Strategic planning (TESCO) - Case Study Example

Strategic Planning (TESCO STRATEGIC 1 Mission: The very core purpose of any business, besides sustenance and profitability, happens to create and keep adding value for the customers. A supermarket chain in particular needs to take into account the changing needs and requirements of the customers, depending upon the changing environment, food habits, time management, availability of alternates in the market, increasing awareness about environmentally friendly goods and services etc. This way they can earn the loyalty of the customer while successfully attracting more customers. Tesco's mission statement1 says, "Our core purpose is to create value for customers to earn their lifetime loyalty." value creation for the customer proves to be a competitive weapon to retain the customer. 1.2 Business Objectives: Tesco has expressed its business objectives (Tesco, 2007) basically in the two key values: i. No-one tries harder for customers ii. Treat people as we like to be treated Retail Business requires managing a broad range of retail skills in the areas of customer sales and service, promotion & advertising, store layout, visual merchandising, economics & accounting, marketing, buying from suppliers, inventory control, and human resource management. The mission and objective statement must encompass all such fields and activities. Tesco has a long term strategy for growth, based on four key parts: i. Growth in the Core UK ii. To expand by growing internationally iii. To be as strong in non-food as in food iv. To follow customers into new retailing services 1.3 Principle activities and Products: Tesco, the super-market chain is in the business of retailing for nearly 90 years now. It is UK's largest retailer, having around 1800 stores in UK alone and more than 2300 stores worldwide, with group sales crossing m 37,070 worldwide at the end of financial year 2005. An international retailer of food, non-food and retailing services, Tesco currently operates in the China, Czech Republic, France, Hungary, Japan, Malaysia, Poland, Republic of Ireland, Slovakia, South Korea, Taiwan, Thailand, Turkey and the UK. 1.4 Short History: It was in the year 1919 that Jack Cohen founded Tesco, when he began to sell surplus groceries from a stall in the East End of London. In those days his first day's profit was 1 and total sales of 4. The name comes from the initials of TE Stockwell, who was a partner in the firm of tea suppliers, and CO from Jack's surname. It was in year 1929 that Jack Cohen opened his first Tesco store in Burnt Oak, Edgware, North London. And the journey continues, there's no looking back since then. 1.5 Microenvironment factors: With an emphasis on Globalization and consumerism, role of retailer and supermarkets is continuously on the rise. World over such supermarkets are replacing the street corners shops as the supermarkets offer better quality, branded items and value for money. In fact supermarket chains like TESCO have now become a formidable brand in themselves. 1.6 Perceived competitive Advantage: From the strategic planning point of view, competitor analysis is very important for any company's long-term survival (Kotler, 1972). Tesco is securing itself a position in the top echelon of an elite group of international retail organizations on account of the number of superstores that it has worldwide and the range of products available. Mintzberg (1994) too, while talking about the changes that have taken place on the strategic planning front, emphasizes the importance of strategic planning. 1.7 Future Assumptions: David (1999) defined strategy as 'the match an organisation makes between its internal resources and skills and the opportunities and risks created by its external forces'. This assumption forms a crucial component while planning for future. For such planning, the TOWS (Threats-Opportunities-Weaknesses-Strengths) and SPACE (Strategic Position and Action Evaluation) Matrices prove to be very helpful tools. 1.7.1 Strengths: With strengths like a strong brand value, good infrastructure, prime location, growing operations in Asia Pacific region and customer's support TESCO appears to be all set for further growth in the near future, though it has to take care of powerful competitors like Wal-Mart, Asda, Sainsbury etc. As of 2005, Tesco commands a 20% share of the UK food retail market, a 30% share of the UK's grocery market and a 16% share of the health and beauty market (Datamonitor, 2006). 1.7.2 Weaknesses: Tesco is highly dependent on their UK operation, which makes its vulnerable to huge losses in case of any developments in UK markets. In addition the shrinking margins in the retails sector may well prove to be a loss making proposition for Tesco if the competitors decide to leverage their economies of scale. 