asgmt stra managment

8/7/2019 ASGMT STRA MANAGMENT

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FAKULTI OF BUSINESS AND MANAGEMENT

SEMESTER 3 / TAHUN

BBP4103 PENGURUSAN STRATEGIK

NO. MATRIKULASI : 710624025377001

NO. KAD PENGNEALAN : 710624025377NO. TELEFON : 019-4146812

E-MEL : [email protected]

PUSAT PEMBELAJARAN : PPW KEDAH


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NO CONTENT PAGES

1.0 INTRODUCTION 2-3

2.0 TOWS Matrix of TESCO 4-5

3.0 SWOT ANALYSIS 5-13

4.0 CRITICAL SUCCESS FACTORS 14-18

5.0 CONCLUSION 18-19

6.0 REFERENCES 19-21


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1.0 INTRODUCTION

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. Stockwell.

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, 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), 200Harrow

Stores outlets (1959), 212 Irwins stores (1960, beating Express Primier Supermarkets to the

deal), 97 Charles Phillips stores (1964) and the Victor Value chain (1968) (sold to Bejam in

1986).

Originally specialising 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..

The food and drink retail sector represents the largest industry in the UK, providing employment


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for over three million people in primary production, manufacturing and retailing. In 2003 retail

accounted for 9% of gross domestic product (Datamonitor, 2003). In recent years UK

supermarkets have come under increased scrutiny over their treatment of suppliers, particularly

of own-label products, yet the development of strategic supply networks has been an integral part

of most supermarket strategies for the past decade.

The report below provides an insight into the supermarket company, Tesco, with emphasis on its

external environment analysis and company's analysis of resources, competence and culture.

Two future strategic options are suggested in regards to the resources based strategies.

Tesco is one of the largest food retailers in the world, operating around 2,318 stores and

employing over 326,000 people. It provides online services through its subsidiary, Tesco.com.

The UK is the company's largest market, where it operates under four banners of Extra,

Superstore, Metro and Express. The company sells almost 40,000 food products, including

clothing and other non-food lines. The company's own-label products (50 percent of sales) are at

three levels, value, normal and finest. As well as convenience produce, many stores have gas

stations, becoming one of Britain's largest independent petrol retailers. Other retailing services

offered include Tesco Personal Finance.


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2.0. TOWS Matrix of TESCO

Strengths Weakness

Opportunities

y Increasing market sharey Tesco's general growth and ROI showno sign of abating.

y Insurance.y Tesco online.y Brand value.y UK market leadership reinforced.y Non-food retail.y Health and beauty.y Further international growth.y Top Grocer and largest retailer at UKBrand value,good HR logistic,different market

format.All this can help to increase the market

share at Non food segment,and higher margin

new markets.

y Perceived high brand value can help atexpansion.

y Reliance upon the UKmarket.

y Debt reduction.y Signs point to serialacquisitions.

y Dependency at UKmarket is the weakness that

should be over come to

expand and exploit other

geography.

y Moving to highermargin markets can minimize

the weakness associated with

less captured Non food

market.


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Threats

y Different market formats,Brandvalue,customer centric approach,and new

product and services can minimize the major

threat of descrease in market share either due to

entry of Wall mart,acquisition by Asda,Wm

Morrison Bid.

y UK structural changecould spark a price war.

y Wal-Mart/Asdachallenge.

y Internationalexpansion.

y Focusing on the NonFood segment along with the

expansion to different

geography can minimize the

threat and weakness.

3.0 SWOT ANALYSIS

3.1 Strengths

a. Increasing market share.

Tesco holds a 13% share of the UK retail market. Its multi-format capability means that it will

continue to grow share in food, while increasing space contribution from hypermarkets will

allow it to drive a higher share in non-food.

b. Tesco's general growth and ROI show no sign of abating.


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In the UK, Tesco's late 2002 investment into West-midlands based convenience store group

T&S was billed as the most aggressive move into the neighborhood market by a big-name

retailer so far. The deal has turned Tesco into the country's second biggest convenience store

chain after the Co-operative Group, and the company also plans to open up 59 new stores in the

UK this year. Tesco has grown its non-food division to the extent that its revenues now total 23%

of total group earnings. Tesco's international business segment is growing steadily, and is

predicted to contribute nearly a quarter of group profits over the next five years. If geographical

spread continues to grow, this will ensure Tesco's continued regional strength.

c. Insurance.

