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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

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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

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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

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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

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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

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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%

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UKmarketshare

TescoPLC10

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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

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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

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absorbed.Theproductssuppliedwillalwaysgaincompetitivepricesifcustomertrustandthe
companysreliabilityareretained.Thesalesaremaintainedatacommendablelevelasshown

Graphshowingthevolumeofsalesvolumeduetoeffectofsubstitutes

Buyerpower
Thepowerofbuyerisdefinedasthetotalimpacttheprospectivecustomershaveona
manufacturingorproducingindustry.SincemostofTescoproductsarefoodstuffsthebuyer
powerislowsotheyareabletofixtheprices.Thecompanyspriceisnotdictatedbythe
customerssothebuyerpowerisrelativelylow.
Supplierpower

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TescoPLC13

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Tescocompanymanagerialbodyiskeenonestablishingthebestcompetitive
supplierenvironmentinordertomaintainitspricessteady.Themarketanalysisofwhotosupply
rawmaterialsiscrucialincreatingaviablerelationshipbetweenthecompanyandtheraw
materialsuppliers.Thepowerofthesupplierdeterminesthelevelofprofitthecompanymakesat
theendofproduction.TescoCompanyhasrecordedsteadyprofitasindicatedinthegraph
below.

Graphofprofitinconsecutiveyears.

Threatofnewentrantsandentrybarriers

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TescoPLC14

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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

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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

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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

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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
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

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TescoPLC21

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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].

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TescoPLC22

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Zoe,W.2014,
OneinfiveUKsupermarketsmustclosetorestoreprofitgrowth,say
analysts
Availablefrom:
<
http://www.theguardian.com/business/2014/nov/17/tescouksupermarketsclosureindust
>.[22
February2014].

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