Académique Documents
Professionnel Documents
Culture Documents
http://www.casestudywriting.com/
TESCOANDTHESUPERMARKETINDUSTRYINTHEUK
ByName
Course
Professor
University
City/State
Date
http://www.casestudywriting.com/
TescoPLC2
http://www.casestudywriting.com/
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)
http://www.casestudywriting.com/
TescoPLC3
http://www.casestudywriting.com/
AccordingtoKantarwordpanel,thedeclineinsalesreducedthemarketshareof
TescoCompanyfrom30.1percentwhereithadbeenayearagoto28.8percent.HSBC
analystsreportedthatitwouldcost$3billionintheUKtoturnaroundTesco.The
strategiestobeusedwouldinvolveloweringofthepricesbyabout56percentto
competefavorablywiththelocalkeycompetitors,AldiandLidl.Thenumberofthestaff
wouldneedtobeincreasedby2025percentinthestores.Fivehundredmilliondollars
wouldalsoneedtobeusedinelevatingthequalityofthefoodtoattractbackthelost
customers.
StrategicPurpose
http://www.casestudywriting.com/
TescoPLC4
http://www.casestudywriting.com/
TescoCompanypridesitselfinprovidingfoodstuffsandgroceriestoits
customersintheregionswhereitoperates.Inthemanyyearsthatithasbeenin
http://www.casestudywriting.com/
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.
http://www.casestudywriting.com/
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
http://www.casestudywriting.com/
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.
http://www.casestudywriting.com/
TescoPLC8
http://www.casestudywriting.com/
Fig.Graphicalpresentationofthefiveportersindustrialanalysismodel
Thecompanyinanalyzingitsindustrialperformancetheportersfiveforcesmodelis
vitaltobeused.Themodelcallsforpurecompetitionwhichimpliesthatriskadjustmentratesof
thereturnstobeconstantbetweenfirmsandindustriesandtherelevantfirms.Fromtheanalysis
itisclearthattheindustriesareabletosustaindifferentlevelsoftheirprofitability.Michael
porterintroducedthisindustrialanalysismodelinordertoexplainthescenarioofprofitability
levelsintheindustriesliketheTesco.Inorderforthemanagertodevelopanefficientbusiness
strategyforthecompanyhe/shehastofocusonstayingontheedgeoverallthecompetitors.To
befullyconversantwiththeindustrysinternalandexternalenvironmentinwhichtheyoperate
themanagerofthecompanywilladopttheportersindustrialanalysismodel.
InorderfortheTescoCompanytocompetesuccessfullywithitscompetitorsthefollowingmain
areasoftheindustrialmodelarerelevanttoitsoperations.
http://www.casestudywriting.com/
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
revenue
salesper profitabilit
profit
per
square
employe
foot
y%
http://www.casestudywriting.com/
UKmarketshare
TescoPLC10
http://www.casestudywriting.com/
2008
51773
2803
0.17984
0.00132
5.4
25.3
4.9
25.8
5.1
26.6
5.4
30.5
5.3
29.9
7
2009
59426
2917 0.193436
0.00132
2
2010
62537
3176
0.19612
0.00131
6
2011
67074
3641 0.199621
0.00130
2
2012
72035
3835 0.207907
0.00129
8
Tableshowingtheperformanceofthecompanyinfiveconsecutiveyears
http://www.casestudywriting.com/
TescoPLC11
http://www.casestudywriting.com/
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
http://www.casestudywriting.com/
TescoPLC12
http://www.casestudywriting.com/
absorbed.Theproductssuppliedwillalwaysgaincompetitivepricesifcustomertrustandthe
companysreliabilityareretained.Thesalesaremaintainedatacommendablelevelasshown
Graphshowingthevolumeofsalesvolumeduetoeffectofsubstitutes
Buyerpower
Thepowerofbuyerisdefinedasthetotalimpacttheprospectivecustomershaveona
manufacturingorproducingindustry.SincemostofTescoproductsarefoodstuffsthebuyer
powerislowsotheyareabletofixtheprices.Thecompanyspriceisnotdictatedbythe
customerssothebuyerpowerisrelativelylow.
