Organizational Profile And Tesco Market Strategy

Organizational Profile And Tesco Market StrategyTesco plc is a British international grocery and world(a) merchandising retail chain. It is the largest British retailer by both global sales and domestic market place share, with profits exceeding 3 billion, and the third largest global retailer establish on revenue, after Wal-Mart and Carrefour and second largest in profit behind Wal-Mart. In this assessment I would be trying to disassemble Tesco business strategies in accordance to their market entry, PESTEL analysis, value chain, monetary analysis and benchmark Tesco with their competitors Wal-Mart and Carrefour.Tesco PLC is a British international merchandising retail chain. It is the largest British retailer in global sales and domestic market share. Their profits exceeded 3 billion in 2009 and employ around 440,000 employees. It is the third largest global retailer based on revenue and second largest in profitTesco operates 923 in national and international circuit, it gives them access to a population over 260 million across order markets in different continents. Over the past five years, Tesco mystify expanded from a traditional UK supermarket into providing a variety crossways and religious services, including fodder, non- regimen business, person-to-person finance and internet shopping. The increase scale and globalization of their operations has provided signifi enduretly contributed to their efficiency and profitability.Even though it has been a very for consumer the alliances arrogance has fallen as people worry round unemployment and are try to manage their ho exercisehold bud draw offs. At Tesco thither has been a shift in priorities of the customers Tesco constantly monitored their prices on their regimen for thought items and changed their value chain dodging to flash back price , cater to the needs of the customers and eventually to make profits.TESCO MARKET ENTRY STRATEGYThe plank of Tescos entry strategy has been the use of their own- fault product. These are shared into three categoriesPRODUCT RANGEFinest High quality viands with highest price ragesMid-range Tesco stake Medium quality and average price rangeLow-price Value brand Low quality products with lower price valueThese product ranges of items are available to the consumer market in their retail format investment companysTesco Extra These are signifi put forwardtly large out of town hypermarkets which stock all of Tescos product ranges the minimum shop floor is of 119,000 sq feet.Tesco Superstores They are standard supermarkets stocking primarily groceries and somewhat other smaller non sustenance goods.Tesco Metro They are stores which functions between superstores and express stores, they are brinyly located in city centers and high-street, they cater ready to eat food, refrigerated food and deli food to working class consumers.Tesco Express Tesco Express stores are neighborhood convenience shops, they stocking mainly food with pa rticularly on higher-margin products.Tesco Direct Tesco Direct is an online store, where consumers can purchase items online and can collect it from a store or choose to deliver at home.OBJECTIVES OF MARKET ENTRY STRATEGYTo cater to variety of food products at different price level satisfying different income levelsTo operate at an economy of scale there by able to have a subordination over the priceTo be accessible in all levels of the geographyTo gain significant market shareTo be able to manage in the extremely significant technological and infrastructural environment.BARRIERS OF ENTRYMarket StructureThe market in which Tesco operates are in daily grocery market. Although, this is a highly militant segment Tesco holds a huge proportion of market share, This type of market structure is highly volatile, continuous development and innovation is required by Tesco to keep the market share.Threats of substitutesThe fear of substitutes in the food retail industry is minimal, but with higher number of super markets and convenient stores people have uncertain option to choose their product from.Buyer powerThe buyer power is high in the industry because the consumer can easily choose between ASDA, Tesco Sainsbury and so forthtera The importance is often which retailer is closest to the consumer. Since the buyer power is high the cost of switching is very low.Supplier powerSupplier power is relatively weak because there are a large number of supermarkets and a small numbers of dominant buyers. But we must have in brainpower that large suppliers such as Proctor and Gamble or Unilever have countervailing power.RivalryThe rivalry is high in the industry because of a very competitive market industry. As seen in table, Tesco is the market leader in UK however, the five largest players have a market share of 65.6 % which indicate that it is an oligopolistic market. It is a high bully industry and a sunrise(prenominal) market challenger must have financial resources on a very high level.Because the food retail market in UK is a mature market, growth is achieved by taking market share from competitors.RETAILERMARCH 2008MARCH 2009Tesco30.6%31.2%Sainsbury16%16.4%Asda16.3%16.9%Morrisons11.3%11.1%Somerfield4,0%3.7%Waitrose3.7%2.9%Iceland1.6%1.6%Grocery market shares, 2008-2009www.nfuonline.com psychoanalysisThe strategy used by Tesco in UK and europium has been largely successful because of home territory advantage and