Tesco’s Strategy in Global Retail

Introduction

The concept of strategic management refers to a technique of integrating each function and activity of the firm into a coherent whole. This process plays a crucial role for organizations to appropriately operate the fundamental management practices including planning, organizing, leading and controlling functions of the firm and lead it to achieve its long-term vision and objectives (Hitt, et al., 2008). In addition, the strategic management process plays a pivotal role for a firm to sustain its competitive position among other competitors in the form of tailoring tactics in designing, manufacturing and distributing goods and/or services to the potential buyers. When we talk about the current retail business sector, a cutthroat competition can be recognized where firms strive to change their strategic directions to responding to the changing competitive phenomenon in the sector. Additionally, changing the nature of the macro-environmental factors also drive organizations to put a major shift of changes in their strategic management functions (Alexander & Doherty, 2009).

The report critically aims to conduct a strategic management analysis on the current business performance of Tesco Plc., a renowned as one of the leading multinationals in the global grocery and merchandise retailing business sector. In this context, the discussion made in this report considers a critical evaluation of the external environment of Tesco by examining drivers that lead the global retail industry to achieve growth. Additionally, the report also carries out competitor analysis and mapping in order to determine the key drivers of competition in the global retail industry and to understand that how Tesco utilize the drivers into their opportunities to sustain in future. Hence, the report also identifies current and future internal strategic resources and capabilities of Tesco that lead the organization to achieve a competitive advantage in the global retail industry. And finally, the report provides a set of strategic recommendations to the company with reference to the influence of key environmental drivers in the global retail sector along with the underlying vision and goals of Tesco.

Brief Background of the Chosen Organisation

Founded in the year 1919, Tesco Plc. (Tesco) is one of the largest retailers in the global grocery and merchandise retailing sector. The UK-based retail giant operates across 13 global nations with more than 6,800 retail stores along with a strong network in the global online retail business industry (Tesco Plc, 2018). Tesco employs more than 480,000 employees for its wide range of diversified business processes that are located across the UK, America, Asia Pacific, Europe and the Gulf regions. In the context of the current financial performance, Tesco has been striving remarkable growth in the fiscal year 2017/18 (Tesco Plc, 2018). According to the recently published annual report of the company, it has been identified that Tesco has generated revenue of £57,491 million excluding VAT and is identified growth of 1.3% in comparison to the revenue gathered by the company in the financial year 2016/17. The revenue generated in the 2016/17 was £55,917 million (Tesco Plc, 2018). The cash generated from its diversified retail operations was recorded £2.8 billion in the year 2017/18 and is higher than the previous year, i.e. £2.3 billion (Tesco Plc, 2018). In relation to the segmental result in the global retail industry, the operating profit of Tesco has identified a record high. The operating profit during the financial year 2017/18 was £1,199 million which was higher than its previous year margin, i.e. £519 million (Tesco Plc, 2018).

The significant growth in its financial position was primarily escalated due to the unparalleled strategic drivers and performance of Tesco. The strategic drivers of the company were designed and executed with the purpose of creating long-term value for all groups of stakeholders. The core strategic drivers that facilitated Tesco to attain large volume of growth in the financial year 2017/18 include, brand differentiation, reduction of operating costs, generation of cash from operations, maximisation of the mix to achieve high margin, maximisation of value from its property, and its continuous innovation (Tesco Plc, 2018). In addition, the unprecedented shifts on changing strategic directions in accordance with the existing competition in the retail industry are also a key tactic of Tesco to achieve its long-term sustainable position globally.

PESTEL Analysis

PESTEL signifies the current political, economic, social, technological, environmental and legal factors that have a strong influence on business to operate or to achieve sustainability in any specific market or industry.

Political Factors

According to the current strategic approach of Tesco, the retailer currently operates across 13 countries across UK, Europe, America, Asia Pacific, and Gulf regions. Therefore, Tesco is exposed to numbers of political factors that can affect its operations.

Economic Factors

In relation to the strategic direction implemented by Tesco, the company’s process of diversification of its brands in different markets plays an important role for Tesco.

Social Factors

Tesco’s strategy of offering customer loyalty card as well as the continuous promotion of its leading brand and innovation have been playing a crucial role for the company not only to retain its existing customers but also to attract a large group of potential buyers globally (Tesco Plc, 2018).

Technological Factors

Technological advancement has been recognized to deliver major opportunities to Tesco to strengthen its sustainable position. Despite its online retail operations, the technological advancement in its retail operations has also been recognized to improve its customer service facilities along with its range of marketing and promotional campaigns (Tesco Plc, 2017).

