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TescoPLC1
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TESCOANDTHESUPERMARKETINDUSTRYINTHEUK
ByName
Course
Professor
University
City/State
Date
http://www.casestudywriting.com/
TescoPLC2
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TescoPLC
Background
TescoCompanyisamultinationalgeneralmerchandiseandgroceryretailerthat
wasfoundedin1919byJackCohen(UKessays,2014)thefoundationofTescoPlcwas
fromamarketstallintheEastendofLondon.From1919,thecompanyhasthrivedand
expandedtocovertwelvecountriesinwhichitoperatesovertheworld.Thecompany
employsover530,000peopleandservestensofmillionscustomersintheregionsin
whichitoperates.Tescoiscommittedtodeliveringthebestcustomerexperiencein
shoppingandfocusesondoingtherightthingtothecustomersandthecountriesinwhich
theyserve.
Inthelasttwelveyears,Tescosalesandprofitshavebeenfallingwiththefastest
ratebeinginthegroceryindustry.Thereasontothefallhasbeenexplainedasduetothe
changesinconsumertrendsthathasseenTescopricingnottocompetefavorablywiththe
competitors.ThelocalcompetitorsthathavebeenontheriseareAldiandLidl.The
pricingofthetwocompanieshasseenthefallofthesalesintheTescoCompany.Tesco
salesinthelasttwelveweekspriortoOctober12hadfallenby3.6percent(Ruddick
2014)
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TescoPLC3
http://www.casestudywriting.com/AccordingtoKantarwordpanel,thedeclineinsalesreducedthemarketshareof
TescoCompanyfrom30.1percentwhereithadbeenayearagoto28.8percent.HSBC
analystsreportedthatitwouldcost$3billionintheUKtoturnaroundTesco.The
strategiestobeusedwouldinvolveloweringofthepricesbyabout56percentto
competefavorablywiththelocalkeycompetitors,AldiandLidl.Thenumberofthestaff
wouldneedtobeincreasedby2025percentinthestores.Fivehundredmilliondollars
wouldalsoneedtobeusedinelevatingthequalityofthefoodtoattractbackthelost
customers.
StrategicPurpose
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TescoPLC4
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TescoCompanypridesitselfinprovidingfoodstuffsandgroceriestoits
customersintheregionswhereitoperates.Inthemanyyearsthatithasbeenin
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TescoPLC5
http://www.casestudywriting.com/operation,ithasmanagedtobuildcustomerloyaltyintheconsumermarket.The
companyhasavisionthatsetitoutfromtherestanddefineswhatitis.Acleardirection
iscrucialinanyorganization.Tescovisionguideitinmakingdecisionsanddetermining
thedirectiontheytakeinensuringbetterprovidenceofgoodsandservicestothe
customers.TescoCompanyisbuiltarounditscustomersandcolleagues.Thecompanyis
builtaroundhighqualityassetsacrosstheglobeandprovidesmanyopportunitiesfor
growth.Thesecharacteristicsarethebasisforthevisionofthecompany.Tescostrives
anddesirestobethemosthighlyvaluedcompanybythecustomers,thecountriesand
communitiesinwhichitoperatesitscolleaguesanditsshareholders.Tescosstrategic
purposeisdefinedbythecompanysvisionthatisdefinedinfiveelements.Eachofthe
fiveelementsdefineswhatTescocompanystrivestobe.
ThefirstoftheelementsstatesthattheTescoCompanywantstobeneededand
wantedacrosstheglobe.Thecompanyitisnotessentialtobetheplaceofchoiceforthe
consumersshoppingbutalsothebusinessshouldbeaplacepeoplewouldwanttowork.
Thecompanyseekstoestablishitselfinamannerthatcommunitiesandnationswill
welcomeit.Thecompanyalsowantstobearetaileroutletinwhicheveryshareholder
wouldliketoinvestin.Thesecondelementsetsthecompanyasagrowinginstitutionthat
isfullofopportunities.TescoCompanyhasawiderangeofproductsandservicesit
availstoitscustomersandcolleagues.
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TescoPLC6
http://www.casestudywriting.com/Tescohasfoodandgeneralmerchandise,digitalentertainment,books,eatingout
andbanking.TescoCompanyisfullofopportunitiesinthesesectorsforitscustomers
andcolleagues.Thecompanystrivestoprovidesomethingneweverytime.
