STRATEGIC CAPABILITY OF TESCO PLC IN THE UNITED KINGDOM
Table of Contents
I. Introduction
II. Background of the Company
III. Resource Audit
A. Financial Resources
B. Human Resources
C. Physical Resources
D. Intangible Resources
IV. Value Chain Analysis
A. Primary Activities
B. Support Activities
V. Core Competencies
1. Card Club
2. The Tesco Database and IT
VI. Analysis of the Company
VII. Conclusion
VIII. References
I. Introduction
Studies in business and trade have tackled the conditions surrounding the retail industry. Almost every scholarly article has indicated the retail market as cutthroat and highly competitive. In the case of UK, one company has apparently acquired an accurate formula in neutralising this level of competition in the market, Tesco Plc. This report will be giving an account of the strategic capability of the company in the retail industry. Majority of the data used in this report will come from the annual reports and website of Tesco. Other information will be taken from academic articles and scholarly journals that took account on the case of Tesco.
II. Background of the Company
The organisation under consideration is the brainchild of Jack Cohen in 1919. The retail monolith was said to have started in a humble stall in the East End of London and primarily peddled surplus merchandise to the public. Recent reports have indicated that the company has become one of the most influential organisations in the retail industry, placing companies like Sainsbury’s, Safeway, Asda and Somerfield trying to catch up and gain their individual competitive advantage over the other.
As an organisation, Tesco operates under the principle “to create value for customers to earn their lifetime loyalty.” Closely examining this mission statement, Tesco is apparently taken a great deal of their efforts in caring for their customers. Aside from offering the best products and service in the retail industry, they are apparently pent up in striking a close relationship with their customers. Moreover, the company also realises that to strike a great relationship with their customers, they must similarly take good care of their staff. According to its website, the company offers numerous employment opportunities and development initiatives to their workforce giving all the reason for the employees to perform at the highest level possible. The following discussions will establish the strategic capacity of the company, particularly focusing on its resources, value chain and core competencies.
III. Resource Audit
The following discussions will be pinpointing the resources that Tesco have amassed over the years and could be used whenever their operations require it. More specifically, discussions on the financial, human, physical, and intangible resources will be given.
A. Financial Resources
The following discussions will provide a clear indication as to whether Tesco is able to support any future strategic initiatives. Early reports on the company have indicated that they have broken the billion dollar mark with reference to their profits. (Child 2002, 135) This has been substantiated in the 2005 annual report of the company as it indicated that it has accumulated over two billion pounds worth of profit. (Tesco Plc 2006) Basically, this is a hands-down indication that the company is more than financially capable in funding its strategic endeavours.
Table 1. Tesco’s Profit and Loss Account, 2005
2005 (£m)
2004 (£m)
Sales at net selling prices
37,070
33,557
Turnover including share of joint ventures
34,353
31,050
Less: share of joint ventures’ turnover
(379)
(236)
Group turnover excluding value added tax
33,974
30,814
Normal operating expenses
(31,845)
(28,925)
Employee profit-sharing
(65)
(57)
Integration costs
(53)
(45)
Goodwill amortization
(62)
(52)
Operating profit/(loss)
1,949
1,735
Share of operating profit/(loss) of joint ventures and associates
130
97
Net profit/(loss) on disposal of fixed assets
53
(9)
Profit/(loss) on ordinary activities before interest and taxation
2,132
1,823
Net interest payable
(170)
(223)
Profit on ordinary activities before taxation
1,962
1,600
Underlying profit before net profit/(loss) on disposal of fixed assets, integration costs and goodwill amortisation
2,029
1,708
Source Tesco PLC, 2006
The table above summarises the profit and loss incurred by the company in 2004 and 2005. Looking closely at the data above, one could notice that there were quite a few areas where the losses of the company have risen significantly, like that of the operation expenses of Tesco. However, these losses are rather justifiable as it could be a result of economic activities like inflation and other shifts in the exchange rate. Moreover, the seeing the profits and concurrent effects on the shareholders as well as with the other aspects of the company, it still reinforces the fact that Tesco is not only financially stable but also commanding in this area.
