A Strategic Analysis Of Tesco

A Strategic Analysis Of TescoThis report is set out in order to evaluate the foodstuffing dodge adopted by Tesco on with how they gain a combative position foreignly finished globalization. Under the findings of this report the approach which go out be evaluated will be related to ostiariuss warlike lay. This will be used to show how Tesco gain a emulous advantage all everyplace their rivals such as Asda using the generic wine strategy. The five press framework will also be investigated to anaylse the competition it faces and finally how Tesco segments there market place, identifying the gaps on tap(predicate) to develop.In order to write this report a collection of unlike sources were used. These sources included books, journal articles, media articles, websites, Tescos annual reports and information from Tescos website. The information gained from these sources helped to disc over how Tesco manages to gain the private-enterprise(a) advantage in their diligence. It has also helped to focus the importance of successful competitive positioning with manikins from Porter to establish the position in the minds of the consumer.1.0 IntroductionThis report includes a theoretical model which will reflect the practice of Tesco in apprisal to strategic analysis. It will appearance at the competitive positioning approach and the models/ innovations used by Porter to gain a competitive advantage over Tescos rivals. By doing this it will show what other companies in the assiduity would need to do in order to take over the competitive advantage that Tesco rush. system is based on the long term of a business and is the direction and background signal of the organisation. It aims to achieve advantage in a changing environment through its configuration of resources and competences (Johnson et al, 2008).There are generally three varied levels of strategies associated with organisations. The top level is kn ingest as the corporate level strategy which is alarmed with the boilers suit purpose and termination of the organisation. The second is the business level strategy which looks at particular markets and how to compete successfully in them and the leash level is the operational strategies which look at how the organisation delivers successfully (Johnson et al, 2008).2.0 Findings2.1 History of TescoTesco began when Jack Cohen counterbalance opened a market stall in the East end of London in 1919 and since then began trading in 1924. This shows that Tesco has been serving customers in the UK for the best part of a century. Today, they class themselves as much more of a weekly crap as they have introduced new services, products and ways to shop all driven by their Every Little Helps philosophy (Tesco, 2008).In the last decade Tesco has large their business to become the worlds third largest food product retailer by determining an excellent level of service wherever they operate. They have a strategy for increase which is base d in five parts. These include core UK business, non nutriment, international, retail services and the community (Tesco, 2008). Tescos market share is still growing just short of 7% although that is non as fast as it was. This is because at portray the economy is in a corner and so customers are changing their habits (Leahy,2008).According to the instal of Grocery Distribution (IGD), the UK food application radical predicts that Tesco will grow at a faster rate than Carre four in the coming four old age. Tescos growth will be spurred by international expansion in markets such as China, the US and India (Hall, 2008). This sloppeds that Tesco who are currently the UKs biggest retailer will leapfrog Carrefour by2012 to become the second largest retailer in the world after WalMart (Hall,2008).Within the UK, Tesco employ over 280,000 employees and have over 2,100 stores. Tesco stores have four different formats (See Appendix 1). These are the express stores which sell a range of up to 7000 products with the first express store opening in 1994. The metro store first opened in 1992 bringing the convenience of Tesco to town and city centre locations. The Tesco superstores began in 1970s and in recent years these stores have been introduced to a crook of new nonfood ranges such as DVDs and books. Finally the Extra stores have been operating from 1997 and offer the widest range of food and nonfood lines. These products range from electrical equipment to homewares, clothing, health and beauty and seasonal items such as garden furniture.Along with food and nonfood products in different stores, Tesco also offers retail services (See appendix 2). Tesco Personal Finance (TPF) has the choice of 26 products inwardly their successful market. These range from their savings accounts and credit cards to