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Ýc Introduction«««««««««««««««««««««««««««««««««««.3

Ýc Industry analysis««««««««««««««««««««««........................3
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Ýc    framework«««««««««««««««««««««««««««««««.4

Ýc esco¶s strategic option«««««««««««««««««««......................7

Ýc onclusion«««««««««««««««««««««««««««««««««««..9

Ýc xeferences«««««««««««««««««««««««««««««««««««..10

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In the UK, the food and drink retail sector represents the largest industry which is
providing employment for more than three million people in manufacturing and retailing.
According to data monitor (2003) in the year 2003, retail accounted for 9% of gross
domestic product (GD). In recent years, UK supermarket industries have come under
increased scrutiny over their treatment of suppliers and particularly of own-label products.
he development of strategic supply network has been an integral part of most supermarket
strategies for the past decade.

he report below provides an insight into the esco supermarket company, with
emphasis on company¶s analysis of resources, culture, competence and its external
environment analysis.

As a private sector organisation, esco is one of the largest food retailers in the
globe. resently esco is operating with 2,318 stores in the world and employing over
326,000 people and also providing online services through its subsidiary, esco.com. As the
UK is the largest market for the esco, where it operates under four banners of uperstore,
xtra, xpress and Metro. he esco sells almost 40,000 products including food, non-food
and clothing and its own label products (nearly 50% of total sales) are at three levels,
finest, normal and value(almer, 2004). As well as convenience produce, other retailing
services offered by esco include esco ersonal Finance, gas stations, becoming one of the
UK¶s largest independent petrol retailers.

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xetailing involves the commodities sales to the public. he retail industry covers wide
range of sectors from general products such as clothing and foods to specialist products
such as automobile accessories and sports equipment. According to uromonitor
International, over the next five years, the move towards greater consolidation will continue
to impact the UK retail industry. As uromonitor suggest that future acquisitions and
mergers in the UK food retailing are likely to be on a smaller scale. Moreover, it involves the
take-over of convenience retailers by hypermarket chains who are wishing to strengthen
their presence in the UK¶s high streets. As xaphael Moreau a retailing analyst at
uromonitor International, says ³Diversifying into convenience stores is on the agenda for
the UK¶s top hypermarket chains because this retail format offers good growth prospects.´
Maintain brand image is the one of the latest market trend in recent years. As esco has
been successful because of its powerful brand image and also has a reputation for low price,
value and for being customer focused. esco¶s brand associations and equity have helped
the company to expand into new markets and sectors. he key drivers for esco¶s success
are strong public relations, advertising and building profile in catchment areas. he figure
below shows market share for esco in 2006/07.

ource: tesco.com

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In addition, aggressive overseas expansion has helped a lot esco to keep profits
high as the company has expanded business into eastern urope, emerging nations such as
outh Korea, hina, and in the U through mid-market supermarkets (known as, ³fresh and
easy´). esco¶s strategy is being close to the customer. With the aid of this strategy esco
has successfully developed shopping formats such as metro, express, superstore and
convenience.
Furthermore, esco has gained a mover advantage by launching esco.com which is
one of the biggest, most successful and easily accessible online retailers. his aids esco to
grow market share, company can now sell non-food products and more focus on other area
of the business such as finance.
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esco is operating in a globalized environment with stores around the world (UK,
Hungary, lovakia, oland, urkey, zech xepublic, outh Korea, Malaysia, Japan, hailand,
aiwan and India), its performance is highly influenced by legislative and political conditions
of the respective countries. As Balchin (1994) suggested that for employment legislations,
the governments encourage retailers to provide a mix of job opportunities from lower-paid
and locally-based to higher paid and centrally-located jobs, highly-skilled and flexible jobs
and also meet the demand of all categories people such as senior citizens, working parents
and students. As esco rely that retailing has a great impact on people factors and job
therefore company employs large numbers of elderly and disabled workers, students, often
paying them minimum national wages. In addition, esco is a company with a typically high
staff turnover; these employees offer a higher level of loyalty and represent desirable
employees.

 

 

esco is very concerned about economic factors as it is likely to influence costs,


demand, profits and prices. High unemployment level is the most influential factor of the
economy because it decreases the demand for products and also adversely affects the
demand required to produce such products. However, these economic factors are not in the
control of the company but the marketing mix and their effects on performance could be
profound. hough esco¶s international business is successfully growing and it is also
expected that over next few years, esco¶s profit will rapidly increase but the company is
still highly dependent on the UK market segment. It could be argued that if any slowdown
occurs in the UK food market, esco would be badly affected.