B. Human Resources
In UK, Tesco employs over 270,000 emloyees. (Tesco Plc 2007b) With the training and career opportunities provided by the company, they have achieved an 84.1% of retention which basically shows that the company is taking good care of their employees. The website also indicated that in the past years, they have “appointed 27 Directors, 200 Store Managers and 8,000 Department Managers” all of which are from the pool of employees that they have in their organisation.
C. Physical Resources
The company prides itself with the hundred of establishments that carries its brand name. The claims in their website indicate that Tesco manages five types of store arrangements. These stores are spread around strategic places all over the United Kingdom. For instance, Homeplus is the type of Tesco store that is most recently introduced in UK. It is a standalone store that offers non-food merchandise. The remaining types, Extra, Superstore, Metro, and Express, are among those that has been raking all the profit for Tesco’s UK operations
The Express stores are characterised as those with the smallest space which could pass up as the company’s version of the convenience store. It is said to have 735 stores all over UK to date making it occupy at least 5% of the total land area of the region. On the other hand, the 162 Metro stores are those that are situated in the busy streets of UK. Occupying at least 7.3% of the land area of UK, it is scattered in malls and other city centres. Possibly the most famous stores of Tesco is its chain of Superstores. With four hundred thirty-three stores, it occupies 53.7% of the total space in UK. This means that it covers a very large area housing foodstuff and other non-food merchandise. Lastly, the Tesco Extra stores are deemed as the largest in terms of area with over sixty-thousand square feet per store. In its 147 establishments, it provides the public their food and non-food items at the most reasonable price.
Table 2. Tesco’s Turnover, Number of Stores and Selling Space, 2001-2005
2001
2002
2003
2004
2005
Turnover (£m)
20,800
23,400
26,004
30,814
33,974
Number of stores
907
979
2,291
2,318
2,365
Selling space (000 sq ft)
28,362
32,491
39,944
45,402
51,772
Source: Tesco Plc, 2006
The table above summarises the physical resources of the company. The discussions above have established that the physical assets of the company also double as a means of getting close to its core consumers. With the vast area covered by all the stores, convenience is given to the consumers and at the same time makes it hard for the other players in the retail sector to position themselves well in the UK market.
D. Intangible Resources
Tesco is considered as among the world’s top organisations that manage a loyalty system with their core customers. In accordance with their website, there are more than thirteen million individuals in UK who owns a Tesco club card. This denotes that Tesco have this amount of individuals guaranteed to purchase in their stores in the future. Therefore, it seems that the organisation has established its edge over the Sainsbury’s, Safeway, Asda and Somerfield as seen in their consumer’s loyalty.
IV. Value Chain Analysis
The following discussions will provide an account on how the company acquires competitive advantage over its competitors. (Porter 1985, in Swiercz and Spencer 1992, 35)
A. Primary Activities
In the case of logistics, both inbound and outbound, Tesco is one of the first proponents of “stack ‘em high, sell ‘em cheap” approach to the retail industry. This means that each store would be placing a considerable amount of their inventory in the open shelves as display for easy access for the consumer. Their main suppliers are players from the consumer product industry as well as local producers. For instance, the meat products as well as the greens section are often filled from British farmers and work with the state (Red Tractor standard) to ensure that the products are of high quality.
In terms of operations and service, these activities are often carried out in individual stores of Tesco. The sales of each store tend to equate with the type of service provided by the personnel assigned in the same store. Normally, these employees are also the ones who inform the consumers with the new programmes and marketing initiatives of the company.
B. Support Activities
In the case of support activities, the company makes sure that the resources procured and sold in their stores are acquired from local distributors. This is especially true for the perishable merchandise that they sell. In the case of human resource development, the company follows a programme that allows career growth for their diverse staff. They have training programmes, apprenticeships, and agenda for their “seasoned” personnel. At any rate, the company still follow the basic principle of care for their people, both internal sand external of the organisation.
V. Core Competencies
The following discussions will provide a description of the activities that the competitors of Tesco have a hard time emulating.
1. Card Club
In 1995, Deputy Director of Tesco, Terry Leahy, introduced the card club scheme. (Tesco Clubcard 2007) Initially, the concept was then ignored and was met by apprehension by the other members of the company. Nevertheless, the said design went out to be an enormous achievement for Tesco which fundamentally prompted a new formula for the retail industry as the other stores have attempted to establish their individual loyalty card agendas.