Thethirdelementthatdefineswhatthecompanyisandwantstobeisthatitismodern,
innovativeandsofullofideas.Thecompanyattemptstounderstandtheneedsofthe
customersbetterthananyoneelsedoes.Thebetterunderstandingofthecustomershas
seenitssuccesssince1919untilrecently.Afterunderstandingtheneedsofthe
customers,TescoCompanythenemploysinnovationtomakethelivesofthecustomersa
littleeasierandbetter.Itwasthroughthiscustomerunderstandingandinnovationthat
sawthecompanycomesupwithextendedshoppinghoursandonlinegroceryshopping.
ThefourthcomponentofthestrategicpurposeofTescoCompanyisthatitaims
tobethelocalwinnerwhileapplyingtheirskillsglobally.Thederivationofthe
componentwasthatretailwaslocalduetotheregionaldifferencesinculture,regulations
andclimatesindifferentregions.Regardlessofthesedifferencesfromplacetoplace,the
skillslearnedandgainedfromoneplacecanbeusedinanotherplace.(Tescoplc2014)
TheknowledgeaboutsettingupgrocerystoresintheUKhasenabledthecompanysetup
manymoreinotherdifferentcountries.ThefifthcomponentoftheTescoCompanyis
thattheyareinspiring,earnloyaltyandtrustfromtheircustomers,colleaguesandthe
communitiesinwhichtheyoperate.Thecompanyaspirestoearnnotonlyrespectbut
trustinneverythingthattheydo.Therespectandtrustisextendedinallthecompany
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TescoPLC7
http://www.casestudywriting.com/businessoperationsfrominstoreshoppingtrips,determinationofthequalityassurance
ofthefoodstuffsgiventothecustomersandtheirpricepromise.Thecompanywantsto
setitselfoutasabusinessthatthecustomers,communitiesandcolleaguestrustandare
loyalto(Alt2014)
IndustryAnalysis:Tesco`sstrategicPriorities
TounderstandtheindustrialanalysissometheoriesliketheP.SergeantFlorencesIndustrial
LocalizationTheoryarevitaltobeanalyzed.Inthetheoryitstatesclearlytheimportanceof
collectingdatainordertoestablishtheperformanceofanygivencompanyinaspecificindustry.
Thetheoryisbasedoncollectionandinterpretationofdata.Itisvitaltouseboththelocation
factorstatistics,andcoefficientoflocalizationstatisticswiththeaidofbothPESTEandPorters
modelsofindustryanalysis.
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TescoPLC8
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Fig.Graphicalpresentationofthefiveportersindustrialanalysismodel
Thecompanyinanalyzingitsindustrialperformancetheportersfiveforcesmodelis
vitaltobeused.Themodelcallsforpurecompetitionwhichimpliesthatriskadjustmentratesof
thereturnstobeconstantbetweenfirmsandindustriesandtherelevantfirms.Fromtheanalysis
itisclearthattheindustriesareabletosustaindifferentlevelsoftheirprofitability.Michael
porterintroducedthisindustrialanalysismodelinordertoexplainthescenarioofprofitability
levelsintheindustriesliketheTesco.Inorderforthemanagertodevelopanefficientbusiness
strategyforthecompanyhe/shehastofocusonstayingontheedgeoverallthecompetitors.To
befullyconversantwiththeindustrysinternalandexternalenvironmentinwhichtheyoperate
themanagerofthecompanywilladopttheportersindustrialanalysismodel.
InorderfortheTescoCompanytocompetesuccessfullywithitscompetitorsthefollowingmain
areasoftheindustrialmodelarerelevanttoitsoperations.
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TescoPLC9
http://www.casestudywriting.com/Rivalry
Inthenormalbusinessoperationsthecompetitionamongrivalindustries,theprofitis
pushedtoazerolevel.Butsincethecompetitionisneverperfectandthefirmsdonotjusttake
pricespassivelytheycompetetogainanadvantageoftheircompetitorsallthetime.TheTesco
Companyinthefoodindustryithasthesolemandateinmaintainingasteadystatetostayatthe
edgeallthetime.Theintensityofrivalryismeasuredbytowhatextendthecompanyhas
acquiredtheindustryknownasindustrialconcentration.TescoCompanyhassuccessfully
acquiredagreatshareoftheindustryofthesharesoftheindustriesinUK.TheTescoCompany
hassecuredagoodpositiontohaveagreatmarketshareinUK.Inthepreviousyearssince2008
to2012ithasthefollowingshareofthemarketinpercentage25.3%25.8%,26.6%,30.5%,and
29.9%respectively.ThetrendisimpressivewhichshowsthepowerTescohasoveritsrivalry.
