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