car and travel insurances.Tescos strategy for growth (see appendix 3) has been well established and consistent which has allowed them to expand into new markets. The rat ionale for the strategy is to broaden the scope of the business to enable it to deliver virile applyable long term growth (Tesco scheme, 2008).2.2 warring PositioningCompetitive positioning empha surfaces the importance of the environment and provides useful tools for analysing the business in the context of its industry (Campbell et al, 2002 p.298)Competitive positioning is the degree of discrepancy in choice of product or service against the competitor (Lynch, 2003). The competitive positioning approach used by Porter, argues that the position of an organisation is successful if it places itself towards the environment (Campbell, 2002).Positioning within any organisation is achieved through the minds of the consumer and this is what enables businesses to gain a competitiveadvantage over their rivals (Darling, 2001). A strategic fit is used between an organisation and the environment which again is a way to gain competitive advantage. This is based on Porters generic schema F ramework (See appendix 4) (Campbell et al, 2002).2.3 Identification and application of the models, concepts and theories used in competitive positioning within Tesco2.3.1 Porters tail fin ForcesThe five forces framework (see appendix 5) was developed by Porter and is used in most industries to analyse competition, as it is of cling to to most organisations providing a useful starting point for strategic analysis (Campbell et al, 2002).Porter purports that it is the structural characteristics of an industry (the five forces) that determine the relative success or failure of a firm (Jenkins Ambrosini, 2002 p.124).The five forces framework is complex in that different industries could be emerging, maturing or declining and Porter is able to recognise that his competitive strategies would need to vary accordingly (Jenkins Ambrosini,2002). He believes that competition in an industry is rooted in its down the stairslying economic structure (Jenkins Ambrosini, 2002 p. 29).Johnson et al, 2008 define the five forces as The threat of incoming into an industry The threat of substitutes in the industrys products or services The power of buyers of the industrys products or services The power of suppliers into the industry The extent of rival between competitors in the industryFor more information on the five forces see table one.A criticism of the five force framework is that Porter implies all competitors within an industry are equal. However, this is not always true as it could be the size of the industry which is causing the threat. Also the macro environment must be regularly reviewed due to the continuous movement as the five forces grassnot be utilize in isolation (Campbell et al, 2002).2.3.2 Application of Porters Five Force Framework in Tesco Porters five force framework is used within Tesco in order to image the external factors impacting upon their company. In relation to the threat of entry into an industry, Tesco along with rivals such as Asda, Sainsb urys and other supermarkets put up extensive barriers to entry within their industry ( search Papers, 2007). An example of what Tesco accomplish within the market of certain products means that a new supermarket would not be able to find a cheap, reliable supplier. This would mean that Tesco has the advantage of buying in bulk giving them economies of scale (321 Books,2007).The power of the buyer in Tesco throw out force down the value of products, as if buyers exigency products they know they can get cheaper in another supermarket it is more than likely that the buyer will move to the other supermarket. This means that supermarkets have a train approach to setting the price of their products. Supermarkets destroying each other over earnings are prevented due to the discipline used within Tesco (Research Papers, 2007).Tesco uses the power of the supplier to their own advantage. However, the price of products are demanded by the supplier otherwise the retailer will not be delive red the goods to sell (Research Papers, 2007). This would create poor customer service and a gravely relationship with the suppliers. With Tesco being a larger supermarket, it has an advantage over smaller shopkeepers as they can dictate the price they are prepared to net the supplier, as if they do not agree to this they will lose business in the long run (321 Books, 2007).Tesco has a very high competitive opposition in food retail with competitors such as Asda, Sainsburys, Morrisons and Waitrose. All these competitorscompete on price, products and promotions periodically (321 Books, 2007). The five force analysis is also complemented with another proficiency