 
 

 
Due to variety of social changes, British customers have adopted a new trend of
shopping, µone-stop and bulk shopping¶. herefore, esco have increased the amount of
non-food products available in all esco stores. In addition, demographic changes also play
vital role in today¶s business. Demographic trends has highly influence on UK retail industry.
For example, the aging population, a decline in home meal preparation and an increase in
female workers mean that retailers in the UK are also focusing on added-value services and
products. Furthermore, the focus in now on the supply chain, the own-label share of the
business mix and other operational segments which can drive the costs out of the business.
National retailers are looking forward to take on new suppliers (Datamonitor xeport, 2003;
larke, Bennison and Guy, 1994).

he products and services demanded by the customers is a function of esco¶s social
conditioning and their consequent beliefs and attitudes (eathy, 2004). In addition,
customers attitude towards food are rapidly changing because they are becoming more and
more aware of health issues. For instance, now company adapting product mix is to put up
an amplified demand for organic products. esco was the first retail company which allowed
customers to pay in cheques facility and cash at the checkout.

  

 

echnology is a major macro environmental variable which has great influence on all
kind of business. It has influenced the development of many of the esco products at
various levels. he new technologies changes benefit both customers and the company.
ustomer satisfaction rises because products are easily available, shopping is more
convenient and services can become more personalised. In order to make easy shopping for
customers, esco stores utilise technologies such as wireless devices, intelligent scale,
electronic shelf labelling, radio frequency identification (xFID), self-check-out machine etc.
Apart from that the adoption of electronic fund transfer systems ( Fo), electronic
scanners and electronic point of scale ( o) have improved the efficiency of stocking and
distribution activities (Finch, 2004).

 

 

According to indgreen and Hingley (2003) in retail sector there has been pressure
on many companies and managers to acknowledge their social responsibility and act in a
way which society overall. nvironmental issue is a key area for companies to act in a
socially responsible way. herefore, esco is recognizing this trend within broad ethical
stance and its x(corporate social responsibility) is concerned with the ways in which an
organisation exceeds the minimum obligations to stakeholders specified through regulation
and corporate governance (Johnson and choles, 2003). As Graiser and cott (2004)
pointed out that in the year 2003 the government has launched a new strategy for
sustainable consumption, reduce consumption of resources and minimise environmental
damage.

esco is ready to support government to minimise climate change. he company


have already set target to reduce carbon footprint of whole supply chain by 30% by 2020
and also committed to become zero carbon business by 2050. Furthermore, the company
has also set strategy to minimise waste. It is a key part of store management team¶s daily
routine to achieve balance between product availability and waste. In the year 2009, esco
announced a new initiative µ6      
 ¶ for perishable goods. Now
customers can pick up their free product when they in need and help the company to keep
waste down. (tescoplc.com)



 

As esco is operating globally, various government policies and legislations have


direct impact on the company¶s performance. For example, the Fx (Food xetailing
ommission) recommended an enforceable code of practice should be set up banning many
of the current practices such as changing agreed prices retrospectively, demanding
payments from suppliers (Mintel xeport, 2004). In addition, the government¶s policies for
reduction of buyers¶ power and monopoly controls could decrease new entry in retail sector
with such controls as limits on access to raw materials and licence requirements (Myers,
2004; Mintel xeport, 2004). In order to implement government pricing policies, the
company offers a price reduction on fuel purchases to the customers which is based on the
amount spent on groceries at esco stores. In contrast, to compensate prices elsewhere in
the stores are raised as well.

Moreover, the company has been supporting British expertise and jobs by
encouraging branded suppliers to develop exclusive production and distribution facilities.
But in recent years esco has realized the need to look abroad because of government
policies and products no longer available in the UK (xitz, 2005). Due to very successful
range of prepared foods, the food available in esco stores is still heavily UK-based. In
addition, esco will also influenced by raising VA (Value added tax) from 17.5% to 20%
and it will definitely hit consumer spending. In May 2007, the company had moved the head
office of online operation to the witzerland in order to sell Ds, DVDs and electronic games
through its website without charging VA (Andrew and auren, 2007).

In addition, the latest legislation has created a new tax ³fat tax´ on advertising fatty
and highly processed foods. his new tax directly affected esco product ranges which have
subsequently been adapted, affecting relationships with customers and suppliers.

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In order to obtain a sustainable competitive advantage the company should follow


either one of three orter¶s generic strategies. esco offer its products and services to a
broad market at the lowest price therefore, one can say the company is following cost
leadership strategy to get competitive advantage. It could be said that this strategy aids the
company to control their operating costs so well that the company is able to price their
products competitively and able to generate high profit margins. It could be argued that if
new competitor will enter into the market with lower price than it would be difficult for the
company to maintain its production cost as well as profit. Furthermore, if the company uses
differentiation strategy than the company should continuously try to offer new products and
services with unique features (Hammett and McMeikan, 1994).

esco focuses on the how to create more internal efficiencies which will help them
withstand external pressure. It is reasonable to think that the company would have frequent
interactions with the regulatory/governmental and suppliers of the retail sectors. While cost
leadership and differentiation strategies are aimed at the broad market, esco may choose
to offer a smaller line of products to the broad market or confine their product to specific
market thus pursuing strategy of focus or niche (orter, 1980).