supply chain control, the face can control price of protean and change the price of food accordingly and this gives them a successful edge of other competitors like Asda and Sainsburry.With the plan of expansion significantly towards the east, Tesco has been struggling to gain momentum in these markets. The following are the recommendations for Tesco entering foreign marketsIdentify the market opportunities Tesco has to understand the retail structure of the country and understand other elements such as suppliers, transport, home grown facilities.Market to enter Which region to focus their market depending on their variables such as, competitors, standard of livingNature of food product The variety of food product available within the company and international food supply.Understanding buying deportment Understanding buying behavior is an psychological task, behavior has to be monitored and market research has to be setup to provide products that are outmatch suited to consumer of that country.PESTEL ANALYSISThe analysis provides a exemplar for macro-environmental factors that used in the environmental scan. It is a part for monitoring macro variable factors while understanding a strategic analysis. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.PESTEL analysis for TESCOPolitical (www.food.gov.uk)UK has a variety of important legislation and food laws. The FSA (The Food Safety guess) provides support for all food legisla tion in Great Britain. Some of these acts are Falsely describing or presenting food Rendering food injurious to health Selling food to a purchaser which is not of the substance or quality as demanded Unsafe unfit for human phthisisThe companies within the food industry must operate under the governments regulations, such as, the employment laws.Tescos ImpactTesco employs over 250.000 people in UK which can be uncorrectable to control. similarly environmental regulations and trade restrictions and tariffs are something to be aware of. Political changes may affect the food industry if curtain restrictions appear in the future, for that flat coat companies need to be flexible and ready to change quickly. Tesco certainly is a company which has the power and knowledge to change when difficulties occur.EconomicalEven though puffiness rose to a high level at 3 % and interest rates rising to 5.75 %, the UK economy is rising the fallen (www.bankofengland.co.uk, 2008)The economic growth i s presently at 3,8 % (www.statistics.gov.uk, 2009), unemployment has been falling and the UK housing market continues to be buoyant with rising house prices being a strong factor in maintaining consumer blow overing and confidence but retail companies in the UK are making record negligible profitability.It is important to have in mind that, with the American economy entering a harder economical phase because of housing peach and large loans UK economy is feeling is feeling the heat too. Companies in the food retail industry are injury the consequences. Therefore, profit are increasing because consumers are tending to be thrifty.Tescos ImpactEven though with the financial turmoil Tescos has been able to hold an upper hand, the company uses its value product more(prenominal) efficiently to cater to their customers need and budgeting procurals. Higher interest rates and rising labor costs have adversely adjoin Tescos margins negativelySocio-cultural factorsThe annual income in UK has been increased since 2001 and is expected to increase even more in the future (www.euromonitor.com, 2007) which is connected with an healthier economy predicted in UK.another(prenominal) important factor is lifestyle changes, it has big fix on consumer habits and expenditure, some of these factors are weight loss and dieting, which increases focus on health products in the food retail industry.It is not so much a question of developing new products but increasing dietary information and educating consumers on a sizeable lifestyle in a personal manner that is more actionable for them The early adopters of this approach include British retailers like Sainsbury and Tesco, both of which have diet ranges that do not include this word on packaging. Instead their ranges are branded as healthy, often emphasizing heart health, a major issue associated with obesity. (www.nutraingredients.com)Also consumerism is primaeval, it is linked to consumer expenditure, as you see below the f orecast is showing increasing spending in the UK from 2006-2013, which is essential to the food retail industryYear200720082009201020112012 zillion Pounds68954,5769207,5469697,9369518,9569252,8170118,77CONSUMNER EXPENDITURE TREND FOR FOODWWW.EUROMONITOR.COMTescos ImpactTesco has been analyzing variety of consumers through their market research campaign the stores have catered not only to consumers income levels but their diversities. Tescos has special aisles utilize to Chinese and Indian consumers.TechnologicalUK government spent approximately 22bn on engine room in 2005 (www.zdnet.co.uk) which is double as much as ex. Ger galore(postnominal). It indicates that UK is forgeting to spend a large amount on the future within the technology theater. The speed of the technology transfer in the UK rises while internet users increase both year, see forecast belowTescos ImpactThe technological development in Tesco and other retail industry is emerging. New technologies such as self-se rvice technology are becoming