TESCO PLC

INTRODUCTION
Tesco PLC holds the leading position among food retailers in Great Britain, with a
market share that exceeds 15 percent. In England, Scotland, and Wales, the company runs 588
supermarkets, 257 of which are superstores--stores that sell food items in addition to a variety of
other products, including gasoline, clothing, housewares, and alcoholic beverages. Tesco also
operates 32 stores in Northern Ireland and 77 in the Republic of Ireland under various brands, 43
in Hungary under the Global and Tesco names, 31 in Poland under the Savia name, and 13 in the
Czech Republic and Slovakia under the Tesco brand. In Northern Ireland, the company also runs
52 Wine Barrel off-license outlets. Tesco is the largest independent gasoline retailer in Britain;
its 288 gas stations sell 12.5 percent of the gasoline sold in the United Kingdom. Recent
company innovations include the Club card loyalty card as well as offerings from Tesco Personal
Finance, which include a grocery budgeting account called Club card Plus, a Tesco Visa Card,
and a Tesco savings account.
Jack Cohen founded Tesco in 1919 when he began to sell surplus groceries from a stall at
Well Street Market, Hackney, in the East End of London (ironically, the market is now much
smaller than in those days; a large Tesco Metro store now sits on the site.) The Tesco brand first
appeared in 1924. The name came about after Jack Cohen bought a shipment of tea from T.E.
Stock well. He made new labels using the first three letters of the supplier's name (TES), and the
first two letters of his surname (CO), forming the word TESCO. The first Tesco store was
opened in 1929 in Burnt Oak, Edgware, and Middlesex. Tesco was floated on the London Stock
Exchange in 1947 as Tesco Stores (Holdings) Limited. The first self-service store opened in St
Albans in 1956 (which remained operational until 2010, with a period as a Tesco Metro), and the
first supermarket in Maldon in 1956.
During the 1950s and the 1960s Tesco grew organically, and also through acquisitions,
until it owned more than 800 stores. The company purchased 70 Williamsons stores (1957),
200 Harrow Stores outlets (1959), 212 Irwin’s stores (1960, beating Express Dairies Premier
Supermarkets to the deal), 97 Charles Phillips stores (1964) and the Victor Value chain (1968)
(sold to Bejam in 1986).
Originally specializing in food and drink, it has diversified into areas such as clothing,
electronics, financial services, telecoms, home, health, car, dental and pet insurance, retailing and
renting DVDs, CDs, music downloads, Internet services and software.

COMPANY VALUES
Mission Statement is to “create value for customers to earn their lifetime loyalty.”
Our success depends on people: the people who shop with us and the people who work
with us. If our customers like what we offer, they are more likely to come back and shop with us
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again. If the Tesco team find what we do rewarding, they are more likely to go that extra mile to
help our customers.
This is expressed as our values:

 No-one tries harder for customers:

 Understand customers.
 Be first to meet their needs.
 Act responsibly for our communities.
 Treat people as we like to be treated:
 Work as a team.
 Trust and respect each other.
 Listen, support and say thank you.
 Share knowledge and experience.

CORPORATE, FUNCTIONAL AND GLOBAL STRATERGY 

            Tesco has a long term business strategy in order to increase profits, the company has
three different dimensions in their strategies, and these are: corporate, functional and global or
international. Tesco has 16 stores across the Malaysia 80% of their group sales and profits come
from the business.  According to Tesco.com, the key to their successful strategy is that they
deliver first-class value, choice and convenience throughout their customer offer. To create value
for customers to earn their lifetime loyalty is the TESCO core purpose.

Because of this belief, sales have grown by 7.9%. This year they celebrated the fifth
anniversary of the finest brand by expanding the range to 1,100 products. They have continued to
grow the convenience business with a like-for-like growth in ready meals of 23% and lead the
way in product development with their Healthy Living and Meals for One range.

Another strategic action that the Tesco have undertaken is what they labeled as
Regeneration. This process is similar to instituting a store with the help of the local community
and the local government in accordance to the generation of jobs and commerce in specific areas.
Among the areas where Tesco have “regenerated” includes Puchung, Kuala Lumpur, and
Simpang Pulai. In this strategy, the company places a store in specific areas which they consider
as deprived and in dire need of employment. This way, they have instituted a store in a location
where there exists little competition and in the same time increases their reputation on the area
by providing jobs for people in the community. Moreover, this strategy also moves their
commodities closer to the public.