As esco is entering in new markets such as Japan and hina, it can serve as a key
growth driver of the company¶s expansion and revenues strategy (Wrigley, 2000). he
company¶s interest in Japan is likely to continue growing as Asian markets are showing an
increased trend towards retailing and consumer spending (De oni and onchia, 2003). It
could be said that these new markets are demographically high opportunity markets for
esco. For the esco, one suggested strategic options is in international alliances with the
local retailers in Asian markets and may be considered as a form to exploit current
resources and competence. In order to make a larger market presence and gain a larger
economy of scale, esco should enter through joint ventures or partnerships.
According to Joost (2005) the company could use extensive local knowledge and
operating expertise of business partner whilst adding its own product development, supply
chain and stores operations skills to deliver a better shopping experience to the customers.
In contrast, being the first mover may be disadvantage for esco because of huge scale,
potential and complexities of these markets. he question is that whether esco has the
resources and competence to deliver the strategy in Asian markets where many issues like
cultural, government policies could rise during business.

In this context, Johnson and choles (2003) suggested that changing business
environment may create demand for new products and services at the expense of
established provision. With a high competitors¶ pressure and in a rapidly changing business
environment the company have to diversified the existing strategy or adopt new expansion
strategies in order to sustain its leading market position in the retail sector. At corporate
level, esco¶s strategy defines the businesses in which the company would compete and in a
way that focuses resources to convert distinctive competence into competitive advantage.

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As the process of internationalisation gathers pace, there has been a marked


acceleration in the scale of international investment. It is vitally understand that what retail
companies have learned from their past experience. he esco¶s success shows how far
effective service delivery and branding can come in moving beyond splashing one¶s logo on
a billboard. ompetitiveness would be acquired by organisations like esco, as the company
is doing well in formulating, implementing and communicating international strategies. he
company have realized that international marketing is a complex process. herefore, with
the goal of entering into international market, esco have to make sure that all resources
are prepared to encounter the risks such huge investment. In order to maintain and
continuously improve esco¶s position as a leading food retailer the company must continue
to provide innovative development opportunities for staff and should design its strategies in
a way to create value and benefit its customers through their good quality products and
pricing strategies.

   

Andrew Foxwell and auren Mills (2007) "Green' esco's wiss tax dodge".

Balchin A. (1994) ³art-time workers in the multiple retail sector: small change from
employment protection legislation?¶ , mployee xelations. 16 (17), pp.43-57.

larke I., Bennison D. and Guy . (1994) ³he Dynamics of UK Grocery xetailing at the
ocal cale´, International Journal of xetail & Distribution Management. 22 (6), pp.11-20.

Datamonitor xeport (2003) ³Food retail industry profile´. United Kingdom.

De oni A. and onchia . (2003) ³trategic planning and firms' competencies: raditional
approaches and new perspectives´, International Journal of Operations & roduction
Management. 23 (9), pp.947-976.

Finch . (2004) ³upply chain risk management, upply hain Management´, An


International Journal. 9 (2), pp.183-196.

Graiser A. and cott . (2004) ³Understanding the Dynamics of the upermarket ector´,
he ecured ender. 60 (6), pp.10-14.

Hammett . and McMeikan K. (1994) ³esco - ompetitive Management Development´,


xecutive Development. 7 (6), pp.4-6.

Johnson G. and choles K. (2003) ³ xploring orporate trategy´. 6th ed., ondon: rentice
Hill.
Joost W. (2005) ³upply hain Integration in the Food Industry´, xecutive Outlook. pp.20-
27.

eathy . (2004) ³esco and what customers really want´. Brand trategy. 185, p.15.

indgreen A. and Hingley M. (2003) ³he impact of food safety and animal welfare policies
on supply chain management: he case of the esco meat supply chain´, British Food
Journal.105 (6), pp.328-349.

Mintel xeport (2004) ³Food xetailing ±UK´. xetail Intelligence.

Myers H. (2004) ³rends in the food retail sector across urope´, uropean xetail Digest.
41, pp.1-3.

almer M. (2004) ³International retail restructuring and divestment: the experience of


esco´, Journal of Marketing Management. 20 (9/10), pp.1075-1101.

orter M. (1980) ³How ompetitive Forces hape trategy´, he McKinsey Quartely. pp.34-
50.

xitz (2005) ³tore wars´, Business xeview. 11, pp.22-23.

esco lc (2011)  O: orporate ocial xesponsibility. Online available at


<www.tesco.com > [Accessed Jan 2, 2011]

Wrigley N. (2000) ³trategic market behaviour in the internationalization of food retailing´,


uropean Journal of Marketing. 34 (8), pp.891-920.

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