TESCO: STRATEGIC MANAGEMENT

INTRODUCTION:
Tesco is one of the largest food and retail sector representing the major sector of the retail industry in UK. It contributed to about 9% of the GDP in 2003 and over recent years has been under the increased scrutiny for the treatment of suppliers (Datamontior 2003). Yet developing and implementing an effective strategic management planning and supply network has been its integral part. UK is the largest platform for Tesco operating its services into four sectors of Extra, Superstore, Metro and Express. Recent data suggests it holds number 1 position in the UK retail industry and 2nd globally. The major part of the sales is in the food products but it also extends its services to clothing and non-food line sectors. 50% of the sales are into the companys own label products that are classified under 3 lines that include: value, normal and finest. Besides retailing it has extended service even in Tesco Personal Finance. The below study is emphasized to provide an insight into the strategic management planning of Tesco. The analysis is based on the internal and external analysis of the company that includes the environmental analysis, competency, culture and resources available.

EXECUTIVE SUMMARY:
The main area of study is to exploit the business strategies of Tesco by studying its strategic management. The target is to focus on the different factors that would affect the business of the organization the strategies implemented to mitigate them which are illustrated with appropriate examples. It also relates the need for competitive advantage for not only survival in the market but to outperform other competitors. The objective of this assignment is to conduct an industrial and market analysis of Tesco and study the factors affecting the growth and development of the firm. The study further relates these factors to the different market and industry models that include: Porters 5 forces, BCG Matrix, Ansoffs Matrix, PESTEL analysis, product development and SWOT analysis. The key findings includes the in depth information about each of these models and how effectively Tesco has implemented these strategies to gain its competitive advantage over the others. In conclusion this study overviews the need of effective strategic planning and implementation of the these over time with the changing needs of the consumers, buying pattern, location, market segment, price wars, competitive edge and product acceptance.

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INDUSTRY ANALYSIS:
PESTLE Analysis: Political Factors:

Tesco being the 2nd largest retail industry globally has its operation extended to 6 different countries more actively with few of its operations spread across other countries. The major segment operates across Europe, & Asia including UK, Ireland, Japan, Malaysia, Taiwan, South Korea, Turkey and Poland. The industry performance is highly dependent on the political factors and the legislative conditions of these countries. The employment opportunities provided by Tesco is influential by the government policies of having a well spread category of job selection based on flexibility, lower-paid, skill sets of individual, highly paid jobs, and location. This is further based on the population of the countries and has to classified accordingly that includes students, working parents and senior citizens. Tesco follows the employment legislation imposed by the government by provides mixed job opportunities to follow and suit the regulation policies. Being a retail industry it is more labor intensive sector and hence the balance in providing mixed job opportunities as per government regulations is more challenging with new stores opening and the company focusing on cost cutting methods to compete in the market. With high employee turnover in such industries, more loyal employees are more desirable. Economic Factors:

The economic analysis of Tesco shows that these factors are a point of major concern as they tend to influence the demand, cost, profits earned, and prices. Another influential factor is the unemployment rate which affects the demand for the goods due to low purchasing power of the customers and hence adversely affecting the demand for the production of these goods. These factors are external to the company but they influence the performance of the company and are reflective on the marketing mix. Though it has its business widespread across many countries and the market is globally growing yet the major part of its sales is dependent on the UK market. It contributes to the majority of the profits earned by the company. With the recent studies that is affecting the UK market and the slowing down of the economy would be a more challenging phase for Tesco as it will be exposed to market concentration risks.

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Socio-Cultural Factors:

The cultural trends in UK suggest that the British customers have moved towards bulk shopping at one-stop which is as a result of social changes. Hence the demand for the nonfood items as well have increased and therefore Tesco has extended its segment to a large extent in non-food market as well. Demographic changes including aging population and working women the demand for value added products and services have increased. Now the focus is towards their own label products, business mix, operational strategies and supply chain to mitigate the cost involved. (Clarke, Bennison and Guy,1994). The demand for the goods and services is more likely to be influenced by the consequent attitudes and beliefs of the consumers. Greater health awareness is influencing the attitude of the people towards the food they consume. Tesco in this respect has an impressing product-mix line that is adapted to suit the changing needs and demand of its consumers including the demand for organic products. Also its unique mode of payment through cheques and cash at checkout as earned it more value. Technological Factors:

The new technology has benefited both customers and the company and is the major macroeconomic factor. The goods are more readily available and the services are personalized and sophisticated and convenient (online). The new launch of the Efficient Consumer Response program has lead to a strategic drift in the management which is more apparent and evident in the food supply chains. The main technologies adapted by Tesco include wireless devices, electronic shelf labeling, self check-out machines, intelligent scale and RFID. Also the adoption of Electronic Point of Sale (EPoS), Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities, with needs being communicated almost in real time to the supplier (Finch, 2004). Environmental Factors:

