The purpose of this report is to analyze internal opportunities and threats, external strengths and weakness, vision statement and mission statement of Tesco Corporation, example of achieved mission, and recommendation of strategies to develop the organization in future.
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Background of Tesco Corporation
Tesco Plc. is the giant of global glossary chain shop operating in fourteen countries and considered as the third largest player in terms of revenue generation. The company originated in UK in 1919 as small grosser and now turned into FTSE 100 Company listed in the LSE annual revenue of £ 60.93 billion and£ 2.67 billion Net income accounted in 2011.
Tesco possesses 2,715 outlets in UK occupying Total area 3,411,586 sq meter space while the company has diversified its business in telecommunication, banking, ICT, club card, beauty salon film producing gold trading and many more sectors with successful record of accomplishment.
The company has 2,665 stores with 70,718,000 sq. meter floor space worldwide excluding the total number of UK stores, while the numbers of outlets have been increasing with a remarkable rate of expansion. Tesco’s expansion strategy, strong organisational structure, and core business concept those are the facts that provided the competitive advantages that no other competitors can bid.
There are a number of complain about the Tesco’s corporate governance, tax manipulation and corporate social responsibility including workplace environment in third world factories but above all Tesco turned in to a power of the UK society that may not be depress the business environment. However, the following table gives more information about the company –
|List||Some Key Features About the Company|
|Stores||Tesco has about 4,331 Stores all over the world and among them 2,306 stores in the national market, 571 stores in Thailand, and 319 stores in Poland to offer wide range of products and services to the target customers|
|Employees||Tesco has more than 472000 employees all over the world and it is going to recruit more staff to operate the business more smoothly|
|Tesco Personal Finance||It is a combination of the Banking and Insurance service that started operation initially only in UK and in 2003, Tesco decided to buy the 50% share of Royal Bank of Scotland of £950 million to own the total share of TPF|
|Food||It is the largest business segment for Tesco as it offers 40000 food products, such as – |
Table 1: Products and services of Tesco
Source: Self generated from Tesco (1)
SWOT Analysis of Tesco Corporation:
- Brand Awareness: the main strength of Tesco is the brand awareness of the company as it is the largest grocer of UK and the third largest grocery retailer of the world;
- Employees: The company has more than 4,72,000 highly educated, enough efficient, and good manner employees including 12 international markets, and it has plan to increase 16,000 employees within very short time;
- Rapid growth: the market share is growing very rapidly throughout the UK and outside market, for example, according to the report of Datamonitor (14), this company hold 13% market share of the UK retail superstores market. At the same time, market growth of few segments like Tesco personal Finance is outstanding in the local market, Toyota Lotus in Thailand has delivered strong growth in spite of recession and adverse political situation, Tesco in Slovakia saw excellent growth, and Malaysia has had an exceptional year though this was not a potential market for Tesco from 2001 Asian crisis;
- Financial position: Tesco is happy with its performance in recent years as many company suffered huge loss and some companies needed government support but Tesco continues with its own financial strength and never faced loss though the earning has decreased from few segments. In addition, it has strong liquidity percentage and strong asset utilization and managerial efficiency; however, the following figure shows that the share price of the company is quite position in London Stock Exchange –
Figure 1: Basic Chart of Tesco for 2007 to 2011-05-02
Source: Yahoo Finance (1)
|Variables||2010 (£ million)||2009 (£ million)||2008 (£ million)||2007 (£ million)|
|Total Operating Costs||53,878||50,940||44,648||40,274|
|Operating Income or Loss||3,032||2,958||2,650||2,367|
Table 2: Financial Overview of Tesco
Source: Self generated from Tesco (130) and Yahoo Finance (1)
- Corporate governance system: many large company has collapsed due to lack of the practice of corporate governance practice but Tesco never faced such position as all the members of board of directors, and auditors are worked with integrity and for the development of the company;
- Market leader: Tesco was successful to become the market leader in the UK,
- Technology: It has advance technological support to enhance its profits from its products and service area; as a result, it can offer online purchasing facilities, online baking facilities and maintain customer relation by using advance technology.
