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Tesco Plc. Business Report Essay

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Tesco Plc. Business Report

Introduction

According to Neville (2014), Tesco Plc’ shares have fallen to an 11 year low. The struggling chain of supermarkets has also seen its profits falling to 112 million pounds which represents a 92% decline. The multinational’s new CEO Dave Lewis is tasked with reversing this trend which has led to reduced investor confidence in the organization.

Metzger (2014, 4) considers today’s modern grocery business operating environment as quite multifarious citing dynamic consumer preferences, supply chain challenges and external economic factors. Rapid technological advances and changes have also resulted in diverse product changes, new operating processes and application of finished products. This trend is expected to continue into the foreseeable future. This implies that organizations such as Tesco Plc have to be constantly and accurately in touch with prevailing and forecasted market dynamics so as to maintain a competitive advantage necessary for survival in dynamic operating environment. This paper seeks to employ the PESTEL framework to inform a SWOT analysis on Tesco Plc towards formulating proper recommendations which will guide the organization’s future strategy.

Overview

Tesco Plc runs the largest retailing enterprise in the United Kingdom as well as in a number of other countries. These countries include the Czech Republic, Poland, Hungary, Turkey, Slovakia, the Republic of Ireland, China, Japan, Malaysia, India and South Korea. This organization is ranked highly among international food retailers as it runs more than 6780 retail stores and employs more than half a million people from all parts of the globe (Tesco, 2014).

Tesco Plc has divided its operations into five distinct formats. These include the hypermarkets, superstores midsized urban supermarkets neighborhood convenience retail outlets and non-food superstores. These operate under different brands which are Tesco Extra, Tesco Superstores, Tesco Metro, Tesco express and Homeplus respectively. Tesco Plc also runs an online shopping division and other subsidiary divisions which include Dobbies and One Stop. Dobbies deals with plant centers while One Stop are essentially a chain of small sized convenience retail stores aimed at offering a competitive edge over Spar and Costcutter, a major competitor in the UK retail market (Tesco, 2014). These formats are aimed at maximizing the customer experience, Tesco Plc’s market presence, as well as profitability.

Tesco Plc’s traditional business model was aimed at retailing food products Tesco plc (2014. The organization has since ventured into the non food markets and most recently ventured into offering Tesco branded tablets as well as other electronic hardware, mobile telephony services, financial and insurance services. These have served to compliment the company’s core business which has seen it develop into a multifaceted international retailing giant.

Tesco Plc’s Operating Environment

As much as Tesco is the dominant grocer within the UK, it has been facing growing competition from other market players and diminishing profit margins have put a toll on its expansion plans. Discount supermarkets like Aldi and Lidi as well as a new CEO have also served to present the organization with significant operational challenges (Metzger 2014, 7). The external factors that Tesco Plc must consistently monitor include competitors, distributors, suppliers, customers, creditors, communities, employees, stakeholders and managers. These factors are pivotal towards the analyzing the organization’s business with regard to the opportunities, strengths, weaknesses and threats currently being faced.

Tesco Plc PESTEL Analysis

A PESTEL analysis provides the framework with which the critical elements taking place in a given market environment can be examined (Sarbah and Otu-Nyarko 2014). PESTEL analysis enables different business strategies to be adequately formulated relative to political, economic, social, technological, environmental and legal attributes.

Political Factors

Tesco Plc has a worldwide reach and as such, its performance is generally affected by international political factors. These factors range from new legislation to political stability in the countries in which it does business. Currently, the world is experiencing a time of financial stability (Sarbah and Otu-Nyarko 2014). Governments are therefore taking this opportunity to encourage investors such as Tesco Plc to create new employment opportunities for indigenous populations. This is quite significant for both these countries as well as Tesco Plc. This is essentially because people with steady jobs possess greater disposable incomes and this tends to further create more employment opportunities by using these disposable incomes to purchase desired goods and services.

Through creating new employment opportunities in the global arena, the organization not only creates new demand for its goods and services but also enables the labor force in the countries in which it operates migrate from low paying hourly jobs to highly skilled well paying jobs. The present international political environment allows for the retail giant to diversify its workforce to reflect the global population and more so, critical demographic groups such as the disabled, the students and elder students.

Economic Factors

Changes in the international political environment often translate into concomitant economic changes. Tesco Plc therefore has to be fully responsive to policy changes such as interest rates, corporate tax and other factors which tend to influence the accessibility of financial resources (MARR, 2009). Positive economic policies will benefit Tesco Plc greatly while negative policies can only serve to negatively impact on the businesses’ overall performance.