Environmental Factors

Tesco’s long-term focus on using renewable energy sources is one of the most effective strategies for Tesco to retain its sustainable position. The company uses biodegradable materials in packaging which minimizes wastes on the natural environment (Tesco Plc, 2017).

Legal Factors

Tesco has been simultaneously focusing on streamlining its functional policies and regulations in accordance with its past experiences of lawsuits associated with age and gender discrimination (Tesco Plc, 2018).

Porter’s Five Forces Analysis

Bargaining Power of Buyers

The power of buyer in modern retail business industry is significantly moderate due to the increasing number of retail chains from different overseas markets namely, Marks & Spencer, Walmart and Waitrose among others. However, Tesco is competent to accumulate large group of buyers due to its strategy of cutting price of goods along with its streamlined customer service and in-store operations (Kollewe, 2016).

Bargaining Power of Suppliers

Power of suppliers in retail industry is significantly low due to their increasing number in both local and international contexts. In relation to Tesco’s retail strategy, the company has plethora of its domestic and international suppliers for its grocery and merchandise products. The company has more than 800 dairy farmers that help the company to offer dairy products with a relatively lower price.

Competitive Rivalry

In retail industry, the intensity of competition is relatively high due to the existence of other retail chains and the local markets as well. The strategy of offering low-priced goods along with customer loyalty programs and competitive promotional tactics help Tesco to avert negative impacts from the existing competition in the industry (Monaghan, 2016).

Threats of New Entrants

Threats of new entrants are moderate as it depends on the size of the market along with the power of other suppliers and retailers. However, for Tesco, the emergence of new entrants imposes minimum or less impact on its business as the retail giant has extensive power of capturing large segment of global grocery and merchandise retail industry.

Threats of Substitutes

The substitute performance in modern retail industry has risen due to the higher accumulation of market by the local vendors and other retail chains. For instance, in the year 2015, the accumulation of at least 10% of the grocery market by Lidl and Aldi has imposed major threats on Tesco (Ho, 2016).

VRIO Analysis

Tesco’s Balance Scorecard

The actual operation of balance scorecard is well understood with the help of the global retailer Tesco. This company is renowned for its state of art Business Intelligence(BI) system. The balance scorecards of Tesco are being published each year on tescoplc.com which have become the part of the business Intelligence system. It is also known to be the most important business performance tools which is named as steering wheel by Tesco Company.

The balance scorecard of Tesco possesses five perspectives which include community, operations, people, Finance and customers. However, it is analysed that the balance scorecard on Tesco websites doesn’t demonstrate the strategic objectives if the company. But, the balance scorecard is termed as the important innovation as it is publically available and thus is helpful employees of company, partners and also clients. It is known to be the one of the best strategy for performance management. This steering wheel is an accepted management and strategic planning tool. All of the complexities of Tesco is being managed with the help of the balanced scorecards (Tesco Plc, 2018). Tesco have always kept its performance framework fresh by regularly updating the entire perspectives and not the individuals.

Strategy Formulation

The resource-based view is the framework which is used so as to identify the core business strengths whereas the strategic capability could be defined as the competencies and resources of an organization which is required so as to survive and flourish (Pestle Analysis, 2014). The actual notion and ideas of the resource-based view help an organization to make an understanding of the competitive advantages reviewing from the perspective of the organization. As per stated by Makes (2014) that resource-based view permits an organization to make a highlight of the key strategic capability by making the usage of these as one of the ways of the competitive advantages. The below figure shows the major aspects of the strategic capabilities.

The above figure shows the key aspects which are linked so as to develop the competitive advantages by the usage of the core competencies. Tesco makes the usage of these as a competitive advantage. Table 1 helps in indicating the aspects which are related to the Tesco’s core competencies.

About the capabilities, Tesco Plc gives its major focus on the dynamic and strategic capabilities. The dynamic capabilities possess the area such as organizational processes and procedures, production factors as well as core competencies. The production factors are those resources which are termed as undifferentiated which imply that the resources are specific to the company (Pestle Analysis, 2014). When there are firm-specific resources then Tesco possesses a competitive advantage over different other competitors prevailing in the same industry. In the same manner, the process of corporation helps in gaining competitive advantages. The time when the company assembles as well as organize its assets in a systematic manner then the assets start producing the difference pattern which acts as a competitive advantage of the company.