Environmental factors have been the major threatening factor for the food retailers for the companies to recognize these and act in a more socially responsible way. Tesco has recognized this trend within its broad ethical policies and the corporate responsibility of Tesco has been in the lines of concern for incorporating ways by which the organization can exceed the minimum obligations to stakeholders through a set of government regulations
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((Johnson and Scholes, 2003). The idea was further implemented by implementing the government policies to launch a new strategy that helps in recycling waste, minimized consumption of resources and less damage to environment. Also the legislation had created a new tax called fat-tax on advertising highly processed fatty foods which had a significant direct effect on the Tesco products and hence affecting the suppliers and consumers relationships (Graiser and Scott 2004). Legal Factors

The Food Retailing commission has imposed enforceable Code of Practice which prevented many of the practices then followed including demanding payments from suppliers and changing the agreed prices without giving a prior notice (Mintel Report, 2004). With the growing market standards and increasing competition the threat of intense price wars and the strong need of intense product differentiation was set in. Further government policies of monopoly controls, requirement of license limited the entry into this sector. Tesco has overcome these issues and offers a reduced price on fuel purchases for the consumer based on the amount spent on the groceries. This was compensated by increased prices for certain other store goods.

PORTERs 5 FORCES:
Porters 5 forces model explains the 5 major factors a company is dependent on for its survival and growth in the market. Threat of New Entrants:

UK grocery market being dominated by the major retail industries, Tesco has few competitors including Safeway, Sainsbury, Asda all of which have been transformed into supermarkets. Majority of these large chains have built their power by their operating efficiency and market-mix strategy, one-stop shopping which has great impact on the smaller chains (Ritz, 2005). It has created a strong barrier for new entrants who find it difficult to rise due to insufficient capital, large fixed costs, and highly developed supply chains. Tesco is one such major competitor and its huge investments and new technologies are a serious threat to the new entrants and also the existing ones. Other factors include, product differentiation, economies of scale and aggressive operational strategies of Tesco in product development and distribution.

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Bargaining Power of Suppliers:

This enables the major companies like Tesco to negotiate the prices with their suppliers to which the smaller chain retailers cannot match. Often this involves a threat of losing out their business to larger supermarkets and thereby the position in the market. Tesco has its advantage in this respect with the growing demand for cheaper products and outsourcing them. The suppliers and the large chain retailers hence have their individual advantages. The same can be seen in the relationship with the sellers while the effect is in constraining the strategic policies of the company and thereby helping in its marginal growth. The forces of competitive rivalry have however reduced the profit margins of these chains and suppliers. Bargaining Power of Customers

One major factor for success is to meet the customer needs while retaining innovation, customizing products, lower costs and better choices. Tesco has successfully implemented these in its strategic planning thus enabling constant flow in store promotions and meeting the customer needs to retain its customers. According to Porter, more standardized a product is, lower cost is involved and more power is yielded to the buyers. Tesco has issued Club cards to its customers that have proven to be the most successful customer retention card. Also with the growing trends and considering the changing needs of the customers according to the socio cultural factors, Tesco has recognized the demand in non-food sector as well and has successfully implemented it. Ethically sound products like beverages tea, coffee, cocoa is widely available. Also it has expanded into banking and pharmaceutical business to cater the needs of its customers thus winning and retaining several customers over years. Threat of Substitutes:

Presence of a substitute in the same market poses a threat in switching over to the alternative. The grocery industry having the major competitors like Safeway, Adas imposes threat to Tesco. Also from the smaller chains new innovation, trends can add on to the reduced consumption of Tesco products. Tesco is trying to and has acquired such small chains and thereby expanding its business into Metro and Express stores in local towns and cities (Ritz, 2005).

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Bargaining Power of Competitors:

The purchasing power of the food retail industry in UK is mainly concentrated on the few major retail industries. The highly competitive market has accelerated the level of development to an extent where the UK retail industries should be highly innovation to meet the increasingly high demand of the customers for sophisticated products. Also the market been more flat, a diversification of product is important and hence Tesco is accruing more customer information to cater their needs. The innovation and communication with the customers is evident from the development in the trading formats in response to the customer behavior. Tesco has responded to this by refocusing on the price and the value of the products by adding more value to its services.