popular. The dependence on human services in Tesco retail is fast reduced by machines, this wait on the company reduce the prices of goods and cut operational cost. The technology gives the consumer the possibility to check-out by them self and it gives the retailers cost advantage because of less till employees it is a win-win situation.EnvironmentalThe green issue is becoming more and more relevant in society. Especially businesses needs to take part in the future of recycling and waste programs set up by the government. The material of this is (www.defra.gov.uk, 2007)Tescos Impact Phase out the use of free disposable bags in store and bag free delivery from the online shop. (www.tescocoporate.com) Reduce food packaging use in-store devices to deliver product information instead. (Retail Week, 2007) The Business Resource Efficiency and Waste program -Tesco advises and help other businesses on how to reduce and recycle their waste, with 4 protected by business for each 1 of government money.LegalRetail companies like Tesco needs to be aware of commercial and consumer laws like Sale of Goods Act 1979 which regulates contracts in which goods are sold and bought , food safety laws mentioned before and consumer protection laws, which protect the consumer against unfair and deceptive practices. Also fair trading which makes markets work heartyspring for consumers ex. The Office of Fair Trading (www.oft.gov.uk). These laws and acts can have a negative effect if not researched or taken into consideration.Tescos ImpactOver the years Tesco has support legal laws regarding consumer behavior including government legislations the company follows their own set of standard rules and regulations which enhance customer satisfaction.VALUE CHAIN ANALYSIS AT TESCO(using Potters principals)Inbound LogisticsThe inward logistics is of critical importance in the Tesco value chain, because of the strong bond between Tesco and its suppliers.Tesco needs to make sure that the stores get the unspoilt products at the upright price, the right quality, the right quantity and of course at the right time. Balance between these elements is central, so at the end, the consumers get what they want. The inbound logistics is one of Tescos competitive advantages and deals with reception of products, faculty scheduling, facilities planning, stock control and storing.OperationsThe operation within the Tesco organization is in fact all the different products arriving to the store and placed in-store. Tesco buy large amounts of groceries, c dole outhes, electronics and so forth so they get the advantage of economies of scale, then they increase the price and sell it direct to the consumer with a positive margin. That is very simplified how Tescos operation works, of course there are things to be done before they sell it, like packaging, machining, testing of products, assembling, till operations and store operations.Outbound LogisticsThe o utbound logistics is a smaller area in the organisation because Tesco do not have to send things out of their stores customers come into the store and pick up their groceries, pay at the till and go out again. so far, queuing management is important, so the customer gets a quick and efficient check-out. The location of the store and the car park outside the store is as well central and linked closely to the consumer when they leave the store.Customer management is essential for the reason that Tesco is customer driving and the company needs all the information they can get about their customers to develop customer relations.Marketing and SalesBecause of Tescos size, the company uses many merchandise tools like Public Relations, advertising, promotion and in-store layout which hit the consumer on all senses when they shop. Tesco also have many in-store sales techniques, from different price schemes like expensive, less expensive and cheap areas in the store, in addition to price comparison with ASDA and J. Sainsbury etc. They do everything there is to capture the customer while they shop at Tescos and try their best to make sure people allow come back. another(prenominal) marketing scheme is their vouchers, you can actually use an ASDA voucher in the Tesco store and that is a perfect example of the sales techniques and Tescos willingness to capture customers. serviceTesco has many employees working all around the store, if you cannot find a special article at the store and asks an employee, they will either show you where it is or find individual who knows about the article. Another service is when people check out and pay the employee at the till always asks the costumer if they need any help with packaging.Service outside the store is provided by the telling www.tesco.com where people can buy groceries, clothes and electronics online. Furthermore Tesco has a service and repair assemblage who concentrates on everything that evolves service and repairs of product.Support activities Firm InfrastructureWhen a company grows as big as Tesco, the management structure will be divided into several areas as they do not only operate in their domestic market but are a global company. That is why Tesco now has a animal trainer in all the major areas. The organizational structure is centralized at Tesco because it gives greater control, better goal congruence and greater expertise. In addition, Tesco has a multidivisional organization structure which is clear because they have