Providing the needs and quality service to their customers is the functional dimension of
Tesco’s business strategy. TESCO introduced over 5,000 new food lines this year. Another
innovation is bringing in screw-cap wines and their own label range ‘Unwind’, which is on-track

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to be a $5m brand this year. Grab and Go counters have been introduced into over 500 stores,
offering customers a huge choice of cheese and hot chicken without having to queue, making it
simpler and cheaper to operate.

Another new introduction to their system is Primary Distribution, where they saw great
progress this year.  Through this approach, they are able to take control of product from the
factory gates to their distribution centres, improving efficiency and delivering cost benefits that
they reinvest in customer initiatives. One more strategy that TESCO emphasized is in their non-
food section.  They have expanded their non-food offer to gain their customer’s expectations.
Because of this, they now have a 5% share of Malaysian non-food market. They have a 16%
share of chart music sales, up from 4% five years ago.

According to they are implementing six elements to their global strategy in order to
compete internationally:

 Flexibility- Making each market unique and have different approach

 Acting local- Local customers, local cultures, local supply chains and local regulations
require a tailored offer delivered by local staff - less than 100 of Tesco's International
team are ex-pats

 Keep focus- To be the leading local brand is a long term effort and takes decades, not
just a few years

 Be multi-format- No single format can reach the whole of the market. A whole spectrum
from convenience to hypermarkets is essential and you need to take a discounter
approach throughout

 Develop capability- Developing skill in people, processes and systems and being able to
share this skill between markets will improve the chances of success in challenging
markets

 Build brands- Brands enable the building of important lasting relationships with
customers

STRATEGIC APPROACH
Tesco is the biggest ultimate food retailing company in the world with nearly 2300 stores
across worldwide. Tesco operates the consumer banking facility to their customers and it
operates on the non-food sector. Tesco changed its strategy to change positions in 2008 for the
corporate responsibility.

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Tesco has a build the three stair strategy for addressing the climate change in the
company. The first objective is to reduce the GHG emissions from the operations of the own
company. It has defined some legal plans for its carbon footprint. It is now reducing the
reduction the plans and to committed transparent to achieve the specific goals.
Tesco has a second objective that invest in a technology based era and set the work done
with others and getting the profits. It is a better solution for the law carbon solutions. By this we
can get the appropriate results with in a mean time.
The third objective is to avail customers with the low carbon choices and the company y
is ready for this type of the emissions. In this way the retailing companies can get the god result
oriented business in international market.

CORPORATE CULTURE

Corporate culture is one of the main determinants of success or failure in a business

development practice, because it largely determines how flexible, accepting of change and
innovative a company tends to be. Fairfield-Sonn (2001: 36) provided a four-layer model of
corporate culture that included cultural artifacts, cultural history, core ideology and core values
that helps to quantify and describe the corporate culture of an organization. Thus, Tesco’s
corporate culture can be determined from its corporate responsibility statements, which describe
its core values and core ideologies as well as some aspects of cultural artifacts.

Tesco’s stated core priorities include:

Ensuring community, corporate responsibility and sustainability are at the heart of our
business. Being a good neighbour and being responsible, fair and honest, considering our social,
economic and environmental impact as we make our decisions.

These values have had a significant impact on the way in which Tesco does business, as
well as its financial performance. Tesco’s corporate culture priorities allowed the company to
consider opening stores in areas where native supermarkets were reluctant to go, and to provide
services to the area that the local providers either couldn’t or didn’t consider. Thus, they opened
stores in underserved regions, not only allowing them to express their core ideals, but also
providing an opportunity to enter an almost untapped market.

Another area in which the company’s business development practices have both impacted
and been impacted by the corporate culture is the introduction of lines of natural, organic and
free-range foods to its stores beginning in the 1990s, and continuing into its development of the
Nature’s Choice sustainable production lines over the past few years . These lines, which include
organic fruits, vegetables, meats and other proteins, dairy products, free-range eggs and other
responsibly produced goods, has increased its importance in recent years to the company’s
bottom line due to growing awareness of environmental factors by customers. The provision of
lifestyle ranges like those above is one of the core strategies of the Core UK strategic business
unit, as it provides the opportunity to reach the greatest number of customers, particularly those
who believe that the way in which food was produced is as important as the food itself.
However, this provision is also mandated by the company’s corporate culture’s core ideals,
particularly those of environmental responsibility and awareness. These ideals entered the
corporate culture in the mid-1990s, at about the same time as the first environmentally aware

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lifestyle product range (that of free-range eggs) was introduced. Whether the shift in corporate
culture inspired the change in development strategy or whether the shift in development strategy
inspired the shift in corporate culture truly is a chicken and egg question!