SWOT Analysis of TESCO:

Strengths:

Having 13% of the total retail market share in UK, Tesco has an advantage to grow and expand with further with its multi- format capability. It will increase its share in the hypermarkets in both food and non-food sectors with the demand for more space contribution. Further it has invested into Westmidlands based convenience store which has turned Tesco into 2nd biggest store chain in UK and currently its holds the number one position in UK retail market. The international segment rapidly is expanding and steadily retaining the growth, which over time is expected to provide continued regional strength. Insurance: Tesco has group instant travel insurance for its club card holders which has derived it to be voted as the most competitive Life Insurance Provider in Money Facts Awards (2003). Tesco Online: While operating across more than 300 stores across the country covering UK, Tesco has extended its services to nationwide online services, which has achieved it a strong platform to further develop its revenue stream. Brand Value: The strong Brand image is associated with good quality, trustworthiness, and excellent value for products. The innovative ways of customer service and product improvement, customer shopping and its branch into finance and insurance has capitalized on its brand value.

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Market leadership: With the multiformat strategy, Tesco has developed enormously strong position in its domestic market and is ranked 1 in UK retail chain. The Competition Commissions report has added on to its value further which proves it is very difficult for a competitor to challenge its scale. Weakness:

Although Tesco has enormous growth in its business, yet major part of its business in concentrated in UK. Hence any changes in the UK market and changes in share price, mergers and acquisitions by other retail firms can affect the business. Also until 2006 Tesco was believed to have debt due to its huge capital expenditure into new stores for expansion. Yet its expansion is aggressive and hence has less liquid assets. With vast product range any acquisitions made by Tesco can be justified which has a negative effect on its earnings visibility and quality. Although the fill the gap strategy can be applied yet this can impose danger on its value. Opportunities:

Tesco can use its low cost structure and innovation in improved merchandising skills to add another leg for its growth. The overseas expansion and growth has taken Tesco onto the virtuous circle of growth. The non-food segment of Tesco is widely accepted and they are as good as they are in food segment. Also the telecoms venture is the latest to add popularity for its development in retail services. Also it has repeated its approach in Banking and Financial services which is an opportunity over others. Also with changing customer behavior and heath concerns, Tesco holds an advantage across all health and beauty ranges by investing in price to deliver to value customers and currently has more than 200 pharmacies and has earned a handsome revenue. With its operations in six countries, it has large volume in all the different segments has gained it seriously positive implications for expansion and growth. Further it has strategic relation with US supermarkets with the Safeway Inc to take the Tesco.com home shopping to US. It has similarly expanded into banking sector and has been able to successfully repeat this approach of capitalization on its brand. Threats:

With the price followers in UK adapting to aggressive investments, Tesco being committed to price leadership is a factor of concern. The others like Safeway, Sainsbury looking at the price changes can adopt to lower prices to drive the recovery which is not in favor of Tesco
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on a competition edge. This price-war can result is reduced industrial profitability for Tesco. With Tesco having huge investments overseas, with each country moves part of the critical mass, resulting in huge returns. But this will not be intact for all with the changing economic conditions, competitor action, or failure of a model. Also it can be due to aggressive move into larger market such as China or Japan. With Wal-mart purchasing Asda, Tesco ranked as top UK retailer has been threatened as Asda can compete better on price and range of goods. But Tesco won the battle by Asda closing down and then challenging the dominance of Tesco directly. Tesco has come up with price mixes and increased its buying power. Further entering into new markets with new models, prices, brand name the debt factor has increased before it could decline. Korea also contributing to Tesco sales, the lower consumer spending behavior in Korea coupled with the unrest factors represents a high risk factor on Tesco to Bank on. (Source: Mintel Report, Datamonitor Reports, Tesco Case Studiesvalue). CRITICAL SUCCESS FACTORS: Tescos core competencies are mainly concentrated in the most critical and central areas of organization. It has generic strategic management policy. The areas of expertise are distinctive difficult to imitate as it has a unique way of approaching the service concept, and providing good corporate reputation while introducing new innovative premium products. It is expanded into various sectors of banking, non-food sector and financial services along with retailing (Drejer, 2000). It has adapted itself to changing customer needs and retained its customers over time which was evident when it launched its loyalty card being the first to do so. Also for long, it was the only grocer that used its customer information to mail them every month (Palmer, 2004). Thus it made a significant contribution for the perceived outcome of customer benefits. TESCO STRATEGIC OPTIONS: Generic Strategies: Tesco being a giant retailer it can opt for any of the below strategies: Cost leadership strategy to sustain in the market by offering products and services at comparatively lower costs which can be balanced by cutting down on the operation costs.