For instance, Japan’s economy has recently been noted to be in a dire strait. For an international retailer such as Tesco Plc which has operations in the country, an economic downturn will translate to poor performance results its Japan subsidiaries (METZGER 2014, 11). Such factors are generally outside Tesco’s control and as such the company should respond quickly and decisively with regard to its internal business strategies.

Social and Cultural Factors

The current global population is becoming increasingly skewed in favor of the youthful people. The youthful populations prefer a profoundly different lifestyle and work philosophy which has led to dynamic changes in shopping patterns (METZGER 2014, 8). Many of the young people value individual independence and as such tend to portray erratic preferences on the choice of goods and services offered. It is also important to note that there is also a growing number of pensioners the world over and as such Tesco Plc has to include this particular population group in its business strategies.

By initiating a diverse range of projects aimed at conforming to changing consumer preferences and increasing market reach; Tesco Plc has been opening up local stores targeting local communities (MARR, 2009). Online shopping trends have also necessitated the organization to invest considerable capital into its home delivery services. Customers in this modern age seek to conserve energy and save time and these local community stores and home delivery services indicate a proactive approach undertaken by Tesco.

Consumers are now becoming increasingly knowledgeable of health risks associated with particular foods and food products. Consumers are therefore becoming more critical of the nutritional content of food they buy (METZGER 2014, 9). To cater for this development, Tesco Plc has endeavored to match and label nutritional value and content such as organic or inorganic labels as well as country of origin for traceability purposes. This has not only led to consumer confidence in Tesco foods and food products but also raised the degree of brand loyalty exhibited by consumers.

Women and young professionals make up a large percentage of Tesco Plc’s customers. Sociological changes have led to a marked decline in the time these demographic groups have to prepare full homemade meals (Neville 2014). These consumers are now opting for microwave ready products which have been positively embraced by these demographic groups.

Technological Factors

Innovative advances in technology have only served to offer the organization new growth opportunities. The two major innovations that Tesco Plc has embraced include online shopping and self service checkout points (Neville 2014). Online shopping has greatly appraised customer satisfaction among Tesco Plc’s customers. It is easy and convenient and customers have the desired products delivered right at their doorstep.  Self service check-out points on the other hand have not only served to be convenient and easy for Tesco’s customers but have also resulted in lower labor costs. Over the last 14 years, the UK retailer has also sought to progressively realize energy efficiency with an aim to drastically the organization’s carbon footprint in an effort to meet set long-term environmental goals (Metzger 2014, 7).

Environmental Factors

Over the past decade, organizations like Tesco Plc have been challenged to appraise corporate social responsibility as a business strategy aimed at giving back to the society (Neville 2014). Tesco Plc has set out clear cut CSR strategies aimed at attaining zero carbon foot-print status by 2050 as well as enabling its customers reduce their own carbon foot-print by half in the next five years.

Retail Industry Analysis  

New Entrants as a threat             

In the UK market, the supermarket sector is considered as one of the most fierce and aggressive such that as much as four major retailers still control a significant portion of the market; new entrants can still shake up this sector. For instance, Lidi and Aldi, a new entrant, has proven that with proper strategies, new entrants can hive off the market share previously held by dominant players (Metzger 2014, 7).

The Power of Suppliers  

The powers wielded by suppliers play a very significant role in negotiating contracts and more so prices (Neville 2014). Presently, the retail giant benefits from favorable economies of scale in negotiations with its suppliers. If this position was to change, the company would have to transfer extra costs to the consumers thus making its products uncompetitive leading to reduced profitability.

The Power of the Consumer and the Risk of Substitution 

For a business such as Tesco’s, customer satisfaction is the most significant ingredient to successful business outcomes (Neville 2014). The consumers has the right to shop anywhere they so desire and thus Tesco Plc is tasked with ensuring it offers customers a great shopping experience so as to realize heightened customer royalty. In an effort to ward off the risk of buyer substitution, Tesco Plc has undertaken to offer incentives to its loyal customer. These incentives include economical car insurance, fuel promotions and the personalized Club card scheme.

Tesco PLC SWOT Analysis   

The purpose of this SWOT analysis it to comprehensively examine strategic correlations between external and internal environments that Tesco Plc operates in.