Strategic Implementation

Tesco’s business strategy is explained as the cost leadership whose aim is ‘Every Little Helps’ which directs the business strategy for a considerable period of time. The economies of scale are one of the major competitive advantages which are being exploited extensively by this company because of its larger operational scale. There is a larger number of competitors of Tesco such as ASDA, Sainsbury and Morison who try to follow the business strategy of the company and execute its business. It is thus, important for the company to continue developing the multi-format as well as a multi-channel method to retailing (Zhao, 2014). This strategy can be possible by combining online presence, catalogues, and physical stores. Tesco has the ability to make the best use of its sales by making exploitation of the scale and reach.

Foreign business’s diversification is one of the solid strategies so as to follow as it assists in providing greater stability degree. It is also recommended to the company that they should continue to listen to its customers and maintain its ability so as to remain attuned as well as significant to their needs (Makos, 2014). Since Tesco is stick towards its porter’s generic strategy of stuck in the middle so it is not able to provide all the facilities to all the customers? So, it is recommended that Tesco should make an appropriate position so as to provide all things to all of its customers. Moreover, Tesco should give its higher emphasis on the online operation by concentrating more on the usage of the store biased operating model rather than a warehouse based model which is highly expensive and time-consuming.

Tesco should also take the advantage to the economies of scale as it helps in producing the products in bulk which in turn cuts down the prices of the products and sell in the cheaper rates. It will help the company to provide a competitive pricing strategy and will enhance its profitability (Tesco, 2008). Although, Tesco Company possess a larger number of its customers still it should make the usage of the innovative and appropriate retail strategy which can help the company to acknowledge the needs of the customers beforehand. It should also develop and redevelop the sourcing as well as distribution sectors as it can help in improving the availability as well as reduction of the supply costs.

Tesco is also recommended to enhance their products quality as customers expect higher from their retailers. it can improvise the lifestyle and living standards of the customers. Quality conscious customers can get attracted to the company’s products when there is an enhancement of the products quality (Tesco, 2008). Tesco could also make the usage of various techniques to innovate its quality so that customers could achieve a better choice of products. In addition to that, it is being reviewed that in the present context, the global economy is in a recession which means that people are spending lesser and is changing their behaviour towards shopping (Makos, 2014). Thus, it is recommended to the company to assure their customers to provide a better shopping experience so that they don’t go anywhere for shopping. Moreover, the company can also plan and prepare the long term so as to expand and invest in the developed country like the UK and also internationally which could ultimately make the creation of up to 30,000 jobs (Research Papers, 2007). These steps could help the company to create a better brand image and also attract a larger amount of customers towards them. Tesco could also focus on availability, services, and selection on price and should undertake some of the significant programmes so as to restructure and make financial discipline. It is also recommended to the Tesco Company to launch a programmer of renewal so as to restore the trust in each and every brand’s aspects. The company should also provide the benefit pension schemes for all the employees so as to keep the employees satisfied and well-managed.

Conclusion

Strategic management analysis helps in understanding and acknowledging the current marketing strategy of the organization, its position, and effectiveness in making the use of its capabilities so as to maximize its values so as to achieve the industry’s competitive advantages. Tesco is one of the multinational retailers whose headquarters is in the UK. The company possess 28.6% of the market shares in the UK industry and have maintained the position of the brand by making the adoption of the latest strategy so as to attract a higher amount of the customers. The company had acquired a higher level of customer satisfaction by making the implication of the effective strategy so as to develop competitive advantages. Tesco is known to be one of the Big four retailers of UK including ASDA, Morrison’s and Sainsbury’s. Tesco possesses a variety of products which consists of clothes, electronic goods, glossary, etc. and is also giving its services in banking and monetary sectors. Tesco gives better quality and trustworthy products at fair prices and ensures value for money. This is one of the well-used strategies which help the company to maintain better image and reputation of the brand. The online trading facility, higher quality services and customer’s loyalty cards for customers have generated higher loyalty among the customers. The strategy is based on longer terms of the business and help in providing the right direction and scope to the organization. Tesco’s PESTLE analysis have reviewed that company offers greater values to its customers, grows the shares of the market and will bring newer innovation in its products. Thus, it can be stated that since the mission statement of the company is to retain the loyal people so Tesco keeps on making the usage of the strategic management concepts, tools and frameworks to analyses the environment strategically.

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References

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Kollewe, J. (2016). Tesco price row: Unilever CFO defends cost hike against Brexit backdrop. [Online] Available at: Tesco price row: Unilever CFO defends cost hike against Brexit backdrop [Accessed February 27, 2019].

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Zhao, S., 2014. Analyzing and evaluating critically Tesco’s current operations management. Journal of Management and Sustainability, Vol. No. 4, No. 4, pp. 184-187.