Supplierpower
http://www.casestudywriting.com/
TescoPLC13
http://www.casestudywriting.com/
Tescocompanymanagerialbodyiskeenonestablishingthebestcompetitive
supplierenvironmentinordertomaintainitspricessteady.Themarketanalysisofwhotosupply
rawmaterialsiscrucialincreatingaviablerelationshipbetweenthecompanyandtheraw
materialsuppliers.Thepowerofthesupplierdeterminesthelevelofprofitthecompanymakesat
theendofproduction.TescoCompanyhasrecordedsteadyprofitasindicatedinthegraph
below.
Graphofprofitinconsecutiveyears.
Threatofnewentrantsandentrybarriers
http://www.casestudywriting.com/
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
http://www.casestudywriting.com/
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.
http://www.casestudywriting.com/
TescoPLC16
http://www.casestudywriting.com/
Graphshowingprofitandthetaxationphenomenonin2008upto2012.
InApril2012,TescoCompanypulledinaonebillionpoundschemetoredeem
itsoperationsintheUnitedKingdom.Theplanincludedupgradingofthestores,
recruitmentofmorestaffcoupledwithbettervalueandprices.Theimprovementsought
toimprovethequalityanddiversityofthecompany`sproducts.Thecompanyalsoaimed
tochangeitsapproachtomarketingandembarkonbrandmarketingtoreclaimits
positionasthedominantretailerintheUnitedKingdom.Marketingstrategieswere
changed,andanonlinesellingplatformwascreated.Groceryclickanddeliveryservice
wasintroducedtoover260locations.Themovecamefromtheclaimthathadputthatthe
companys2,800storeswerecoldandindustriouswithinadequateservices.InApril
http://www.casestudywriting.com/
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
http://www.casestudywriting.com/
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.
http://www.casestudywriting.com/
TescoPLC19
http://www.casestudywriting.com/
Fig.Graphofrevenueperemployee.
Therevenueperemployeeisshowninthegraphaboveinrespecttotheirnumber
in2008to2012
Thestrategiestobeusedwouldinvolveloweringofthepricesbyabout56
percenttocompetefavorablywiththelocalprincipalcompetitors,Aldi,andLidl.A
numberofthestaffwouldneedtobeincreasedby2025percentinthestores.Five
hundredmilliondollarswouldalsoneedtobeusedinelevatingthequalityofthefoodto
attractbackthelostcustomers.
http://www.casestudywriting.com/
TescoPLC20
http://www.casestudywriting.com/
Tableshowingtheperformanceofthecompanyforfiveconsecutiveyears
sales
pre-tax
profit
revenue
per
employe
e
2008
51773
2803
0.17984
2009
59426
2917
2010
62537
3176
0.19343
6
0.19612
2011
67074
3641
2012
72035
3835
0.19962
1
0.20790
7
sales
per
square
foot
0.00132
7
0.00132
2
0.00131
6
0.00130
2
0.00129
8
profitabilit
y%
UK market share
5.4
25.3
4.9
25.8
5.1
26.6
5.4
30.5
5.3
29.9
http://www.casestudywriting.com/
TescoPLC21
http://www.casestudywriting.com/
ReferenceList
Barry,S.2014,
Tescotimeline:HowtheoncemightychampionoftheUKsupermarketsectorhas
seenitscrownslip
Availablefrom:
<
http://www.walesonline.co.uk/business/tescotimelinehowoncemighty798408
>.[24
August2014].
Graham,R.2014,
FivepredictionsforBritain'sbatteredsupermarketindustryin2015.
Available
from:
http://www.telegraph.co.uk/finance/newsbysector/retailandconsume
.[05February2014].
Elisa,A.2014,
s
trategicManagementAnalysis:Tescoandthesupermarketindustryinthe
UK.
Availablefrom:
<
http://www.scoop.it/t/strategicmanagementbyelisaalt
>.[16March2014].
http://www.casestudywriting.com/
TescoPLC22
http://www.casestudywriting.com/
Zoe,W.2014,
OneinfiveUKsupermarketsmustclosetorestoreprofitgrowth,say
analysts
Availablefrom:
<
http://www.theguardian.com/business/2014/nov/17/tescouksupermarketsclosureindust
>.[22
February2014].
http://www.casestudywriting.com/