In fiscal 2003 Tesco Personal Finance reached the milestone of one million motor insurance

policies, making it the fastest growing motor insurance provider ever. The

group's instant travel insurance allows Clubcard holders to buy their holiday insurance

conveniently at the checkout. Pet insurance now has over 330,000 cats and dogs covered, while

the life insurance policy followed on from the success of last year, when it was voted The Most

Competitive Life Insurance Provider in the MoneyFacts Awards 2003.

d. Tesco online.

Tesco.com is the world's biggest online supermarket and this year the group had sales of over

577 million, an increase of 29% on last year. Tesco online now operates in over 270 stores

around the country, covering 96% of the UK. With over a million households nationwide having

used the company's online services, the company has a strong platform to further develop this

revenue stream.


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e. Brand value.

Profits for Tesco's operations in Europe, Asia and Ireland increased by 78% during the last fiscal

year. The company has a strong brand image, and is associated with good quality, trustworthy

goods that represent excellent value. Tesco's innovative ways of improving the customer

shopping experience, as well as its efforts to branch out into finance and insurance have also

capitalized on this.

f. UK market leadership reinforced.

Since acquiring number one ranking in 1996, Tesco has developed a successful multiformat

strategy that has accelerated its advantage. Its UK sales are now 71% larger than Sainsbury's.

Also the Competition Commission's report makes it very difficult for a competitor to challenge

its scale and has effectively scuppered Wal-Mart's chances of stealing UK leadership. Therefore,

Tesco is in an enormously strong position in its domestic market.

3.2 Weaknesses

a. Reliance upon the UK market.

Although international business is still growing, and is expected to contribute greater amounts to

Tesco's profits over the next few years, the company is still highly dependent on the UK market

(73.8% of 2003 revenues). While this isn't a major weakness in the short term, any changes in

the UK supermarket industry over the next year for example, like the Morrison's group

successfully purchasing the Safeway chain could alter the balance of UK supermarket power,

and affect share.


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b. Debt reduction.

Tesco is not expected to reduce its debt until at least 2006. Tesco has a large capital expenditure

program mainly due to its huge investment in space for new stores.

Since its expansion is so aggressive, Tesco has little free cash for any other operations.

Signs point to serial acquisitions.

With an enterprise value of 23 billion, Tesco clearly has enormous firepower. Also, its product

range is vast and almost any acquisition can be justified, particularly in the UK. While 'fill the

gap' strategy would be useful to the company, as has been the case with the UK convenience

market, there is the danger of Tesco becoming a serial acquirer, as this tends to reduce earnings

visibility and quality.

3.3 Opportunities

a. Non-food retail.

The growth in Tesco's hypermarket format in the UK means that there are expectations of seeing

its 13% share of retail sales climb sharply over the next few years. It can use its footfall and low

cost structure together with improved merchandising skills to add another leg to growth. Equally,

its growth overseas will further increase earnings and scale, taking Tesco onto the virtuous circle

of growth. It is estimated that Tesco's non-food sales will double over the next four years.

Worldwide it has sales of 7 billion in non-food, some 23% of the total. Its aim to be 'as strong

in non-food as we are in food', no longer sounds like the consultancy-speak that it once did, and


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they are getting there using the basic tenets of value, choice and convenience that have been so

successful in food. Around half of new space opened in the UK last year was for non-food and

the result has been to increase its market share from 5% to 6% and its overall share of UK retail

sales has increased by 100 basis points to 12.8%.

The company's telecoms venture is the latest stage in its strategy to develop popular retail

services. It has repeated its approach in banking, by capitalizing on its brand.

b. Health and beauty.

Tesco's UK health and beauty ranges continue to grow, and it is currently the fastest growing

skincare retailer in the market. The company has a volume market-leading position in both

toiletries and healthcare and is number one retailer in the baby goods markets. Across all health

and beauty ranges Tesco continues to invest in price to deliver the value customers have come to

expect and this year invested 27 million on health and beauty pricing alone. The company now

has 19 stores with opticians and nearly 200 stores with pharmacies.

c. Further international growth.