1.7.3 Opportunities: Some of the key opportunity areas for Tesco are; Expansion in international markets UK non-food market Increasing online spending Private labels Expanding Indian retail market 1.7.4 Threats: Some of the potential threat areas for Tesco are; Intense competition Growing size of competitors like Wal-Mart. Retail environment in Eurozone Increasing labor wages in UK 2. MARKETING: 2.1 Customers: The customer profile of TESCO is very wide. Growing competition within the retail sector has forced TESCO to diversify in many other areas and products including overseas ventures. While it is true that nearly 80% of group sales and profits come from the UK business, it is equally true that the customer now has more options in the form of Asda/ Wal-Mart and Sainsbury. Therefore, TESCO has consistently tried to come upto the expectations of the customer. Besides the retail customer. Porter's Five Forces have become a yardstick for assessing industry profitability. This helps the retailer in consistent performance and planning. The five forces are; Buyers'/customers' power Suppliers' power Rivalry among competitors Threat of new entrants Threat of substitute products Threat of New Entrants Bargaining Power of Bargaining power of Suppliers Buyers Threat of Substitute product 2.2 Suppliers: Large supermarkets like Tesco have the overwhelming advantage over the small shopkeepers - they dictate the price they pay the supplier (while the small shopkeeper has to make adjustments as demanded by suppliers) If the supplier does not reduce the price, they will be left with no retailers to sell to, Tesco and the other large supermarkets will have all the customers. Tesco buys its own brand products from suppliers. All products are supplied to Tesco in a finished state. The suppliers buy the raw materials for their products from a variety of other suppliers, producers, growers or farmers and then process the product in some way to produce the finished product that Tesco sells. So, Tesco does not buy directly from any primary producers, growers or farmers. But now there is a general perception gaining the ground that it is squeezing the value out of its supply chain. For the moment this might not matter to its customers and shareholders who, it seems, are happy enough with its "pile it high, price it low" approach. But the supermarket chain needed to look at positioning itself so that, if perceptions did start to change significantly, it did not get its fingers burnt. 2.3 Competition: Holding a number one position in the retailing business in UK for quite a while a now, TESCO has started feeling the heat of growing competition from the likes of ASDA and Sainsbury the number two and three respectively. As of June 2006, Tesco has 31.1% of the UK grocery market while ASDA's share is 16.4%, followed by Sainsbury's 14.7% (Datamonitor, 2006). While the operating profits of TESCO for the year 2004 was m 1526 (an increase of m229 over 203), this margin was m1694 i.e. an increase of m168 over 2004. These are the alarm bells for TESCO with Wal-Mart making all out efforts to push ASDA using innovative penetrating marketing strategy. 2.4 Market Size: It is now widely accepted that the most influential members of marketing channels for FMCGs are now the retail supermarkets (Stem and El-Ansary, 1992). This provides an impetus to the retail industry. Datamonitor (2006a) estimated the global food and staples retail industry at $3,620 billion in 2006, registering an annual growth of 4%. It is estimated that by 2010, the global food and retail industry will have a value of about $4,429 billion, an increase of 22.3% since 2005. 2.5 Market Share of Tesco: The global retail industry is dotted with a large number of big and small retail stores. Datamonitor (2006a) places Tesco at the fourth place with a worldwide market share of 1.8% in terms of value. The market leader Wal-Mart commands a market size of 8.6%. 2.6 Pricing Policy: Traditional marketing mix concept, first proposed by McCarthy in 1960, consists of Product, Price, Place and Promotion (better known as the 4Ps). Each particular marketing mix adds up to a certain amount of effort the company is making for the purpose of generating sales. Any plan to develop a competitive advantage has to be based on a sound analysis of the company's competitors. In fact Mintzberg (1994) states that the most effective managers also rely on some of the softest forms of information like gossip, hearsay etc. while devising strategies. Therefore, Tesco prefers to reasonably price its products, in order to retain the existing customer and also keeps announcing attractive discount schemes to attract more customers. The company also rewards a loyal customer with loyalty pricing schemes. 2.7 Promotional Plans: In today's market driven economy, customer has many alternatives. In order to reach out to the customer and inform him/ her about the qualities, product differentiation, value etc of one' product, promotional plans form an integral component. Tesco has also been trying to reach out to the customer through all available channels like, banners, print and TV ads and a strong online presence. With greater emphasis on internet marketing, the company is also trying to further strengthen its internet sales. 2.8 Marketing Channels (Selling Methods): Besides the traditional roadside superstore, online stores have become a very convenient alternative now a days. 2.9 Location and Facilities: Making the stores big and spacious at convenient locations, adding more varieties of product, providing dependable after-sale services, preserving the features and qualities of perishable goods etc. are some of the features that have evolved over time and now form an integral part of the operations strategy of TESCO. 