sales pretax
profit
revenue
per
employe
e
salesper
square
foot
profitabilit
y%
UKmarketshare
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TescoPLC10
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2008 51773 2803 0.17984 0.00132
7
5.4 25.3
2009 59426 2917 0.193436 0.00132
2
4.9 25.8
2010 62537 3176 0.19612 0.00131
6
5.1 26.6
2011 67074 3641 0.199621 0.00130
2
5.4 30.5
2012 72035 3835 0.207907 0.00129
8
5.3 29.9
Tableshowingtheperformanceofthecompanyinfiveconsecutiveyears
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TescoPLC11
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InordertoTescotowinthecounterattackenforcedbytherivalrythefollowing
strategiesareputinplacetopursueanadvantageoverrivalsandmaintainacompetitiveedge
position
Thecompanyisabletolowerorraisepricessincemostoftheproductsareseasonalto
gainatemporarybenefitoverthecompetition.
Inthemanufacturingprocessandtheproductsquality,thecompanyisabletobringin
newinnovationsandimplementnewfeaturestoimproveanddifferentiatetheproducts.
TescoCompanyhaswellcreativelycreatedchannelsofdistributiontomakesureallthe
integrationmodesarestandardized.Thecompanyprovideddoortodoordeliveryservicesasa
wayofmaintaininghightouchwithconsumersallthetime.
Tescocompanyiskeenonthequalityoftheproductsthesuppliersarewillingandable
tosupplytheminthelongrun.Theirmaintargetistomeetthecustomersspecificationasmuch
aspossible.
Threatsofsubstitutes
ThreatofclosesubstituteofTescoproductsiswellmaintainedtoalowlevelas
possible.Itishardtocompletelycombattheeffectcausedbytheseexternalpowersofthe
substitutes.Thecompanycompensatesthelossesthatmayarisefromtheseclosesubstitutes
throughofferingarangeofproductsinthesamelinebutindifferentforms.Evenwhenthreatof
substitutesimpactsthecompanythereisalwaysanescaperoutethroughwhichthelossescanbe
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TescoPLC12
http://www.casestudywriting.com/absorbed.Theproductssuppliedwillalwaysgaincompetitivepricesifcustomertrustandthe
companysreliabilityareretained.Thesalesaremaintainedatacommendablelevelasshown
Graphshowingthevolumeofsalesvolumeduetoeffectofsubstitutes
Buyerpower
Thepowerofbuyerisdefinedasthetotalimpacttheprospectivecustomershaveona
manufacturingorproducingindustry.SincemostofTescoproductsarefoodstuffsthebuyer
powerislowsotheyareabletofixtheprices.Thecompanyspriceisnotdictatedbythe
customerssothebuyerpowerisrelativelylow.
Supplierpower
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TescoPLC13
http://www.casestudywriting.com/Tescocompanymanagerialbodyiskeenonestablishingthebestcompetitive
supplierenvironmentinordertomaintainitspricessteady.Themarketanalysisofwhotosupply
rawmaterialsiscrucialincreatingaviablerelationshipbetweenthecompanyandtheraw
materialsuppliers.Thepowerofthesupplierdeterminesthelevelofprofitthecompanymakesat
theendofproduction.TescoCompanyhasrecordedsteadyprofitasindicatedinthegraph
below.
Graphofprofitinconsecutiveyears.
Threatofnewentrantsandentrybarriers
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TescoPLC14
http://www.casestudywriting.com/TescoCompanyiswellpreparedtocombatthepossibilityofbeingcompetedby
anenteringfirmintheindustry.Itoffersverycompetitiveservicestothecustomerswhich
ishardfortheincomingfirmstomaintain.Theentryandexitoftheindustryisfreeeven
thoughthecompanyhassomeprotectivemeasureswhichinhibitotherenteringthe
industrythebarriersofentry.OneoftheentrybarriersTescousesistheassetsspecificity
andinternaleconomiesofscale.Tescoenjoysgreateconomiesofscalesinceitisalarge
companyabletoproduceproductsatlowpricesandsaleevenatlowerprices.Thecase
forcesothercompetingcompaniesenteringtoexit.TescoCompanyhasalargemarket
share.