- Shareholders: Shareholders are a key strength of the company as they are generating the ultimate investment capacity for the company; however, they consider following factors to invest –
|Tesco Plc||2010 (£ million)||2009 (£ million)||2008 (£ million)||2007 (£ million)|
|Working capital = (current assets – current liabilities)||11,765 – 16,015 = -4250||13,479 – 17,595 = -4116||6,300 – 10,263 = -3,963||4,576 – 8,152 = -3,576|
|current ratio = Total current assets/ current liabilities||11,765 / 16,015 = 0.73462379||13647 / 18040 = 0.756485588||5992 / 10263 = 0.58384488||4168 / 8158 = 0.511285574|
Table 3: Ratio analysis of Tesco
Source: Self generated
- Product range: according to the annual report 2009, this company offers wide range of products and services including insurance facilities and credit purchasing facilities. In addition, Tesco personal finance is achieving more and more milestones besides retail services; such as, in 2003 the insurance service achieved 1 million motor insurance policies and other segments like Credit cards, savings, deposit schemes, pet insurance, travel insurance and life insurance are continuously escalating its potential to offer fully operated banking service;
- Leadership: On the other hand, Tesco has achieved this success for the continuous efforts and capabilities of its top management team, including the CEO of Tesco Terry Leahy who has taken many decisions to increase its performance in global market Tesco’s UK sales are now 71% larger than Sainsbury’s;
- Quality: Moreover, Tesco always offer high quality products and services for the customer as the company would like create strong loyal customer base.
- Dependence on the UK market: Datamonitor (16) reported that Tesco is mostly depends on the UK market (as more that 73.8% of its revenue generates from the market);
- Media: Interference of media some time creates hindrance of the business, for instance, the UK TV broadcasted in a documentary on Tesco’s corporate social responsibility and poor personnel morale on the employees by claiming that Tesco encouraged child labour in order to offer low price to the customer. For instance, one of the major sales product of Tesco is Jeans at $4 for rough use and Tesco advertise that purchase our useable low cost Jeans instead of waste money for washing powder, but media claimed that Tesco can offer at $4 only exploit the child labour of Bangladesh. On the other hand, the CEO of Tesco stated that they have no responsibility about their supplier as Tesco never suggest to exploit child labour to reduce production cost, and he further added that they visited the garments of the supplier but found no child labour;
- Reduction of debt: Tesco’s aggressive expansion strategy limits the corporation to expend money except investing; as a result, debt reduction became problematic, which may adversely affect on the company.
- Advantage from Recession: Tesco can take advantage of recent economic downturns by changing its strategies; for instance, it can sustain as a global leader by reducing costs, offering at lower price, pushing on with expansion, and increasing total assets value; for example, Tesco (9) reported that the price of land and property has decreased significantly due to recession.
- International Growth: Tesco personal Finance initially offers online banking facilities only in the national market but Tesco has the opportunity to expand the operation of this segment in international market as it was most successful segment in recessionary period in national market;
- Health: The sales revenue from health care and beauty products is increasing in the UK market as Tesco is the market leader in both toiletries and healthcare retail sectors along with baby goods markets; therefore, Tesco invests regularly to develop this sectors so it has 19 stores with opticians and almost 200 stores with pharmacies;
- Further Expansion: According to the annual report of Tesco, it has earned a significant profit from international market particularly from the Korean market; as it can consider further expansion with it various types of new services along with the existing services in Asian, European and American countries;
- Non-food Retail: The management team of Tesco confirmed that they would continue non-food retail segment as it has generated 23% share from this segment in 2004,
- Other: Tesco has efficient employees to boost the profit, and it has been experienced satisfactory profit margin all over from retail services those open new dimension to start new business or expand existing business.
- Major Competitors: The main threat in retail business of Tesco is the strong competitors of national and international market, for instance, ASDA is the subsidiary of Wal-Mart has large market share in the UK market. At the same time, Sainsbury PLC and Morrisons have huge participation in the market those change companies’ strategies regularly in order to develop the market position and gain competitive advantages over the Tesco Plc;
- Expatriates Management: Tesco has always eager to expand its business all over the world by opening their subsidiary; as a result, the company need to recruit a significant number of employees from the home countries of subsidiary. However, the top management of parent company would like to train all employees to develop their communicational skills to increase sales in international market, but many employees leave their job if they get job at home; therefore, retention of employees is a great challenge for Tesco;
- Global financial crisis: Tesco has experienced huge lose from some international zone due to the adverse impact of the global financial crisis though net profit has increased each year. In addition, Tesco’s annual sales revenue from few products and service was not outstanding in the UK and global market considering the performance of previous year and investment because the purchasing power of the customer has reduced and they mainly purchased necessary products;
- Customer Buying behaviour: frequent change of customer mind regarding the product selection is also problem for the retail customer;
- Price War: As price is the prime attraction that clasps the customer’s attention and primarily inspires them to engage with the promotions carried out; therefore, all competitors try to make sure that the pricing is in fact attractive to the targeted customers, which is one of major challenges for the Tesco Plc; for example, Datamonitor (17) reported that Morrison reduced Safeway’s prices by up to 6%;
- International expansion: Tesco needs huge amount of investment to enter international market and it has to face high competition in outside of the UK market; as a result, Tesco has not generated satisfactory profits from some Asian countries;
- Other: Natural crisis, foreign direct investment policy of overseas government, unfriendly approach of the government of international market, instable political condition of certain area, factors related with taxation policy, and entry barriers, local regulation and listing requirements have influence on Tesco’s operation in global market.