Strengths

In the UK, the Tesco brand is both well respected and well known. It has been consistently reporting profits in the face of significant challenges prevailing in the external environment. Tesco Plc is also a London FTSE Top 100 accredited employer. Another strength associated with the company is that it has a wide and loyal consumer base realized through robust marketing and promotion policies (Metzger 2014, 9). The two strengths highlighted above paint a rosy picture that Tesco Plc will continue to appeal to members of the UK society.

Tesco Plc has also benefited greatly from Tesco online, a strategy that has strengthened the company’s consumer loyalty and satisfaction attributes. It is important to note that the online division is a high growth area (METZGER 2014, 9). This suggests that Tesco Plc is in touch with changing consumer attitudes and as such has a robust platform through which to develop new revenue channels. Another strength that has enabled Tesco Plc cement its position as the UK market leader is that it has a loyal workforce who persistently work smart towards representing the Tesco brand well (Neville 2014). This is accomplished through a cohesive and skilled front that delights customers consistently.

Weaknesses

2014 has been a difficult year for Tesco Plc as it was forced to issue investors with a profit warning and worse still, its CEO resigned. The company also faces competition from new market entrants such as the retailer, Aldi and Lidi (Neville 2014). As much as the organization boasts a diversified portfolio with subsidiaries in 12 countries, the company is still heavily dependent its large UK market. Europe is also currently faced with significant political challenges and the diversification drive could result in greater shareholder dissatisfaction.

Opportunities

Tesco Plc has subsidiaries in 12 nations outside of the UK. Tesco Plc’s venture with Fresh and Easy group of the US has been unprofitable for some time and as such Telco has reconciled this venture. This will allow for Tesco Plc to concentrate on the lucrative Asian market which presents huge opportunities for greater profitability in the long-term (Pitney Bowes MapInfo 2007). Tesco has entered into the mobile telephony industry, digital entertainment industry as well as the financial services segment. This diversification may present great opportunities for the development of new products aimed at appraising customer loyalty and in the international market.

Threats

The organization also revealed that it had overstated its profits by a quarter billion ponds plunging the company into further problems. This resulted in the suspension of eight board members and the eventual resignation of the chairman (Neville 2014). Other threats stem from the market share lost to the new entrant and the superior position of another competitor, Wal-Mart in its intended venture with UK’s Asda. Profit margins are also expected to stagnate in the long term as well as the short term significantly affecting Tesco financial position further.

Conclusion and recommendations

Tesco PLC has been facing significant challenges as presented by the PESTEL and SWOT analysis conducted. The threats highlighted will have a significant impact on the organization’s business processes. There are also significant threats stemming from the instabilities caused by the political climate ensuing in Russia and Europe. The economic downturn of the Japanese economy will also result in lower profitability in this subsidiary. However, the company has proactively sought to reposition its operations with regard to the employment of new technologies towards appraising consumer confidence, satisfaction and loyalty. Other countries in Asia such as China, North Korea, Malaysia and India have been exhibiting favorable operating environments which Tesco Plc should take advantage of. In formulating its new business strategy, Tesco Plc should seek to polish its tarnished reputation in the UK and more so transfer the new and innovative products to the Asian market so as to reap the full benefits of its diversified portfolio.

 

 

Bibliography

MANJUR, R. 2013. Case Study: How Tesco brought loyalty back to its stores. [Online]. Available from: http://www.marketing-interactive.com/case-study-tesco-brought-loyalty-back-stores/. [Accessed: 15th December 2014]

MARR, B. 2009. Management Case Study Delivering Success: How Tesco is Managing, Measuring and Maximizing its Performance. The Advanced Performance Institute. [Online]. Available from: http://www.cpdopportunity.com/resources/delivering%20success%20tesco.pdf [Accessed: 15th December 2014]

METZGER, K. (2014). Business analysis of UK supermarket industry. Master’s dissertation, Loughborough University.

NEVILLE, S. (2014). Tesco shares crash as new chief keeps his strategy under wraps. [Online] 2012. Available from: http://www.independent.co.uk/news/business/news/tesco-shares-crash-as-new-chief-keeps-his-strategy-under-wraps-9815165.html. [Accessed: 15th December 2014]

PITNEY BOWES MAPINFO. 2007. Case Study: Tesco. [Online] http://www.pitneybowes.de/docs/International/CE/software/pdf/case-studies/tesco_case_study.pdf [Accessed: 15th December 2014]

SARBAH, A., & OTU-NYARKO, D. (2014). An Overview of the Design School of Strategic Management (Strategy Formulation as a Process of Conception). Open Journal of Business and Management, 2014.

TESCO PLC. (2014). Annual report 2014. Cheshunt: Tesco plc.c

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