3. FINANCE: 3.1 The Balance Sheet and Avenues of Growth: The preliminary figures for Tesco's group sales, as stated on 17 April 2007, for the year 2006-07 stand at 46.6bn with an increase of 8.1% over last year (Tesco, 2007)2. The company was able to record a handsome growth of 13.2% in underlying profit with an 11.1% increase in group trading profit. On the international horizon the sales grew by 17.9% with preliminary figures at 11.0bn on actual exchange rates and by 17.4% at constant exchange rates. But in view of the shrinking margins and intense competition, companies are supposed to look beyond their strongholds and diversify in different markets and a variety of products. New avenues for business are explored when environment demands increase in pace of activity. Strategists feel more satisfied and comfortable with the prospects of growth from expansion and once the company feels secure and experienced enough on the home-ground it can very well start thinking about crossing the borders. Though UK remains its main market, the group's global footprint is also growing fast. Tesco is already having its business in 98 countries, therefore it can very safely be termed a veteran in such expansion plans. In general the strategies for expansion abroad can be categorized as; a. A multi domestic strategy b. A global or international strategy c. A transnational strategy A multi domestic strategy enables individual subsidiaries of a multinational firm to compete independently in different domestic markets. Global strategy is a strategy that seeks competitive advantage with strategic moves that are highly interdependent across countries. In transnational strategy a company often enters into strategic alliances with their customers, suppliers, and other business partners to save time and capital. Such alliances when they becomes long-term partnerships may bring to the firm specialized competencies, relatively stable and sophisticated market outlets that help in honing its products and services, or stable and flexible supply sources. For a hyper-market chain like Tesco Transnational strategy is the best option. The company is to take stock of the country, its demographic profile, customer's needs etc. Maslow's hierarchy of needs says that the driving force for human actions is an urge for 'satisfaction of one or the other need'. These needs go on changing depending upon a number of factors. Therefore, Tesco will have to be very specific in its strategic approach depending upon the country it intends to go. For example in Thailand Tesco opens its stores at 0909 hrs because this time is considered auspicious in that country. 4. HR Policies at Tesco: It is said that, Companies and organizations are made for people and by the people, and obviously their effectiveness depends on the behavior and performance of the people running these companies. It is therefore quite logical to say that Human Resource Management is a very crucial and an integral part of any organization. The very fact that now people are being considered as resource instead of liability marks the importance of human beings constituting this resource. Core areas of HRM include the individual, the organization and the social context of work and how all of these factors shape relations at work and result in organizational performance. In fact to get out the optimum from a satisfied and participative individual is considered to be the ultimate objective of HRM policies. Tesco has also been following the industry practice of providing competitive remuneration to its employees. From time to time, the company sets up the 'The Remuneration Committee' in accordance with the principles outlined in the 'Listing Rules of the Financial Services Authority derived from Schedule A and B of the 2003 Revised Combined Code3. Though In framing the remuneration policy full consideration is given to best practice. The Remuneration Report complies with the disclosures required by the Director Remuneration Report Regulations 2002. Tesco believes in treating each other with respect, and provides ample opportunities4 to its employees for growth. Tesco fully realizes the importance of treating its employees with care as it helps the company in creating value while customers feel loyal attachment with the company when they meet same friendly faces every time they visit the store. Tesco also gets full cooperation from its people while taking on philanthropic assignments as well. References: 1. David, F.R. (1999), Strategic Management: Concepts, 7th ed., Prentice-Hall, Englewood Cliffs, NJ. p. 179. 2. Datamonitor (2006). Company Profile, Tesco PLC. Datamonitor Europe, Charles House, London. 3. Datamonitor (2006a). Industry Profile, Global Food & Staples Retail, Datamonitor Europe, Charles House, London 4. Kotler, Phillip (1972) 'Marketing Management' 2nd Edition, Prentice Hall Inc. 5. Mintzberg, Henry (1994). The Fall and Rise of Strategic Planning. Harvard Business Review. January-February 1994. 6. Stem, L. W. & El-Ansary, A, I. (1992) Marketing Channels (4th ed), Englewood Cliffs, N. J.: Prentice Hall. 7. Tesco (2007). Every Little Helps-Tesco. Available online at http://www.tescocorporate.com/insidetesco.htm (May 2, 2007) Read More