know as a SWOT analysis which is used to create synergy. A SWOT analysis of Tesco can be found in appendix 6.In order to gain new sales opportunities the major retailers in the UK such as Tesco must expand their product categories which is causing intense rivalry between the UK supermarkets (Hackney Birtwistle, 2006). Ther e is also rivalry with competitors over the operation of online facilities, although Tesco has been proven to be the most successful in implementing their strategy. Due to this it means Tesco can stimulate a competitive advantage. Sustaining a competitive advantage can be gained in three different ways which is shown in appendix 7 (Hackney Birtwistle, 2006).2.3.3 Porters Generic StrategyPorters generic strategy framework is used to gain a competitive advantage and is the oldest approach based on an outsidein approach. It is know as this as it examines the environment and then decides how to achieve a strategically desirable position (Campbell et al, 2002). However due to the recession the economy is in at present, the question relating to Porters generic strategy is it possible that Tesco can afford to look into the environment? (McNeilly, 2008)Generic strategies are used to attain above average performances within an industry in order to gain a competitive advantage. The generic strategies contain cost leadership, specialism, cost focus and differentiation focus and can be found in appendix 4 (De Wit Meyer, 2004). Porter has argued that businesses should not get stuck in the middle so must choose either a differentiation or cost leadership strategy (Campbell et al, 2002).Competitive advantage within the broad segments of an industry include the cost leadership and differentiation strategies whereas the delineate segments of an industry aim to gain a cost advantage and include cost focus and differentiation focus. However, different industries will vary widely significationthe generic strategies must relate to that particular industry (De Wit Meyer,2004).The Tesco generic strategy which is used will have to be cost leadership unless they can successfully differentiate their line of clothing so that they can begin to charge a premium price (Johnson et al, 2007).A critique of Porters generic strategies by Bowman is that he believes competitive advantage s hould be more effective within an organisation than its competitors in order to provide customers with want they want or need. Due to this criticism Bowman developed the strategy clock (see appendix 8) (Johnson et al, 2008).Positioning and competitive advantage can be gained using the strategy clock as it makes managers aware of how changing requirements of their markets and choices can be made (Johnson et al, 2008).In relation to the strategy clock developed by Bowman, Tesco adopts the hybrid strategy as it accepts elements of both cost leadership and differentiation (Campbell et al, 2002). A hybrid strategy seeks simultaneously to achieve differentiation and a price lower than that of competitors (Johnson et al, 2008, p.230). However, it could be argued that the price of products used by Tesco should not need to be lowered if differentiation can be achieved. The reason behind this is, Tesco should be able to obtain their prices at least equal to competitors such as Asda and Morris ons if not higher due to them being market leader (Johnson et al, 2008)Johnson et al, 2008 believe that Hybrid strategies can be preferential for a number of reasons as detailed belowv Tesco is achieving a high standardised of market share in the UK. This is due to the grater volumes being achieved over their competitors, meaning their margins could still be superior due to the lowcost base they have.v Hybrid strategies can be used as an entry strategy in the market where there are established competitors. Tesco adopts this strategy when developing their global strategy. It allows them to target competitors and enter the market in different geographic areas with superior products at low prices. This enables them to get established and gain customer loyalty.2.4 Identification of market segmentationA market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market (Johnson et al,2008, p.77). The advantages of market se gmentation are shown in appendix9.Typical bases for segmentation of markets arev Demographic variables which include difference of age, stages of the family life cycle, gender, income, occupation, education, race and religion.v Geographic variables such as difference by country, region, type of housing/neighbourhoodv Psychographic variables which exploit the lifestyle, personalizedity or intelligence differences between peoplev Behavioural variables such as attitudes to brand loyalty, frequency of use, consumption occasion(Campbell et al, 2002, p.95).Tesco