Size, Sector and Type of Business
Tesco is number three on the list of largest food retailers measured by revenue and the second measured by profits, internationally. The corporation commands a significant market share in the United Kingdom, and the world at large. In the UK alone, the company enjoys a 30 per cent grocery market share. Besides it is a market leader in Thailand, Republic of Ireland and Malaysia. The firm has employed at least 440,000 employees to serve millions of customers in the company stores and online (Tesco Plc. 2019, n.d.). As a leading retailer, Tesco owns more than 6,800 shops and records an approximately 80 million trips of shopping per week (Tesco Plc. 2019, n.d.). The public limited company that serves as a grocery and a general merchandise stores has its headquarters in Cheshunt, UK. Tesco is an international organization with presence in 14 countries across North America, Europe and Asia.
Key Internal and External Factors
Internal factors are key in determining how an entity moves forward as a self-contained corporation and in response to external environment changes. Leadership is a crucial internal factor that can influence the success of Tesco Company. An effective leaders should carry the vision and mission of a company and serve as an example to the junior staff in working hard to achieve organizational objectives. Organization culture is of importance to every corporation and may affect the ability of a company to compete or respond to changes in both the internal and external business environment. Another internal factor is communication.Woods (2008, p. 1074) explains that the success of an organization partly depends on robust communication practices that allows critical discussions between teams, team leaders, and the top management. External factors include changes in the economy and competition.
In 2001, the global economy experienced transformation with China, a country of more than one billion people, entering the World Trade Organisation (WTO) (Wood, Wrigley, and Coe 2016, p. 33). Notably, this created free flow of foreign trade by removing barriers, thus encouraging Western corporations including Tesco to join the second largest economy in the world. Tesco utilised this new opportunity to expand its market share by signing an agreement to set up a series of joint ventures for the development of shopping malls in China. To this end, Tesco launched the Qinhuangdao, Fushan, and Anshan malls in addition to multiple hypermarkets. Furthermore, the joining of 10 states into the EU in 2004 was a boost to trade between Eastern and Western countries. This provided Tesco with yet another platform to expand its market share across the European Union.
According to Mollah (2014, p. 43), companies need show concern to economic factors since they have a direct effect on consumer buying behaviour. The United Kingdom has been able to defeat the effects of the 2008 recession and currently the economy is on the rise. With that said, however, there is still some financial uncertainty especially with Brexit exit. What this uncertainty means is that consumers may cut down on consumption of premium products, including ready prepared means and organics, and this may have adverse effects on Tesco’s sales value and margin. But there is a positive aspect of the financial uncertainty in that customers may consider eating out less and eating more at home. Arguably, this will provide a market opportunity grocery retailers such as Tesco.
The UK population is more of seniors than children and this ageing population is a big blow to food retailers as older people eat less. Unlike the younger generation, seniors travel less to supermarkets for shopping. Imrie and Dolton (2014, p. 173) say that internal level literacy starts to drop at age 65, but even with this case the ageing population may find online shopping more convenient than brick-and-mortar shopping. Besides this, there is a change in consumer attitude towards food whereby many individual are now watching for their health. Tesco invested in this growing market by introducing organic foods in its stores.
Technology has a direct influence on the supply chain, processes and operations of grocery and food retailers. The steadily growing online grocery retailing sector has posed severe competition to supermarkets. This trend is expected to grow especially with a growth in internet subscriptions in the UK and the world at large. The use of information technology has enabled the use of loyalty programs that discourage consumers from switching over to rivals. Companies have embraced mobile technology to help in the food-retailing distribution chain. Since 2009 Tesco has been relying on Cortexica Vision Systems’ developed app, New Wine, to sell wine directly to the customers through their mobile phones (Kirby-Hawkins, Birkin, and Clarke 2018, n.d.).
Governments are promoting the use of environmentally friendly packaging materials. And these efforts have helped increase the number of consumers using reusable bags as well as those that have cut down on usage of plastic bags by a significant margin. Tesco has benefited from this move as it has been able to improve its corporate social responsibility image and reduce the overall costs. The fact that consumers are well much aware of Tesco’s carbon footprint compelled the retail giant to include carbon footprint data labels on products such as bread, milk, fresh juice, and potatoes. Tesco’s Greener Living Scheme helps give advice to consumers on environmental issues with an emphasis on reduction on wastage and carbon footprint when preparing meals. Besides, Tesco introduced green Clubcard points to reward consumers for reusing bags and recycling aluminium cans.
There are certain policies and legislations that affect Tesco operations directly. The government, for instance, introduced regulations that discouraged the creation of a monopoly in the grocery retail sector through limitations on the use of raw materials and licencing. Also, UK’s Financial Reporting Council set rules for companies like Tesco to change some financial practices like changing commodity prices or demanding payment from suppliers without prior notice. As part of commitment to the pricing policy, Tesco offers discounts on petrol sales at its retail outlets across Britain.
Porter’s Five Forces
Developed by Michael Porter, the five forces helps companies to identify their position in the industry and compare this position to other similar corporations. According to Porter (1998, p. 78), market attractiveness can be measured by the long-term return on investment of an entity.