TescousesPESTtobeuptodatewiththechangesofitsenvironment.Thepest
standsfor:Ppolitical,Eeconomic,Ssocial,andTtechnological.Thesuccessofusing
portermodeliscrosscheckedbytheuseofPESTtoknowwhichareaneedsadjustmentall
thetime.
Thesocialpartoftheanalysisthecompanymakessurethatthepracticesinthe
communityareuptothestandardsofthesocialvalueofthepeople.Thesocialfactorsthat
canaffectsalelikereligionandcultureareconsideredcarefully.Theroleofsocialfactorsis
abletohelpTescotoknowwhattochangeinrespecttopopulationcompositionandsize.
ThecompanyusesthePESTtoknowtherolethepoliticalinfluenceplays.Itisthroughthe
politicalstabilityonthesideofbusinesspracticethatleadstogoodeconomy.Tescoensures
thatitisinlinewiththelegalbusinesspracticesofthecountry.Theeconomicsdealswith
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TescoPLC15
http://www.casestudywriting.com/theprevailingexchangerates,inflation,interestratesandeconomicgrowthwhicharevital
inplanning.Tescousesthistodefinetheeconomicpathstouseinordertominimize
negativeimpactonthecompanyproduction.Technologicalfactorisvitalinanyindustry.
Itisthroughtheanalysisacompanyknowshowtoadoptnewadvancementintechnology
toavoidbeingcompetedoutofoperation.
BusinessandCorporatestrategies
SincePhilipClarketooktheleadershipofTescofirmintheyear2011,the
businesshaswitnessedadwindlingintheprofits.Itregistereda92.6percentdropingain
inthehalfoftheyear2014.Clarketooktheleadershipofthecompanyasthegroupchief
executiveafterretirementofSirTerryLeahyonhisfiftyfivebirthday.SirTerryhadled
thecompanyforfourteenyears,aperiodwhentheprofitsoftheenterprisehadrisenfrom
$750millionto$3.4billionpoundsatthetimeheretired.Atthetimehewasretiring,the
companyhadamarketshareof30.5%.AfterClarkehadtakentheleadership,Tesco
announcedthefirstprofitwarninginovertwentyyearstrading.Thewarninginprofits
wasattributedtopoorChristmassales,andthissawitssharesdropby15%.Thewarning
cameinJanuary2012duetothecompetitionfromthediscountingretailers,Aldi,and
Lidl.
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TescoPLC16
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Graphshowingprofitandthetaxationphenomenonin2008upto2012.
InApril2012,TescoCompanypulledinaonebillionpoundschemetoredeem
itsoperationsintheUnitedKingdom.Theplanincludedupgradingofthestores,
recruitmentofmorestaffcoupledwithbettervalueandprices.Theimprovementsought
toimprovethequalityanddiversityofthecompany`sproducts.Thecompanyalsoaimed
tochangeitsapproachtomarketingandembarkonbrandmarketingtoreclaimits
positionasthedominantretailerintheUnitedKingdom.Marketingstrategieswere
changed,andanonlinesellingplatformwascreated.Groceryclickanddeliveryservice
wasintroducedtoover260locations.Themovecamefromtheclaimthathadputthatthe
companys2,800storeswerecoldandindustriouswithinadequateservices.InApril
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TescoPLC17
http://www.casestudywriting.com/2013,TescoCompanyreporteditsfallinprofitsthatwasadropofalmost96%fromthat
ofthepreviousyear.ThedropwashitbytheUSfreshandEasychainofaroundtwo
hundredstoresthatconfirmeditwasleavingthecountry.Theannouncementslapped
TescoCompanywitha1.2billionpoundscharge.Atthesametime,TescoCompany
sufferedan804millionpoundswritedowninpropertythatithadboughtduringthe
propertyboomintheUnitedKingdom,anditwasnotbeingdeveloped.