appeal to all customers as the products they sell attracts customers from low incomes to those who are more affluent (McNeilly, 2008). Their product choice is increase in diversity which ranges from healthy living products, free from products, special healthy kids snacks, organic products and fairtrade products (Tesco, 2008). This means they segment successfully which is shown in their profits (McNeilly, 2008). For Tesco customer segmentation see appendix 10.Due to segmentation, Tesco have recently identified a few gaps in the market which has enabled them to react to these particular markets ahead competitors notice them. The first gap they identified was the music download service which will have a major impact on Apples position as it will allow people to legally purchase and download (Beaumont Warman,2008). Tesco digital is there new venture and plans to play Apple at its own bouncy (Beaumont Warman, 2008).Another area were Tesco has identified a gap in the market is with cheese. The Dairy Farmers of Britain (DFB) have added a range of four different cheeses to their portfolio which they have launched in 650 Tesco stores. These are known as the 1st grade range and include mild, mature, Ploughmans vintage and red Leicester. These cheeses are aimed at a gap in the market between everyday brands and niche offerings (The Grocer, 2008).2.5 GlobalisationAccording to Lasserre, 2007 Globalisation is the phe nomenon of the transition of industries whose competitive structure changes progressively from multinational to global. Industries such as telecommunications, processed food, personal care and retail are in the process of globalisation. It is also associated with consistency of products and practices alongside a high level of coordination and integration of activities in Tesco value chain (Lasserre, 2007). See appendix 11 for this.According to Inkpen Ramaswamy, 2006 p.14 global companies must understand customers from the perspective of both domestic and international standards and must have the ability to learn in multiple locations far from the home base.The models which will be analysed to explain the basis of global strategy are Porters global generic strategies, Yips driver framework and Porters baseball field theory.2.5.1 Porters global generic strategyWhen looking at globalisation, Porter adapts his generic strategy framework to global conditions. This model suggests five s trategy alternatives what a business can use when operating internationally as shown in appendix 12. These five alternatives are positioned either with the extent to which the business is globalised or by the scope of the competitors within the industry (Campbell et al, 2002).In relation to Porters global strategy he considers that competitive advantage results from the global scope of an organisations activities and the effectiveness with which it coordinates them (Campbell et al, 2002, p.268). He also argues that configuration of valueadding activities and coordination of valueadding activities is what global competitive advantage depends upon (Campbell et al, 2002). Tesco has demonstrated that their valueadding activities of allowing customers to shop for all of their needs under the one roof, has enabled them to gain a global competitive advantage effectively.2.5.2 Yips Globalisation driver frameworkYips Globalisation driver framework develops the concept of total global strateg y and is much more useful than Porters global generic strategy framework as it evaluates both the overall degree of globalisation within an industry along with demonstrating the features of an industry which are more or less global naturally (Campbell et al, 2002). Yip also believes that his framework helps identify areas of an industry which are global and aspects of the industry which differ locally. Managers of businesses which are global should create their global strategy on the basis of the analysis made for the globalisation drivers (Campbell et al, 2002).2.5.3 Porters Diamond TheorySustainable competitive advantage is needed in any business international strategy. When entering into a foreign market/country a business will be at a disadvantage so must have competitive advantages in order to overcome this issue (Johnson et al, 2008). This can be done as Tesco has been successful in many different markets such as Europe, Asia and the US. For a list ofcountries which Tesco oper ate in and the year they first opened in that particular country see Table 2.Porters Diamond theory explains how some businesses such as Tesco have a sustained competitive advantage in their industry when their competitors have not been as successful (Johnson et al, 2008) Tesco have more than ten years experience overseas due to their international strategy which contains six