SWOT ANALYSIS OF TESCO

Strengths:-

 TESCO have secured commercial standing within the global market place winning
Retailer of the Year 2008 at the “World Retail Awards”. This can be used for marketing
campaigns to drive advantage towards the demographic base for future growth and
sustainability.

 In an environment where global retail sales are showing decline or level performance on
a like for like basis TESCO Group have published sales gain of 13% for UK markets and
26% growth in international markets.

 As a business looking for continued expansion TESCO have reserve funds of credit
coupled with income derived from property portfolio development funds.

Weaknesses:-

 TESCO Finance profit levels were impacted through bad debt, credit card arrears and
household insurance claims.

 TESCOs position as a price leader in UK markets can lead to reduced profit margins in
order to retain the key price points on must have commercial items.

 Grocer outlets are not set up to operate as specialist retailers in specific areas of product
which can be capitalized on by other smaller bespoke retailers.

 Whilst current economic conditions suggest TESCOs key value message will succeed
there is a weakness in non-essential, mid to high ticket price items which will suffer from
the rising cost of living and lower disposable incomes.

Opportunities:-

 Statistics suggest TESCO is the third largest global grocer which indicates a level of
buying power to ensure mainstream economies of scale.

 The acquisition of Homever provides the opportunity to develop the brand through Asia,
specifically South Korea and further grow International markets for the group.

 The development of Tesco Direct through online and catalogue shopping will grow the
use of technology, providing the launch pad for larger nonfood based products with
moderate to high margin returns and less focus on sales and margin per foot return to
space.

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 TESCO mobile have grown ¼ million customers in 2008 and moved into profitable status
suggesting further growth and development within this technological area can be
developed.

Threats:-

 UK and American markets have been affected by economic concerns through the “credit
crunch”. Lower available income will impact and strategic focus may need to change to
lower priced basic products with less focus on higher priced brands suggesting a switch
in price architecture.

 Rising raw material costs from both food and non-food will impact profit margins
overall.

 Sourcing changes to Far East locations with regards exporting restrictions on some non-
food product areas will reduce margin rates on products with already low margins.

 Changes to consumer buying behaviors require further analysis - as technology develops

consumer buying patterns change which will result in product areas requiring evaluation.

 For TESCO there is a persistent threat of takeover from the market leader Wal-Mart who
has both means and motive to pursue such action

PORTER’S FIVE FORCE MODEL ANALYSIS

INDUSTRY COMPETITORS:-

Concentration, fixed or variable costs, differentiation, capacity, pricing, behaviour and

market and company growth are some of the factors considered in this force. First, there is a
need to identify Tesco’s industry competitors. In their kind of industry, the concentration of
rivals is very large, evidenced by the numerous number of their competitors, come of the top
rivals being ASDA Group Limited, BP PLC, Carrefour S.A., ExxonMobil Corporation, The Big
Food Group PLC, J Sainsbury PLC, Marks & Spencer Group PLC, Royal Dutch/Shell
Group, Safeway Inc., Somerfield, The Boots Group PLC, We Morrison Supermarkets PLC, The
Car phone Warehouse Group PLC and John Lewis Partnership PLC. Rivalry tends to intensify as
the number of competitors increases and as they become more equal in size and capacity.
Therefore it can be said that the intensity of rivalry in the retailing industry where Tesco belongs
is very stiff. Also in this force, rivalry is usually stronger when demand for the product is
growing slowly, as is the case of the retailing industry. Rivalry is likewise more intense when
competitors are tempted by industry conditions to use price cuts or other competitive weapons to
boost unit volume and is also stronger when the products and services of competitors are so
weakly differentiated that customers incur low costs in switching from one brand to another.
Further, rivalry increases in proportion to the size of the payoff from a successful strategic move
and becomes more volatile and unpredictable the more diverse the competitors are in terms of
their strategies, personalities, corporate priorities, resources, and countries of origin. The above
conditions all apply to the arena of retailing industry where Tesco plays, thus the bigger need for

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the firm to focus on strategic management in order to gain competitive advantage over their
competitors.