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Product differentiation can be applied by offering wide variety of unique products, advanced technology, special features, customer service approaches while retaining brand loyalty and thus price inelasticity on buyers. Either of the two strategies can be applied in a specific market or for specific products by narrowing down the focus on the market, area, location, market specific products, smaller line of products to broader market. This is pursuing niche strategy (Porter, 1980). This will help in efficient internal interactions with regulatory norms of government and supplier sector of environment, thus reducing the external pressure. As Tesco does not has a well defined business strategy or market segment implication of all the three strategies together will yield no positive results. STRATEGIC IMPLEMENTATION: Strategic frameworks are a key to assessing business situation. With reference to the generic strategies discussed, Tesco is likely to follow two main strategies. These include: Market Development Strategy: Joint developments and strategic alliances are the focus to create a market development strategy. With Tesco expanding its business across Asia, countries like Japan and China with high consumer spending power would provide demographically high opportunities in the retail market. It is a key driver for revenue growth and expansion strategy. International alliances with the local markets, shows the ability to exploit and utilize the available resources. Joint ventures and partnerships help to gain larger economy of scale, by drawing the extensive local knowledge to expand own supply chain and product development skills. The success of this is dependent on the sustainability, acceptability and feasibility of the product in the huge scale, complex markets. These depend on the rationale of market development, expected returns with the level of risk involved, and the availability of resources and competencies to implement the strategy. Product Development: With respect to Ansoffs matrix, new product development in existing market is crucial to internal development policies. These are more in demand and are operated at management level. The extent of diversification and should be rationale to the portfolio diversification and changing customer needs ( Johnson & Scholes, 2003). Innovation and technology are major competitive advantages, which Tesco has implemented in the UK market with different format in store for better
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shopping experience. Tesco expanding into hypermarkets is a value adds, that leads to command on premium price. The ability to create a platform for achieving competitive advantage depends on managing the strategy, requisite capabilities, to organize and create a business platform at a competitive edge. Tesco has been working on these lines by minimizing their internal weakness and developing their strengths to gain a competitive advantage over other retail chains. Explicit plans for action that would include effective planning should be developed by Tesco as a strategic alternative.

BCG MATRIX:

Tesco is classified under cash cow as it distributes quality and extra services combined with innovation to its customers. It can also be considered under the star matrix as it has increasingly created awareness among its customers about online shopping and retailing as well as expanded business across various non-food sectors with high growth and profit potential.

ANSOFFS MATRIX:
The product development and diversification strategies of Tesco defining its core competencies can be supported by using the Ansoffs Matrix which gives it various permutation & combinations of market entry and product development, diversification.

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These include: Market Penetration: Tesco can concentrate on existing products in the existing market with better quality, innovation or price wars. Market Development: It can be more market segment specific and introduce the existing products into new markets across various locations depending on the purchasing power of the buyers. Product Development: It can be product specific and development new products into existing market according to the changing customer needs and demand. Diversification: Tesco can implement broader expansion strategies by introducing new products into new markets thus balancing both consumer demand and the buying power while not compromising on the latest technology and changing needs of consumers. Existing Products Existing Market New Market Market Penetration Market Development New Products Product Development Diversification

CONCLUSION:
The branding and excellent customer service has put it on the billboard witnessing its success. It has fostered its identity across the retail industry by various channels like cultural sponsorship, brand extensions, consumer demand and experiences and political controversies. With rapidly changing environment, Tesco has developed and implemented business strategies of Product development, diversification, quality service, innovation which is evident from the Ansoff;s and BCG matrix analysis. The quality and speed of this service implementation proves its cognitive and behavioral learning processes. Tescos strategy at business level defines its ability in the retail market chain to utilize the resources for converting it distinctive competencies to competitive advantage.

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REFERENCES:
Tesco Strategic Management:, Retrieved from Ivory Research Ltd. Copyright 2005-2009. How Competitive Forces Shape Strategy, The McKinsey Quartely, Spring 1980 by Porter M. (1980). NGFL Wales Business Studies Resources September (2008), Issue 2. Employee Relations, Vol. 16 Issue 7 by Balchin A. (1994). The Dynamics of UK Grocery Retailing at the Local Scale, International Journal of Retail & Distribution Management, Vol. 22 Issue 6 by Clarke I., Bennison D. and Guy C. (1994) Datamonitor Report (2003) Food retail industry profile: United Kingdom, January. Datamonitor Report (2003) SWOT Analysis Tesco PLC, July. Datamonitor Report (2003) Company Profile: Tesco PLC Analysis, October; Strategic planning and firms' competencies: Vol. 23 by De Toni A. and Tonchia S. (2003) A comparative analysis in the UK and Spain, Journal of Retailing & Consumer Services, Vol. 9 by Flavin C., (2002). Exploring Corporate Strategy, 6th ed., Prentice Hill: London by Johnson G. and Scholes K. (2003). Mintel Report (2004) Food Retailing UK, Retail Intelligence, November. www.ivythesis.tyepad.com/strategic-marketing.

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