elements. These are to be flexible, act local, maintain focus, use multi formats, develop capability and build brands. This is the reason behind how they are able to sustain a competitive advantage and are the third largest supermarket worldwide (Tesco, 2008). Appendix 14 shows the determinants of national advantages using Porters Diamond theory.3.0 Conclusion RecommendationsFrom the findings of this report, there is evidence to suggest that Porters strategies are relevant in todays grocery industry in relation to competitive positioning. These strategies which Porter uses relate to all types of industries and they help businesses to gain a competitive advantage as in the case of Tesco. By having these strategies in place it has allowed Tesco to gain this competitive advantage in the UK and overseas making them the third largest grocery retailer in the world. These strategies have been used successfully for over twenty years and will continue to be successful in the future.At present the economy is in a recession, meaning that people are spending less and changing their behaviour and habits when it comes to shopping. However, Tesco try to assure their customers that they are about value so there is no need for them to shop anywhere else.Growth is what Tesco believe in and even though the economy is in a recession they have planned and prepared longterm to expand and invest in the UK and internationally which will create up to 30,000 jobs. In recent recessions Tesco continue to invest which they believe is one of the bestthings they have done and will continue to invest during this econom ic recession.Ref erence sJohnson et al (2008). Exploring incorporated Strategy, eighter from Decatur edition, Essex, Pearson Education LimitedTesco (2008). Tesco PLC Internet easy from http//www.tescoplc.com/Leahy, T. (2008). Tesco Interim Results, 20082009 Full Interview Internet Available from http//www.tescoplc.com/plc/ir/pres_results/results/r2008/sirterry_interview0908/Hall, J (2008). Tesco to be world number two by 2012 Internet Available from http//www.telegraph.co.uk/finance/newsbysector/epic/tsco/3691672/tescoto beworCampbell et al, (2002). Business Strategy An introduction, Second Edition, Oxford, Elsevier ButterworthHeinemennLynch, R (2003). incorporate Strategy, third edition, Essex, Pearson EducationLimitedDarling, J. (2001). Successful competitive positioning the key for entry into the European consumer market, European Business Review, 13, (4), pp.209220Jenkins Ambrosini (2002). Strategic Management A multiperspective approach, Hampshire, PalgraveResearch Papers ( 2007). Porters Five Forces on Tesco. Internet Available from http//www.oppapers.com/essays/Porters5ForcesTesco/108949321 Books (2007). Porters Five Forces at Tesco PLC. Internet Availablefrom http//www.321books.co.uk/catalog/tesco/portersfiveforces.htmHackney Birtwistle (2006). The UK grocery business towards a sustainable model for virtual markets, International Journal of retail Distribution Management, 34, (4/5), pp.354368McNeilly, A (2008). Globalisation and the multinational Lecture Notes24.11.08De Wit Meyer (2004). Strategy process, content, context, third edition, London, ThomsonBeaumont Warman (2008). Can Tesco topple iTunes? Internet Available from http//www.telegraph.co.uk/scienceandtechnology/3357071/cantescotoppleitunesThe Grocer (2008). DFB 1st stigmatize targets gap in cheese market Internet Available fromhttp//www.thegrocer.co.uk/articles.aspx?page=articlesID=195740Lassere, P (2007). Global Strategic Management, second edition, Hampshire, PalgraveInkpen Ramaswam y (2006). Global Strategy, New York, Oxford UniversityPress IncMorris, T (2004). Tesco a case study in supermarket excellence, NewZealand, Corolis ResearchBusiness Teacher (2008). Tesco Swot Analysis, Internet Available from http//www.businessteacher.org.uk/businessresources/pulverizationanalysis database/tescoswotanalysis/tipple liog rap hic Ref erencingBeaumont Warman (2008). Can Tesco topple iTunes? Internet Available from http//www.telegraph.co.uk/scienceandtechnology/3357071/cantescotoppleitunesBusiness Teacher (2008). Tesco Swot Analysis, Internet Available fromhttp//www.businessteacher.org.uk/businessresources/swotanalysisdatabase/tescoswotanalysis/Campbell et al, (2002). Business Strategy An introduction, Second Edition, Oxford, Elsevier ButterworthHeinemennDarling, J. (2001). Successful competitive positioning the key for entry into the European consumer market, European Business Review, 13, (4), pp.209220De Wit Meyer (2004). Strategy process, content, context, third edit ion, London, ThomsonHackney Birtwistle (2006). The UK grocery business towards a sustainable model for virtual markets, International Journal of Retail Distribution Management, 34, (4/5), pp.354368Hall, J (2008). Tesco