Tesco now operates in six countries in Europe in addition to the UK; the Republic of Ireland,

Hungary, Czech Republic, Slovakia, Turkey and Poland. It also operates in Asia: in South Korea,

Thailand, Malaysia, Japan and Taiwan. Seven years ago, its International sales were 770

million. Now, they are nearly 10 times larger, at almost

7 billion, with profits of 306 million. In the current year, Tesco will add 2.5 million square feet

to sales area and could well enter another major market. Growing internationally has forced


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Tesco to become serious about hypermarkets and this has had seriously positive implications for

growth in the UK. Tesco has formed a strategic relationship with US supermarket, Safeway Inc,

to take the tesco.com home shopping model to the US. Telecoms are the latest stage in its

strategy to develop popular retail services. It has repeated its approach in banking, by

capitalizing on its brand. In 2004 the company plans to enter the Chinese market, as China is one

of the largest economies in the world with tremendous forecast growth and will present many

opportunities for Tesco.

3.4 Threats

a. UK structural change could spark a price war.

The price followers in the UK market are about to become aggressive investors in price,

Safeway because of new ownership and Sainsbury because of new management. Morrison is

reducing Safeway's prices by up to 6% and Sainsbury is bound to see lower prices as one of the

basic changes necessary to drive its recovery. With both Asda and Tesco committed to price

leadership, this could result in a step down in industry profitability.

b. Overseas returns could fall.

The buy case for Tesco is predicated around investment overseas driving higher group returns as

each country moves past critical mass. This might not happen, either because of economic

conditions, competitor action, or failure in Tesco's business model. It also could come as a

consequence of an aggressive move into a larger market, such as China or Japan.

c. Wal-Mart/Asda challenge.


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Since the US shopping giant Wal-mart purchased Asda, Tesco's rank as the top UK supermarket

has been threatened. Asda can now compete extremely well on price and range of goods. For the

moment, Asda is the third largest supermarket in the UK, just behind Sainsbury's and then Tesco.

However, Asda closed the gap on Sainsbury's in 2003, leaving the company to directly challenge

Tesco's dominance.

Tesco is well aware of this, and has so far been quick to keep up with price cuts or special offers

at Asda. Wal-mart may also decide to wield its buying power more heavily in the UK, and this

could spell the end of Tesco's brand dominance in the future.

d. International expansion.

International growth is expensive. Entering new markets with a new brand requires heavy

investment and marketing, as well as land prices (which are currently low) and extra distribution

and operation expense. Tesco's debt may increase before it begins to decline.

Korea is contributing a good proportion of Tesco's international profit growth. If profits continue

to grow in this way, Korea will probably represent one-third of Tesco's international profits in

2003. Korean consumer spending is currently quite low, and coupled with the country's current

unrest, and Tesco's large investment, this represents a high risk area for Tesco to bank on.

e. Tesco faces threat to land bank.

Tesco could be forced to sell its controversial land bank under proposals being pushed by

members of a Competition Commission review into supermarkets.The regulator is due to publish

its initial findings next week and sources close to its deliberations say at least two of the six


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panel members are arguing that its vast unused property portfolio stymies rivals from entering

local markets.

One senior source said hawks on the panel had been pushing their case hard in recent weeks. "It

would be odd if they were interested in land banks and they didn't do anything about it," added a

second person following the case.

Of the big four supermarkets, Tesco has by far the biggest land bank. The Office of Fair Trading

(OFT), which kicked off the investigation into supermarkets, found that Tesco held 55 per cent

of the 319 land bank sites it had identified.

Tesco believes it is doing nothing wrong. A spokesman for the company said: "The land that we

have is essentially a pipeline of new stores and that's the only reason we hold it. The other

supermarkets also have a pipeline of land, although it is well documented that we have a larger

one," he added.

The Competition Commission already has a draft version of its so-called emerging thinking, but

it is still putting the final touches to the wording that will represent the consensus view of the six-

member panel, headed by Peter Freeman, the regulator's chairman.

Next week's report is just the first stage in the long inquiry process and is unlikely to target any

one supermarket by name. But if the regulator formally decides that the use of land banks is anti-

competitive, it could order Tesco to sell off sites in the summer.

When it presents the findings next week, the regulator will also release an independent poll of

supermarket suppliers, which is expected to be good news for the biggest retailers.


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The big four have been accused of using their combined muscle to squeeze suppliers in an anti-

competitive way. Last week David Cameron, the Tory leader, waded into the debate, saying

supermarkets used their power to squeeze producers' margins and calling this an unacceptable

practice.