so many different directors working in different divisions around the organization.Tesco also has a large legal section where they focus on the treatment of new suppliers.Human Resource managementTesco employs over 250.000 in the UK only, so dealing with recruiting the right people and developing the right teams in the stores has a huge impact on the firm. Tesco educate the employees by sending them to employment-training programs and some of the managers to manageme nt and leadership courses, to prepare them for the problems that often occur in the company and in the stores.Technology DevelopmentTesco make use of many technological tools like information systems and use IT for stock control. They have IT systems about customer satisfaction and databases with information about the club card holders. To develop check-out satisfaction they use self check-out tills.The internet is becoming more and more important and www.tesco.com is a good example of another technology initiative which has become a success since they launched their online shopping service in 1997.ProcurementTesco deals with a lot of procurement like the buildings they operate their stores in, the IT equipment and buying tills for the stores. Things people do not think about when shopping at Tescos like the lightning in the store, air-conditioning, ovens for the bakery and the take-away food, make clean machines etc. A huge corporation like Tesco operates so many machines and spen ds millions on procurement which needs to be controlled by the management.FINANCIAL STATEMENTSGood financial management and being the leader in market positions has served Tesco well during the year to face the challenges of consumer environment. The objective of the organization is to continue the pursue long-term strategy which would help the management to be in a much stronger position once the markets emerge from the economic meltdown.BALANCE SHEET ANALYSISFrom the balance sheet we can understand the development of Tesco over the years the company has increased their fixed asset by increasing their level of plant and property. This is largely due to the new hypermarkets and supermarket which Tesco guaranteed to provide by the end of 2008. Investment and joint ventures decreased of the company, last year the company recognized a joint venture in India with Tata group to support a retail store under the brand name STAR-BAZAR, this was one of Tescos entry strategy to method to flag ship the Indian market. Loans and advances to customers increase, this was firmness of purpose to pay back later strategy issued by Tesco in their retail format.INCOME STATEMENT ANALYSISRevenue for Tesco has increased over the past years, even with impact of recession but the profit was marginal. Along with the revenue, the cost of sales has increased too. Tesco over the year used certain promotional activities to increase revenue, one of their tactical methods was issuing promotional coupons but a part of the revenue mentioned includes unredeemed coupons.CASHFLOW STATEMENTTesco derives most of their cash from their operating activities their core business involves a lot of inflow and outflow of cash. Most of the cash flow out flow is for purchase of building, equipment and purchase of land, Tesco has significantly increased their joint ventures as a technique to capitalize international market.FINANCIAL ANALYSISThe operating profit of the firm has reduced marginally from 5.9% in 2008 to 5.4 percent in 2009. It shows that the firm has been controlling their cost in generating profit from sales especially at the times of recession this also resulted in the fall of net profit margin. The first quarter utility in 2010 has proved the company has got out of recession and growing into greater strengths and better economic times await the firm.BENCHMARKINGTesco is second largest retail in Europe in terms of revenue, with the company growing rapidly it is a growing threat for other large retailers. Wal-Mart and CarreFour have strategically emerged into global leaders, the variable factors which these company focused to grow big areLocation Wal-Mart and CarreFour has a total of 7,262 and 5643 stores respectively worldwide. Each and every store that Wal-Mart and CarreFour have opened in the past have been strategically assessed through the stages of macro location. The choice of a supermarket location is considered to be the single most important last a retail organ ization has to make and is critical factor of success includeMobility and Time constraintsAccess to infrastructureConvenience for customers, suppliers and employeesTesco should understand location will impact on sales and distribution costs and competitive intensity may vary if there are strong local competitors in some regions. By implementing their location in apt geographic location the management can take advantage of lower distribution, assembly, raw materials or energy costs, and institutional factors such as government regulations. Cost may outweigh the benefits of owning a store in certain locations.Store Layout Store design is a spanking role to any successful retailing company around the world. There are three factors that come into play when you analyze store design through the customers point of view. The essential idea of store design is to make all customers feel comfortable and enjoy the area they shop in. The three important factors of store design areAmbient dimens