The vision statement and mission statement of Tesco
The Vision Statement of Tesco
A vision statement is an inspirational explanation of what a business would like to attain or bring about in the mid term or long-standing future – it has deliberated to provide an apparent direction for selecting present and upcoming patterns of actions for the company in order to gain the advantage of the market throughout its operational period.
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However, the main vision of Tesco is to create value for clients to gain their lifetime loyalty by concentrating on the customers, understanding and fulfilling their needs and showing responsibility on the community.
This company has some other long-tem objectives to achieve the core vision such as Tesco ensures equal opportunity for all employees to get highest outcomes from them, provides guidance to work like a team, and develops mutual understanding by exchanging their views to give the highest satisfaction to the customers.
This statement also pointed out that all workers would be treated as part of a large family that indicates Tesco always create excellent environment for the staff to jointly work together as a team member, where they enjoy equal opportunities in terms of salary, pension, leave, and other job facilities.
The Mission Statement of Tesco
Mission statements are printed assertions of businesses’ central goal and objective that usually stays unaltered over time, acting as sifts to distinguish what is imperative, affirming which markets to penetrate, and transmit a sense of deliberated roadmap to the whole business; moreover, a mission is something to be accomplished, whereas a vision is something to be pursued for that accomplishment.
The mission of Tesco has designed considering the vision statement that is “to create value for lifetime customer” and the mission of the company is to survive as a market leader in the global financial crisis by offering the best products at lower price to retaining loyal customers. However, this mission statement mainly focused on three short time objectives those are interrelated, such as –
- Overcome from the adverse impact of global financial crisis
- The customers will come again and again
- Offer lower price than the competitors
Mission that achieved by Tesco and Justification
Tesco has already achieved three components in the mission statement and the flowing heads discuss about the mission statement and showed justification about the findings–
Market leader in recession: One of the greatest missions of Tesco was to sustain in the UK market as market leader in the adverse economic environment. According to the annual report 2009 of Tesco,
Figure 2: Basic Chart for Tesco Plc vs. Sainsbury
Source: Yahoo finance (1)
However, the above figure compares the financial position between Tesco Plc and Sainsbury in the stock market, and it represents that Tesco’s share price is much better than Sainsbury’s position in London Stock Exchange (LSE). On the other hand, Datamonitor (14) pointed that Tesco’s sales revenue is highest in the UK market and third position in global market and it generated sales revenue is 71% greater than nearest competitor.
At the same time, one of the foremost missions of Tesco was to offer products and services at lowest price in order to target all types of customer for those who want to purchase from this company. From the very beginning, this company followed cost effective strategy and the company reduced its price at highest level in order to protect competitors to capture while it found that competitors is going to draw attention of the customer by their special offer at low price.
In order to offer lower price, Tesco has to create strong supply chain by maintaining good relationship with the suppliers, and the management of the company always try to find out low cost suppliers who would provide quality products, such as, Bangladeshi readymade garments suppliers has fame to provide high quality products with low price.
On the other hand, Tesco has successfully create large loyal customer base in national and international market by implementing its low cost strategies and it also concentrates on the cultural factors to operate its outlet in foreign countries, which also help the company to retain customers.
For instance, the trading conditions of South Korea, China, Ireland have deteriorated due to global financial crisis but the company was reduced operating costs and the price of the products, which balance the profitability level as the customers are loyal; as a result, this company regain its market position in those areas within very short period.
Suggested Strategies to Tesco for future development
This report scrutinise the present strategies of Tesco to recommend the most suitable strategies those the company should follow in near future and this report also suggests some strategies in light of some effective strategic tools to gain competitive advantage over competitors.