Cameron urged the Competition Commission to crack down on such practices, but the

independent poll is said by those close to the inquiry to show that the suppliers themselves are

less critical of the supermarkets.

Tesco's competitors Asda, J Sainsbury and Wm Morrison have openly criticised the growing

dominance of Britain's biggest retailer and put the planning regime at the heart of the

Competition Commission's investigation.

Led by Asda, whose advisers got planning on the agenda of the initial OFT investigation, the

supermarkets want a relaxation of the regime, while Tesco favours the status quo.

Asda and the others have argued that there should be a competition element to planning

decisions, which would allow local authorities to authorise more development in areas

dominated by just one supermarket usually Tesco, which has a 31.4 per cent market share

One of the major aims of every business is to maximize profit. Tesco wanted to

increase its operational capacity at the front end and at the same time save cost hence

the use of the self checkout. For instance instead of employing five cashiers to operate

five cashier checkout, only one cashier will be required to assist customers on five


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self checkouts.

4.0 CRITICAL SUCCESS FACTORS

After a close evaluation of the external analysis of the grocery industry and SWOT analysis, it is

crucial to consider internal operational effectiveness of Tesco in the formof identifying critical

success factors of the company within the food retailing sector.

4.1 Branding and Reputation

There are companies that have always understood that they were selling brands before the

product.Tesco is a brand and also serves as the core strategic advantage.

The company was spreading like wildfire transforming the generic into the brand-specific,

largely through carefully branded packaging and the promotion of an every penny counts

environment.The company has a strong brand image, and is associated with good quality,trust

worthy goods that represent excellent value.

The product and service development processes of the company have been substantially re-

engineered, to facilitate bette rmanagement of product lifecycles and more efficient delivery

ofwide ranges of products to customers.

Product activity has focused on enhancing core ranges and introducing quality products.Tesco's

innovative ways of improving the customer shopping experience, as well as its efforts to branch

out intofinance and insurance have also capitalized on strong brand reputation.


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The company is also very successful in terms of customer loyalty due to its loyalty cards system

and its general approach tocus to mizing services to the needs of every customer.This is

trulyevident in terms of tremendous growth of on-line sales where the company has a strong

platform to further develop this revenue stream.After considering the fact the nowadays majority

of people have less time for shopping, Tesco employed this on-line systems and now became the

biggest online supermarket.

4.2 IT Integration

Today companies act in an increasingly dynamic and complex environment, giving more

difficulties making forecasts and adapting themselves to the continuous changes.In order to be

able to compete in this kind of world, it is necessary to innovate atan extraordinary speed,

continuously improving the products,services and processes.

For Tesco operations have become necessities rather than luxuries.Systems that control stock,

keep all the stock and deliveries records and analyse business transactions are the lifelines of the

company.It can also be said that IT has risen beyond its traditional support role and taken up

acentral role in business strategy formulation.

Extranet system employed by the company, enables Tesco to usethe Internet to create proprietary

and customised information flows between the company and its business partners.The system

connects business partners online behind virtual firewalls, bringing more flexibility, scalability,

extensibility and integration across the distribution channels.


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Extranet also helps to extend the key information on business partners throughout the supply

chain and facilitate collaborative relationships with partners. Market exchanges hold the promise

of extending Tesco's reach, delivering buyers to their virtual doorstep from around the

world.Other examples of the most efficient technological advances that support daily business

operations of Tesco are wireless devices, intelligent scale, electronic shelf labelling, self check-

out machine and radiofrequency identification (RFID) systems.This technology is aneffort to

maintain Tesco's ability to handle an increase inproduct/service volume while controlling costs;

it also enables to be innovative and market oriented.

4.3 Supplier Management

Tesco, like many other grocery chains companies, sources its goods from overseas manufacturers

who are more competitive on price and volumes.For many years Tesco has been supporting

British jobs and expertise by encouraging large branded suppliers to develop exclusive

production facilities.But in recent years the company has realised the need to look abroad for

products no longer available in UK, bud tried to do it through long-established UK partners.The

foods continued to be heavily UK-based due to the very successful range of prepared foods.

As a major retailer selling diverse product range, they work with many different suppliers around

the world, with employees from many different cultures and ethnic groups.Therefore, it is the

company policy and company's main approach to have unique relationships with

suppliers.Applying advanced technology in its communications and cooperation with the

suppliers, the company aims to control the work of its suppliers and heavily relies on their


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efficiency.The direct suppliers use a number of sub-contracted suppliers, selected to be best in

class in their country.Tesco has established close relationships with the contractors believing that

regular and long term orders promote the investment necessary to improve conditions in the

supply chain.

