TESCO SWOT analysis
INTRODUCTION ON TESCO
Today, it has expanded its presence into 13 markets with 3,728 stores and employed over 440,000 people worldwide. Tesco, the largest retailer in Britain with staggering group sales of £51.8 billion and net domestic revenue surplus of £47 billion and gross profits exceeding £2 billion; and in 2008 was the third largest grocery retailer in the world. In 1937 it opened UK's first self-service store in St. Albans. This brand new system allowed more people to be served faster and lowered the labour costs. Throughout the 60's Tesco operated in the so called "pile it high, sell it cheap" formula that was put in action by Cohen. Tesco with a 29.0% share of the grocery market became UK's largest retailer in early 2005 and was ahead of it competitors. Key reasons for this success include:
An "inclusive offer". Tesco met the needs of upper, medium and low income customers in the same stores. According to Citigroup retail analyst David McCarthy, "They've pulled off a trick that I'm not aware of any other retailer achieving. That is to appeal to all segments of the market".
Tesco's used its own-brand products, including the upmarket "Finest" and low-price "Value" ranges. Thus they were able to gain more profit than selling branded products.
Customer focus: A bold step of trying not to focus on usual corporate strategy of" maximising shareholder value " was taken by Sir Terry Leahy, chief executive since the mid 1990s.The company's mission statement reads, "Our core purpose is, 'To create value for customers to earn their lifetime loyalty'. We deliver this through our values, 'No-one tries harder for customers', and 'Treat people how we like to be treated'". Diversification: The company has a four-pronged strategy:
- "Core UK business" - Making a large-scale move into the convenience-store sector was a unique innovative and energetic way found by Tesco to expand.
- "Non-food business" - Tesco entered other line of business like clothing, consumer electronics, health and beauty products, media products etc. Soon it became a threat to many high street chains.
- "Retailing services" -Tesco also entered into areas like personal finance, telecoms and utilities. Tesco did it by entering in joint ventures with the major players of such sector.
- "International" - Tesco began its international operations, focusing mainly on weak incumbent retailers of Central Europe, Far East and the US.
Overall Tesco's success is probably based mainly on getting the basics of retailing right slightly more often than most of its rivals. (www.tescoplc.co.uk; Tesco:Corporate Resonsibility Review 2008)
To formulate an effective strategy, senior managers must take into account the distinctive competencies of the organisation, and they must scan the environment. They must determine what competitors are doing, or planning to do and take that into account. They must critically examine other factors that could have positive or negative effects. This is what is referred to as the SWOT analysis. (Stevenson, William, J.) Operating Management 9th edition
TESCO SWOT ANALYSIS (INTERNAL FACTORS)
- TESCO have secured commercial standing within the global market place winning Retailer of the Year 2008 at the "World Retail Awards". This can be used for marketing campaigns to drive advantage towards the demographic base for future growth and sustainability.
- In an environment where global retail sales are showing decline or level performance on a like for like basis TESCO Group have published sales gain of 13% for UK markets and 26% growth in international markets.
- As a business looking for continued expansion TESCO have reserve funds of credit coupled with income derived from property portfolio development funds.
- Tesco's Finance profit levels were impacted through bad debt, credit card arrears and household insurance claims.
- Tesco's position as a price leader in UK markets can lead to reduced profit margins in order to retain the key price points on must have commercial items.
- Grocer outlets are not set up to operate as specialist retailers in specific areas of product which can be capitalised on by other smaller bespoke retailers.
- Whilst current economic conditions suggest Tesco's key value message will succeed, there is a weakness in non-essential, mid to high ticket price items which will suffer from the rising cost of living and lower disposable of incomes.
Opportunities (External Factors)
- Statistics suggest TESCO is the third largest global grocer which indicates a level of buying power to ensure mainstream economies of scale.
- The development of Tesco Direct through online and catalogue shopping will grow the use of technology, providing the launch pad for larger non food based products with moderate to high margin returns and less focus on sales and margin per foot return to space.
- TESCO mobile have grown ¼ million customers in 2008 and moved into profitable status suggesting further growth and development within this technological area can be developed.
UK and American markets have been affected by economic concerns through the "credit crunch". Lower available income will impact their short term plan and strategic focus may need to change to lower prices of basic products with less focus on higher priced brands suggesting a switch in price architecture. This has caused an additional range which is their 'Discount Range'.