Ansoff Matrix for Tesco
According to the annual report 2009 of Tesco, this company has already positioned it as the UK market leader in retail business and it is in the third position in global market; as a result, it would be easy for Tesco to consider this strategy to develop its business at existing or new market. However, the following figure shows the Ansoff Matrix for Tesco –
- Market penetration: This strategy concentrates on the development of existing products at existing market and it is an effective strategy for Tesco since the customers of existing markets would like its products because they are loyal customers and company has strong brand image, low price and high quality. However, the flowing figure shows the sales of its existing products in existing markets
Figure 3: Sales by region
Source: Tesco (9)
- Market Development: Tesco has business operation in 14 countries; therefore, its existing products and service range has bright prospect in other developed countries in the world. In order develop markets in European or Asian countries, Tesco should apply this strategy with their regular price offer as pricing is one of the important factors to the customer as well as company.
Figure 4: Ansoff Matrix
Source: Self generated from Kotler & Armstrong (221)
- Product Development: Johnson, Kevan and Richard (29) argued that this strategy indicates new product development in existing market and this strategy is effective for the future prospect Tesco. However, Tesco has already developed 500 new products for the UK market in the recessionary period as part of its ‘Discount Brands at Tesco’ initiative, and This company introduced 27 new items for the Malaysia’s stores;
- Diversification: Tesco should not drive to follow this strategy in this stage, as new products development in existing market is profitable but it not always easy for retailers to develop new product for new markets; however, Tesco can expand its operation in the new areas with existing products.
Porter’s Generic Strategies
- Cost Leadership Strategy: Tesco always offers lowest price to the target customers, such as, its overall food price has fallen more than 17% from 2000 to 2006 and Tesco restructure its pricing strategy in the period global financial crisis to cut production costs to provide lowest price in the market. At the same time, Tesco should carry on this strategy as market is highly competitive where pricing is the prime factor to retain customers; however, the following figure demonstrates decreasing price in food sector –
Figure 5: Trend in real food prices since 2000
Source: Tesco (1)
- Differential strategy: from the above discussion, it is clear that this strategy is fruitful for Tesco as it always eager to offer new products for the national and international customers; therefore, in 2009 it introduces 500 products to save the company from recession;
- Focus Strategy: As this strategy refers to focus on a narrower market segment through achieving cost advantages, Tesco should not follow this strategy.
Lynch’s Expansion Method Matrix
This expansion matrix is the process by which the company can select appropriate route of entry; as a result, Tesco can increase its market share both in national and global market by adopting subsequent methods, for example, merger, Acquisition, Joint Venture, alliance, etc. The following diagram shows the expansion method with more information
Figure 6: Expansion Method Matrix
Sources: Self generated
- Current Market: According to the annual report 2009 of Tesco, this company is more concentrates on the UK market expansion as more than 70% of its total profit is generated from this market. However, Tesco is increasing its number of outlets in local as well as other 13 countries where it has operation, for instance, in 2008 and 2009, its total stores were 2318 stores and 4331 stores accordingly, but it has now more than 5380 outlets in the current 14 market place, which demonstrates that this is an effective strategy for Tesco. However, the above figure demonstrates some expansion strategy for Tesco to expand the business (such as International, Core UK, Non-food, Retailing Services, and Community) in current national and international market;
- New Market: It is important to mention that Tesco has business operation only on 14 countries though Tesco is one of the most successful companies in international market. As a result, it should start operation in new zone for example it can start operation in Singapore and Hong Kong as Tesco has experienced to operate successfully in Chinese market and Korean market; however, it can develop its market by joint venturing with local competitors or applying other mode of entry strategies.
Datamonitor. Tesco a Corporate Profile. 2004. Web. <http://people.exeter.ac.uk/wl203/BEAM011/Materials/Lecture%204/TESCO%20Company%20Profile.pdf>.
Johnson, Gerry, Kevan Scholes and Richard Whittington. Exploring Corporate Strategy: Text & Cases. London: FT Prentrice Hall, 2008. Print.
Kotler, Philip, and Armstrong Gary. Principles of Marketing. New Delhi: Prentice-Hall, 2006. Print.
Tesco. Annual report 2009 of Tesco. 2009. Web.
Tesco. Low prices everywhere. 2011. Web.
Yahoo Finance. Basic Chart of Tesco Plc. 2010. Web.
Yahoo Finance. Financial Statement of Tesco Plc. 2010. Web.