The club card system, in accordance with the Tesco site, is a form of showing gratitude by the organisation to its loyal buyers. Essentially, the card permits the owners points as they pay for merchandise sold in Tesco establishments. Moreover, these points that they build up in these cards will likely offer the customers a way of gathering vouchers or coupons which amount to certain gifts or discounts in the stores. Particularly, for every 250 points, the owner of a card is able to collect a voucher that they could employ to buy other merchandise offered in the stores. The most current series in operation in their card club is the trade of vouchers into Deals. These deals vary from airline miles, journal subscriptions and even free jewellery.
2. The Tesco Database and IT
Following the effects of the club card scheme implementation, one great thing that came out of it is that the company is able to discern the number and identity of their core customers. Pointed out in Tesco.com, those who intend to be cardholder have to file an application which requires their names and other information that goes directly to the Tesco Database. This means that the company has a record of the individual cardholders in UK. The number of times that these cardholders use their cards will also signify the frequency at which they go the store and what items they have purchased.
In connection with the company website, the creation of Tesco.com has also introduced the company to a whole new level of retailing, specifically e-business and online marketing. With the appeal of convenience, the buyers could now do their grocery shopping online and get it delivered on their front doors by the company. Grocery shopping has never been so virtually effortless. In the same manner, the company is also implementing added points to cardholders that purchase their groceries online. Once more, this manifests Tesco’s intention to provide their people with the best possible service they could offer.
VI. Analysis of the Company
Tesco is already a legend at its own right. As manifested in the discussions above, its strategic capacity has constantly been a couple of steps ahead of the other competitors in the industry. Aside from looking at the “local market conditions, for consumer behaviour, competitive environments, management styles, and legal regulations,” the ability of the company to take the needs of the consumers into consideration adds to their overall success. (Gurdjian, Kerschbaumer, Kliger, and Waterous 2000, 68)
Moreover, the discussions above have similarly indicated that the company’s club card system has not only that given great deals for its core customers but ensured that the company will continue to do business in the future. Additionally, this attempt significantly fashioned a chance to maintain loyalty to Tesco’s chain of stores.
All in all, Tesco’s resources are strong as it has dominated the entire retail industry of UK. Its value chain keeps their operations intact without incurring numerous losses and infringement with their social responsibilities. Lastly, their core competency, specifically their consumer-centric model, has been their ticket in being at the top of the retail industry’s major players.
VII. Conclusion
The report highlights that in the retail industry of UK, a standard of service accepted by the public is already established. This standard has is required to all the major players in the said industry and has become so common that the consumers have regarded it as somewhat negligible. The success of Tesco shows that knowing what the consumer needs defines the level of success that one could acquire. In their case, they focused their attention on convenience and customer relationship management. With the combination of these two factors, they have taken the retail industry by storm as loyal customers come flocking their chain of stores.
Essentially, Tesco has been deemed as strategically capable because they have ultimately acquired loyalty from their customers. Their brand has become synonymous with the concept of superstores and groceries in UK. However, these apparent strengths could only be sustained by the company if they keep the customers happy by anticipating their every demand. In this regard, a major weakness is uncovered in this scenario. Eventually, all other players like Sainsbury’s, Safeway, Asda and Somerfield will be implementing their own loyalty scheme which will essentially allow them to once more catch up with the competitive advantage of Tesco. To this end, Tesco must start finding a way, even this early, to keep their advantage over the other players in the market.
VIII. References
Child, P. (2002) “Taking Tesco Global: David Reid, Deputy Chairman of the United Kingdom’s Largest Grocer, Explains the Company’s International Strategy.” The McKinsey Quarterly. p135.
Gurdijian, P., Kerschbaumer, G., Kliger, M., and Waterous, P. (2000) “Bagging Europe’s Groceries.” The McKinsey Quarterly. pp68.
Tesco PLC (2006) Tesco Annual Review, 2005. Available at: http://www.tescocorporate.com/images/Tesco_review_1.pdf [23 January 2008]
Tesco Plc (2007a) Economy. Available at: http://www.tescocorporate.com/economy.htm [23 January 2008]
Tesco Plc (2007b) Society: Career and Training. Available at:http://www.tescocorporate.com/page.aspx?pointerid=791634D5066E4B9C9BE29A45587D82FE [23 January 2008]
Credit:ivythesis.typepad.com
0 comments:
Post a Comment