Rising raw material costs from both food and non food will impact profit margins overall.
There are many factors in the macro-environment that will effect manager's decision of any organisation. Tax changes, trade barriers, new laws, government policy and demographic change are all examples of macro change. The PEST analysis can be classified as follows:
TESCO'S PEST ANALYSIS
Government implemented a cut in VAT from 17.5% to 15% with the intention to stimulate spending. The immediate impact was not reflective of the aggregate spending during the period. However most retail supermarket where able to see an increase in profit during the Christmas Period, nevertheless a long term impact of this might be achieved which will ultimately increase profitability.
Tesco price cut will attract more customers who are looking for bargains rather than branding. The creation of the "discount range" or Tesco value is strategic for their survival within this crisis as customers experience a downturn in their disposable income.
Tesco's expansion in the international market will help boost their share value as a result of the exchange of pounds against the euro.
Everything Tesco does judged as far as possible against measurable objectives. Their concern for the community is no different. When they launched the community plan they announced steps to improve impact on the environment and support the local communities the stores serve. Tesco is:
- Cutting energy use in their buildings so that by 2010 they will be using half as much energy per square foot than were in 2000.
- Improving the recycling facilities to help customers double the amount of recycling brought to their stores
- Encouraging customers to re-use carrier bags by giving Club card Points to customers who bring their own.
- Making healthy eating easier by putting nutritional labels on all their own-brand products.
- Working with the Pre-School Learning Alliance to help parents and children in some of the UK's most deprived areas make healthier choices.
- Getting two million people active in events they will organise or sponsor in the run up to the 2012 Olympics.
- Ensuring their Express stores are good neighbours by reviewing noise levels, delivery schedules and shop-front design.
- Engaging with the community to better understand local issues and concerns.
Tesco.com has developed, with over 1 million active customers now choosing to buy online. Shopping for groceries online has been a revolution for people leading busy lives and those without access to transport. ((www.tesco.com, Tesco: Annual Report and Financial Statements 2008))
Tesco.com model operates in the Republic of Ireland and South Korea. The service in Ireland now covers over 70% of the country and there are over 280,000 registered customers. In South Korea there are over 580,000 registered customers and the number of products available through the service has increased to 14,200 - more than doubling the range this year. (www.tesco.com, Tesco: Annual Report and Financial Statements 2008))
Tesco Telecoms offers simple, straightforward telecoms services with great value tariffs. Customers can benefit from our mobile network, home phone service, internet access and an internet phone service. Tesco Telecoms also offers a wide range of telecoms products in store and online. (www.tesco.com, Tesco: Annual Report and Financial Statements 2008))
Their mobile network, Tesco Mobile, was launched in 2003 as a joint venture with O2. It is currently the fastest growing pay as you go mobile network and was ranked as the number one network for customer service in the JD Power and Associates 2008 UK Mobile Telephone Customer Satisfaction Study. (Tesco: Annual Report and Financial Statements 2008))
Pestel Analysis -Asda
PESTLE Analysis of a food retail industry - ASDA
Must explain specific point relating to Industry
Opportunities and threats
Write down 10 -20 points in each PESTLE
- Government policy on taxation
- Political unrest - due to influx of large number of foreign nationals in the country.
- Unstable Government due to govt inability to stabilise the economy.
- Government education policy - efforts to encourage more people to stay on high education
- Credit crunch
- Recession -leads to unemployment
- High interest rates
- High cost of living - e.g. high fuel prices/ high supermarket prices (this could lead to lower demand.
- New line of products for EU citizens
- Increased demand due to online-shopping
- Increase in employment e.g. due to online-shopping - i.e. drivers and 'home shopping assistants'
- Large influx of EU citizen in the country leading to a high demand for accommodation, welfare, healthcare and education
- Changes in social trends
- Ageing population could lead to an increase to ASDA's pension payment for their employees. It could also lead to another source of labour pool for ASDA to tap into.
- An ageing population could also lead to unwillingness to work and an increase in pension
- Lifestyle changes - longer opening hours in supermarkets means that people are working longer and / or flexible hours
- In areas of high concentration of ethnic groups, goods and services are targeted towards that ethnic group e.g. Slough / Southall
- New ways of shopping - online-shopping
- New product types i.e. mobile phones, MP3 players etc
- Improved efficiency in stock control...