POTENTIAL ENTRANTS:-

Barriers to entry are related to economies of scale, the existence of learning and experience
curve effects, brand preferences and customer loyalty, capital requirements, cost disadvantages
independent of size, access to distribution channels and government actions and policies. The
economies of scale, for instance, implies that the more scale economies, the less threat of entry in
that if entrant cannot quickly get large market share, it will have a major cost disadvantage.
Incumbent can additionally threaten to increase output and cut price. Having 51 years of
experience in the kind of business that they are in and with the incumbent retail giants existing
(i.e. ), the said combination puts up a considerable barrier to entry. Where in the earlier days it is
relatively easier to enter the industry because of little competition and the giants now were just
medium-sized firms before, the contemporary retailing landscape is proving more and more
difficult to enter into. Potential entrants will find that barriers are imposed on them, either
explicitly or implicitly, by the conglomerate incumbents. Access to distribution channels will
also prove harder for those who want to enter the industry. As the incumbents have already
cornered the more common distribution channels, it will be difficult to both compete with the
already established chains in the distribution channels and look for new channels with which to
dispense of the retail products.

BUYERS:-

The leverage and bargaining power of customers tend to be relatively greater when
customers are few in numbers and when they purchase in large quantities and when customers’
purchasers represent a sizable percentage of the selling industry’s total sales. In the retailing
industry, the number of customers is very large, and often, they do not purchase in bulk. From
this alone it can already be said that the bargaining power of consumers in weak.
When the supplying industry is comprised of large numbers of relatively small sellers and
when the item being purchased is sufficiently standardized among sellers that customers can not
only find alternative sellers but they can also switch suppliers at virtually zero cost, the buyers’
buying power is strong. Fortunately for Tesco, their competitors are not as large as their own
organization, which makes the market disciplined, and the competitors likewise have a
disciplined approach in price setting, partly due to set government regulations. When it is
economically feasible for customers to purchase the input from several suppliers rather than one,
their power also increases, which does not happen in this particular industry, as it is more
economical to purchase from one retailer than from a host of retailers.
SUPPLIERS:-
A group of supplier firms has more bargaining power when the input is, in one way or
another, important to the buyer and when the supplier industry is dominated by a few large
producers who enjoy reasonably secure market positions and who are not beleaguered by
intensely competitive conditions. In Tesco’s kind of industry, they have the extreme advantage
of being able to dictate the price that they are willing to pay the supplier, as the suppliers, if the

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retailing giants refuse to pay the formers’ asking price, will be left with no one to sell to save the
small supermarket chains, which would not be a wise move on the suppliers’ part. Additionally,
when the suppliers’ respective products are differentiated to such an extent that it is difficult or
costly for buyers to switch from one supplier to another and when the buying firms are not
important customers of the suppliers, supplier power increases. In the retailing industry, this is
clearly not the case, thus it can be deduced that suppliers do not exert as much power as they
would have liked to. Switching from one supplier to another will not be costly for a retailing
giant such as Tesco. In fact, as suppliers, they will be clamouring for the firm’s attention to
choose them as supplier in the event that the company decides to switch suppliers.
SUBSTITUTES:-
The price and availability of acceptable substitutes for a product places a ceiling on the
prices which the producers of that product can charge, and unless the sellers of a product can
upgrade quality, reduce prices via cost reduction, or otherwise differentiate their product from its
substitutes, they risk a low growth rate in sales and profits because of the inroads substitutes may
make. In the retailing industry, as mentioned above, there is a large number of competitors. This
amount of rivalry is the main force that drives the prices of all companies in the industry down.
For example, Sainsbury can match the low prices that Tesco offers in the market and even equal
the quality of the products that they offer, making the substitute force high in the retailing
industry where Tesco operates. Further, the competition from substitutes is affected by the ease
with which buyers can change over to a substitute, a key consideration being that usually the
buyers switching costs—the one-time costs facing the buyer in switching from use of a product
over to a substitute for it, is low. Since switching from one chain to another will create a
relatively low cost or fuss for the consumer, the substitute force in the industry is relatively high.
This opens an avenue for Tesco to improve quality and differentiate from their competitors while
driving down costs at the same time.
REFERENCE
http://www.tecoplc.com
http://www.wikipedia.com
http://www.referenceforbusiness.com
http://ivythesis.typepad.com