Threat of New Entrants
One main challenge that change the minds of entrepreneurs wanting to venture into food retail industry is huge amount of capital investment required. Imrie and Dolton (2014, p. 173) say standing out in the competition and establishing a strong brand calls for commitment in terms of huge investments. With this case, the threat of new entrants in the retail industry is usually low and any small firm that tries to enter into this market is faced with severe competition and dies gradually. The strongest brands in the UK retail market include Asda, Morrisons, Sainsbury’s and Tesco and they command 80 per cent of all shopping, or more. A strong brand image of the existing corporations also serves as threat for new entrants since the companies have already acquired large clientele through informed policies and excellent long-term strategies.
The Bargaining Power of the Buyers
Buyer’s bargaining power in the retail market is us usually high. A company can slightly differentiate its products and make them more standard to attract new buyers. And since the switching cost is low in such a market, there is a high likelihood for buyers to switch from the old brand to the newly differentiated brand. Customers are mainly attracted to standard products that are stocked at low prices. Besides, online retail shopping further enables customers to compare price of products from different merchants and thus they can select the best offer.
Bargaining Power of the Suppliers
Suppliers for the UK’s food retail market have a fairly low bargaining power. What top supermarket companies such as Asda, Tesco, and Sainsbury do is that they contract suppliers to deliver supplies. Ad since these suppliers fear losing contract with these big companies, they have a weak position when it comes to bargaining power. Even in such a situation, suppliers choose to provide suppliers to the well-established groceries because they believe this is the best opportunity to spur their growth. In this case, they have to keep their bargaining power low or else lose their contract.
Threat of Substitute Products
A typical retail industry is characterized by low threat of substitute products for food items and medium to high threat for non-food items. Most of the substitutes for major food retailers are small chains of stores that big companies like Tesco that have a strong financial base and a large number of customers do not consider them as threat. These substitutes are also facing a new hurdle from big companies; Tesco, for example, is getting hold of these stores by opening express shops in city centers and local towns. When it comes to non-food items, the threat of substitutes is fairly high. But Tesco sells these products at discounted price as a strategy to eat out the market share of specialty shops.
Intensity of Competitive Rivalry
The United Kingdom’s retail market is characterized by high competition considering the large number of companies with large capital investment as well as strong policies. Tesco’s main competitors include Asda, Morrisons, Waitrose, and Sainsbury’s. These competitors compete for the same customers meaning that customers switch from one company to the next over quality of products, promotions and price. Despite that each of these companies have experience growth in their market share the overall market expansion is low. What this suggest is that these big players in the retail industry are attracting customers from other competitors and making them part of their loyal clients, thus increasing completion even more. Other companies like Lidl and Aldi rely on price differentiation strategy to attract customers especially during economic downturns. During the 2008 economic recession these two companies offered their products at lower prices that than of competitors and gained a considerable market growth.
The intention of an Ansoff matrix is to provide four business alternatives in strategy formulation for Tesco.
Tesco follows an Ansoff matrix with their existing product range and strong market command. With a wide product range and a significant market share, the company was able to penetrate the market easily(Schawel and Billing 2018, p. 33). Tesco has also been on the front line when it comes to product development. When consumers’ preference for organic food started to increase significantly, Tesco introduced these foods immediately to satisfy the demand. Besides, the enterprise develops their market outside the United Kingdom and this has helped the company gain a competitive edge in the retail sector. On diversification, Tesco does not only rely on the sale of food items. The company have diversified its business to retail petrol, mobile and gas.
The Rate at Which the Key Factors Are Changing
Tesco has experienced major leadership changes over the years. In 207, for example, the company promotedMatt Simister to the position of a chief executive of Tesco in Central Europe and replaced his earlier position as commercial director with George Wright. These changes came in response to a merger between Tesco and supplier Booker. Wright who has been at the helm of strategy and operations since 2015, is recognised in this company for introducing Grocery Supply Code of Practice (GSCOP) in response to an accounting scandal experienced in 2014. Tesco has developed its communication channels to match the changes brought about by technology advancements. The company’s systems are designed to offer immediate respond to customers that may have questions. Competition in the UK’s food retail market is likely to intensify especially with the current expansion of this market and entry of new ventures with a large capital base.
Imrie, R. and Dolton, M., 2014. From supermarkets to community building: Tesco plc, sustainable place making and urban regeneration. Sustainable London, pp.173-194.
Kirby-Hawkins, E., Birkin, M. and Clarke, G.P., 2018. An investigation into the geography of corporate e-commerce sales in the UK grocery market. Environment and Planning B: Analytics and City Science.
Mollah, A.S., 2014. The impact of relationship marketing on customer loyalty at Tesco Plc, UK. European Journal of Business and Management, 6(3), pp.21-55.
Porter, M.E., 1998. Clusters and the new economics of competition (Vol. 76, No. 6, pp. 77-90). Boston, MA: Harvard Business School Press.
Schawel, C. and Billing, F., 2018. Ansoff-Matrix. In Top 100 Management Tools (pp. 31-33). Springer Gabler, Wiesbaden.
Tesco Plc., 2019. About Us. Retrieved from https://www.tescoplc.com/about-us/our-businesses/
Wood, S., Wrigley, N. and Coe, N.M., 2016. Capital discipline and financial market relations in retail globalization: insights from the case of Tesco plc. Journal of Economic Geography, 17(1), pp.31-57.
Woods, M., 2008. Linking risk management to strategic controls: a case study of Tesco plc. International Journal of Risk Assessment and Management, 7(8), pp.1074-1088.
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