Being an international company, Tesco develops various supplier management programmes to

survey key suppliers and franchisee satisfaction.The company also takes part in the Ethnical

Trading Initiative.

Tesco has developed a differential advantage by focusing on relationship marketing and

customer experience.Tescos focus on relationships is a key factor for future and current

success.They are doing a good job of segmenting their current customer base and personalizing

their experience.I believe that they should do more.The process of sending out e-mails and

coupons is a good relationship tool.However Tesco could do more to reach customers on a

personal level.To keep its current success, Tesco.com needs to be an innovator in internet

marketing as well as internet business.

One suggestion I would have for the company is to develop some sort of online chat

rooms where customers can go and talk directly to employees.Without direct communication, a

relationship will only grow so far.This online communication would take tesco.com to a whole

new level.

Tesco also has room for improvement on the experience it provides.An online chat room

would definitely improve the Tesco experience.However, the company could go even further

and develop a personal touch to their website.The Tesco experience would provide the


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company with a significant competitive advantage.This would make the site even easier to

navigate and would help the customer develop a deeper connection with the company.

Tesco.com provides a good experience and has good customer-employee relationships.However,

they can not become content with where they are at.The company needs to keep itsfocus on

serving the customer by catering to their specific needs and wants.With a focus onservice

through relationships and experience, Tesco.com can continually provide a positive and personal

service for their customers.

5.0 CONCLUSION

Tesco being one of the largest retailers world wide a complete study was made and analysed

that,Tesco in the category of INTERNALIST it suggests that once they moved into the

international arena most likely as a result of push factors from the domestic market they

experience in operating on an international basis grew and hence this makes them a cautious

internationalist. The dimensions of location decision making is very extensive. Locational

decisions engage the different deciplines of strategic marketing, the geography of retailing, town

planning , operations research ,consumer behaviour and economics. Tesco embarked upon these

factors to develop smaller stores. These stores were developed at different locations which was a

serving advantage to different consumer demands. Theese out of town , edge of town superstores

offer one-stop shoping services for weekly outings, the smaller in town stores offer top up

shopping facilities. Thus the Tescos portfolio was complemented.


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6.0 REFERECES:

AcurN. and Bititci U. (2004), A balanced approach to strategy process,

International Journal of Operations & Production Management, Vol. 24(4),

pp.388-408

Armstrong, M., (1990), Management Processes and Functions, Exeter, Short Run

Press

Armstrong, M.,(2006), Human Resource Management, London, Kogan Page

Clarke I., Bennison D. and Guy C. (1994), The Dynamics of UK Grocery Retailing

at the Local Scale,International Journal of Retail & Distribution Management, Vol.

22(6), pp.11-20

Clift, D.J., (2007), Lean World: The DNA of the Success and the Path to Prosperity

Ipswich, Lean World Ltd

Datamonitor (2003),SWOT analysis of Tesco.http://www.datamonitor.com,

accessed on 26/7/09

Datamonitor (2003), Company Profile: Tesco PLC analysis,

http://www.datamonitor.com, accessed on 26/7/09


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Datamonitor (2004), Company Profile: Tesco PLC analysis.

http://www.datamonitor.com, accessed on 01/8/09

Food and Dr inks, (2003), Tesco begins self checkout trail,

http://www.foodanddrinkeurope.com/Retail/Tesco-begins-self-checkout-trial,

accessed on 15/7/09

McKenna, E,. and Beech, N., (2008), Human Resource Management: A concise

Analysis 2nd ed., FT, Prentice Hall

Mintel Report (2004), Food Retailing:UK, Retail Intelligence,

http://www.mintel.com, accessed on 25/7/09

Montana,P,J., and Charnov, B.H., (2008), Management 4thed.

Leavitt,h,j(1989), Managerial psychology, Chicago, University o f Chicago

Targett, D., Grinshaw, D, J., and Powell,P., (1999), IT in Business: A Managers

Casebook, Oxford, A Butterworth-Heinemann

Tupper, C, S., and Deszca, G., (2008), Toolkit for Organizational Change, London,

Sage Publication (2800 WORDS)


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