TescoPLC1

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TESCOANDTHESUPERMARKETINDUSTRYINTHEUK

ByName

Course

Professor

University

City/State

Date

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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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