Thecompanycomesupwitha200millionpoundsplantolowerthecostofthe
basicproductsinFebruary2014.Thecompanyalsodevisedaplantoreininannual
capitalspendingtonotinexcessof2.5billionpoundsforthenextthreeyears.The
decisionwasarrivedatfollowingthespendingofover4.7billionpoundsintheyears
2008/9instorerenovationandexpansion.InApril2014,Clarkesonebillionpoundplan
torevivethecompanyhasbornlittlefruitsandthefutureisnotcertain.Thecompany
profitsfortheyearfallby6.9%andlikeforlikesalesdropby3%andthecompany
UnitedKingdomsharedecreasesto28.6percentinthelasttwelveweeksfromthe
previous29.7%inMarchthepreviousyear.InJune2014,KantarWorldpanelfigures
showthatthefirm`smarketsharehaddecreasedto29%andlikeforlikerecordedafall
of3.7%.InJune2014,Mr.Clarkestepsdown,andUnileverexecutiveDaveLewistakes
over(Alt2014)
ThechangeinthetopmanagementisgivenamonthtoallowthenewCEOto
lookintoeveryaspectoftherunningofthegroup.Thedelayinonemonthisreached
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TescoPLC18
http://www.casestudywriting.com/whenthecompanyannouncesanotherprofitwarningandcutstheshareholders
dividendsby75%.250millionpoundshadoverstatedthepreviousmonthsprofits.The
reasonwasduetothetimethattheUnitedKingdomstallspresentedtheirdatafor
calculations.InOctober2014,thecompanysuspendseightseniorexecutivesandthe
financialconductAuthorityissuesaprobeintotherunningofthecompany.Atthistime,
anAmericaninvestmentgurunamedWarrenbuffetwithdrawshisinvestmentfromTesco
andclaimsitwasamistakeinthefirstplace.WhentheFinancialconductAuthority
publishesthefinalfigures,Tescoprofitshavedroppedby91.9percentanditrevealsthat
theearlieroverstatementwasof263millionpounds.ThegroupchairpersonSirRichard
Broadbentannounceshiswishtoretire.
Toturnthecompanyround,analystshaveproposedseveralmethods.Oneofthe
thingsthattheCompanyneedstodoistocloseoneineveryfivestoresintheUnited
Kingdom(Zoe2014).Thesecondpropositionhasbeenderivedfromthefactthat,Tesco
storesarelargestoresthatwastesspaceandresources.Itisimportanttoreducethesizeof
thesestoresandrentouttheexcessspaces.Thetopmanagementwillneedtodevelop
newproductsandcutdownthepricesoftheircommoditiesimmediately.Thegroup
chairpersonshouldnotcomefromtheUnitedKingdomretail.Thecompanyhasalsosent
seniorworkersbacktotheshopfloor.Thecompanywillneedtochangeitscultureand
reinventnewbrandsifithastoremaininthemarket(Alt2014)TheHSBCanalystssays
thatthecompanywillneed3billionpoundstoturnitround.
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TescoPLC19
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Fig.Graphofrevenueperemployee.
Therevenueperemployeeisshowninthegraphaboveinrespecttotheirnumber
in2008to2012
Thestrategiestobeusedwouldinvolveloweringofthepricesbyabout56
percenttocompetefavorablywiththelocalprincipalcompetitors,Aldi,andLidl.A
numberofthestaffwouldneedtobeincreasedby2025percentinthestores.Five
hundredmilliondollarswouldalsoneedtobeusedinelevatingthequalityofthefoodto
attractbackthelostcustomers.
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TescoPLC20
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Tableshowingtheperformanceofthecompanyforfiveconsecutiveyears
sales pre-tax profit
revenue per employee
sales per square foot
profitability %
UK market share
2008 51773 2803 0.17984 0.00132
7 5.4 25.3
2009 59426 2917 0.193436
0.001322
4.9 25.8
2010 62537 3176 0.19612 0.001316
5.1 26.6
2011 67074 3641 0.199621
0.001302
5.4 30.5
2012 72035 3835 0.207907
0.001298
5.3 29.9
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TescoPLC21
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ReferenceList
Barry,S.2014,Tescotimeline:HowtheoncemightychampionoftheUKsupermarketsectorhas
seenitscrownslipAvailablefrom:
.[24
August2014].
Graham,R.2014,FivepredictionsforBritain'sbatteredsupermarketindustryin2015.Available
from:
http://www.telegraph.co.uk/finance/newsbysector/retailandconsume.[05February2014].
Elisa,A.2014,strategicManagementAnalysis:Tescoandthesupermarketindustryinthe
UK.Availablefrom:
.[16March2014].
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TescoPLC22
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Zoe,W.2014,OneinfiveUKsupermarketsmustclosetorestoreprofitgrowth,say
analystsAvailablefrom:
.[22
February2014].
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