ionSocial dimensionDesign dimensionThe above factors can be used to analyse in which way Wal-mart, Carrefour and Tesco operate with their own store design, focusing on their pacific target audience. Another way to analyse both Wal-mart and Tesco is by using the Mehrabian-Russell work (1974). Mehrabian-Russell Model (1974) introduces the concepts of approach (positive) and avoidance (negative) behaviour, as well as pleasure and arousal. (retail marketing by Malcolm Sullivan and Dennis Adcock)Marketing Performance According to Nielson Media Research, Tesco Spent 62.9m on marketing which includes marketing for their own brand products as well. Wal-Mart spent 34.8m on advertising their marketing performance is commonly reflected by their ability to promote their own-brand as best as possible to increase the customer retention and not disappointing the shopper. They usually aim to get the customers in the stores by advertising well-known brand names and then focus the customers attenti on on own-brand goods. They attempt to attract the customers interest the moment they and to point-of-sale (PoS) as its a very cost effective way to promote own-brand products at a minimal cost.Overall the advantage of Wal-Mart and Tesco operating own-brand products allows the retailers to have larger profit margins compared to selling brand products as well as allows the retailers to enforce the relationship between them and the shopper. Own brands offer a point of difference to the competition, which can increase store reputation and customer loyalty. However the problem with own brand product is that many shoppers and influenced by brand goods and unwilling to buy own-brand goods as they can be seen as an inferior product. up to now during an unstable economic climate such as the current recession, own brand goods are less vulnerable to the fluctuations of economical factors such as cash rates and inflationCustomers Tescos USP is it knowledge about their customers. Tesco has si gned up 12 million of their customers for their Club card program, providing members discountsin exchange for their names, address and other personal information. Thedata collected lets Tesco give tailor made promotions for consumer and decidequickly new innovations initiatives employed are working. The Club-card has helpedTesco boost market share in groceries up to 31% double the 16% to Wal-Mart in the Uk.On the other hand Wal-Mart influences their customers by their strategy of low prices preferred over being personally influenceddecisivenessTalking about Tescos strategic fit in the UK it is clear that they fit excellent. The indicators of this fit are as mentioned before they are market leaders with a strong brand and because of their size they have competitive advantage over suppliers with economies of scale. As the UK is their domestic market they got the experience, know-how and knowledge of the environmental issues in the country and the food retail industry in general. The l argest threats in the industry is the rivalry of the nearest competitors, however Tesco seems to have it under control because their market shares keeps rising and the competitors is still leftover behind. The second largest threat is the power of the consumer, however Tesco probably has the best consumer knowledge and customer management in the business, which allows them to implement new innovative food product and other investments which the consumer eventually obeys to.Tescos got the strategy to become even more powerful in UK and to increase the market share. In order to do so, I imagine Tesco should focus even more on sequestered label product because the margins are much higher than branded product (30 %). One of Tescos success factors is the private label area and Tesco generates high levels of loyalty which gives them the advantage to increase private label sales. In addition, Tescos ability to match products to customer needs from sophisticated scanning and loyalty sche mes has become a strong opportunity and strength in their marketing strategy.Although Tesco has plenty of strengths and opportunities in UK, they are now focusing even more on areas outside the food retail industry. Because of the partly mature food market in UK they focus on international expenditure, online sale and non-food industry. Since the future is pointing in other directions for profit, it is therefore important that Tesco keeps a fine balance between the UK market and their new areas. The UK market still earns Tesco the highest profit which is used to expand in all the new areas.As Tesco is so heavily dependent of the UK market it is a threat if the UK economy decreases if the interest rates goes up, inflation raises, housing bubble bursts and of course if consumers expenditure decreases. All these assumptions can be negative towards Tescos future profit.As leading grocery experts observe, supermarkets in general and Tesco in particular will have to demonstrate continuo usly that they truly have consumer interests at heart, and that they are not abusing their enormous power just to enrich themselves (Seth Randall, 1999)I end my discipline on Tesco by using this statement from Seth Randall, 1999. From 1999 until today, Tesco has showed that they have consumer interests at heart and a long with the pursuit of larger economies of scale is probably the main reason why they are and will still be so successful compared to their competitors.