to be world number two by 2012 Internet Available from http//www.telegraph.co.uk/finance/newsbysector/epic/tsco/3691672/tescoto beworInkpen Ramaswamy (2006). Global Strategy, New York, Oxford UniversityPress IncJenkins Ambrosini (2002). Strategic Management A multiperspective approach, Hampshire, PalgraveJohnson et al (2008). Exploring Corporate Strategy, eight edition, Essex, Pearson Education LimitedLassere, P (2007). Global Strategic Management, second edition, Hampshire, PalgraveLeahy, T. (2008). Tesco Interim Results, 20082009 Full Interview Internet Available from http//www.tescoplc.com/plc/ir/pres_results/results/r2008/sirterry_interview0908/Lynch, R (2003). Corporate Strategy, third edition, Essex, Pearson EducationLimitedMcNeilly, A (2008). Globalisation and the multinational Lecture Notes24.11.08Morris, T (2004). Tesco a case study in supermarket excellence, NewZealand, Corolis ResearchResearch Papers (2007). Porters Five Forces on Tesco. Internet Available from http//www.oppapers.com/essays/Porters5ForcesTesco/108949Tesco (2008). Tesco PLC Internet Available from http//www.tescoplc.com/The Grocer (2008). DFB 1st Grade targets gap in cheese market Internet Available fromhttp//www.thegrocer.co.uk/articles.aspx?page=articlesID=195740321 Books (2007). Porters Five Forces at Tesco PLC. Internet Available from http//www.321books.co.uk/catalog/tesco/portersfiveforces.htmAppendix 4Competitive AdvantageDifferentiationBroadCost Leadership DifferentiationAsda WaitroseTescoCompetitive orbitSainsburysCost Focus Differentiation FocusMS DelicatessensNarrowThe Generic Strategy Framework. De Wit Meyer, 2004 p. 262Appendix 5The Five Forces FrameworkPotential entrantsSuppliers flagellum of entryCompetitiveRivalryBargainingPowerBargainingPowerBuyers Threat of substitutesSubstitutesJohnson et al, 2008 p.60Appendix 6SWOT analysis of TescoStrengths Tesco within the global market place won retailer of the year award 2008.this can drive advantage towards future growth and sustainability Although global retail sales are declining, Tesco congregation have gained sales of 13% in the UK and 26% growth internationally As Tesco look to expand they have reserved funds of credit availableWeaknesses Reduced profit margins can be the case ofTescos position as a price leader in the UK Tesco Finance profit levels were caused through bad debt, credit card arrears and household insurance claims. Due to current economy at present, Tesco will suffer due to the cost of living and lower disposable incomeOpportunities Statistics show that economies of scale can be gained through buying power, which is why Tesco are the third largest global grocer Due to the acquisition in Asia there is luck for further growth internationally Further growth and develo pment will be made with TechnologyThreats The credit crunch has affected the UK and American markets so Tesco will focus on lower priced products WalMart who are world leaders put persistent threats of takeover on Tesco Products areas may need to be evaluated due to changes in consumer buying profit margins may be affected by the rise in raw materialsBusiness Teacher (2008). Tesco Swot Analysis, Internet Available from http//www.businessteacher.org.uk/businessresources/swotanalysis database/tescoswotanalysis/Appendix 7Sustaining competitive advantagePriceBased strategies Accept reduced margin further a price war Reduce Costs Focus on specific segmentsDifferentiation Create difficulties of imitation Achieve imperfect mobility(of resources/competences) Reinvest marginSustaining Competitive AdvantageLockin Achieve size/market dominance Firstmover advantage Reinforcement Rigorous enforcementJohnson et al, 2008. p. 225Appendix 8The Strategy Clock Competitive strategy optionsHighPerceive d product/service benefitsLowPrice 2.Hybrid3.Differentiation4.FocusedDifferentiation5.6.1.No Frills7.Strategies bound8. for ultimate failureLowLow HighPriceNeeds/risks1. No frills Likely to be segment specific2. Low Price luck of price war and low margins need to be cost leader3. Hybrid Low cost base and reinvestment in low priceand differentiation4. Differentiationa) Without price premium Perceived added value by user, yielding market share benefitsb) With price premium Perceive added value sufficient to adjudge price premium5. Focused differentiation Perceived added value to a particular segment, warranting price premium6. Increased price Higher margins if competitors do not followrisk of losing market share7. Increased price/ low value Only feasible in monopoly situation8. Low value/ standard price Loss of market shareAppendix 9Target market selectionDifferentiationMarket Segmentation Tailored marketing intermingleOpportunities and threatsJobber, 2004 p, 275AppendixFirm Infras tructureSupportActivitiesHuman Resource M