Marketing Tool

Introduction

The Macro, meso and micro business environment of Tesco have been critically analysed in this particular report. This report is analysed using strategic market evaluation tools such as PESTEL, Five Force analysis of Posters, the SWOT analysis and the value chain analysis.

Tesco – Company Overview

Tesco is considered to be one of the largest food retailers and in the year 2009 it has made a profit of revenue of £54 billion with its work force of 470000 people. Tesco and other major market player shown below (Euromonitor, 2010)

Fig 1: Share of Leading Players in UK Food Retail Market

PESTEL Analysis

PESTEL analysis is used of analyse and identify the dynamic operation of Tesco and it impact into the field of marketing.

Political

There has always been a free flow of foreign trade with China and all barriers were removed encouraging Companies from the West which also includes Tesco so as to make a profitable business with the 1.3 billion people (Straits Times, 2010). Joint ventures were made in china for developing shopping malls in the year 2009 (Tesco, 2009).

This literature also presents information of promotions which was in full support by the government for its free trading bloc is also presented in this literature (Lynch, 2003). Promotion of trade was encouraged and made interesting in European Union. This has provided Tesco with the platform and the opportunity needed to expand its retail network.

Economic

It is always a matter of concern for Tesco to concentrate more on the Economic factors as this retails more with the buying behaviour of its customers. This has resulted in the steady increase in employment and have slashed down unemployment to a greater extent which in turn has built it more confidence in the current financial year 2009 (Euro monitor, 2010). There is still more to go and there is more of financial crisis where people tend to spend very little on premium products, encompassing ready prepared meals and organics which tends to have an adverse effect on both margins and sales (Key note 2010)

Recession has its own optimistic way of approach where customer do not tend to eat out but tend to buy grocery which in turn will increase the output of grocery retailers like Tesco (Guardian, 2010).

Fig 2: UK Spending on Food as % of Overall Consumer Spending 2004 to 2008

The GDP graph in detail has brought to light the economic downturn since 1989 (Mintel, 2009):

Fig 3: UK GDP Growth 1989-2009

Social

With the analysis done on the whole of UK population there seems to be more of Retired people that children (Herald Scotland, 2010). It is discouraging scenario for the food retailers since the ageing population tends be more and they eat less.

Everybody has become health conscious and the attitude towards food has drastically changes. There is always increased demand for organic food and Tesco has incorporated the research work. The possibility of payment by check or cash was first made available by Tesco.

Technological

Technology is the key macro-environmental variable which directly has an influence with the process of operation in the food supply chain. (Office for National Statistics, 2010).

Introduction of loyalty program that discourages customer not to switch to its competitors (Sun, 2009).

Mobile phone is used to buy selected wine directly using the recently developed mobile application called Cortexica vision Systems, adopted by Tesco since 2009 ( Tomlinson & Evans, 2010).

A survey by Keynote 2010 has showed that 70 % of the country’s overall population uses internet and this amounts to about 15.5 million people.

Environmental

Concentration of Tesco on the environmental factor has helped Tesco earn credibility and help build a corporate social responsibility image

Dairy products, orange juice and potatoes have carbon food print data as a part of Tesco and also aimed at getting on other non food items by 2010 (Tesco 2010)

Green Living Scheme is also a part of Tesco which was introduced (yuthas,2009)

Rewards are also given for consumers who use recycling mobile phones, reusing bags, aluminium cans and those who prefer bagless delivery through Tesco’s green club card points (Tesco 2009) (Datamonitor,2010)

Legal

The VAT percentage has risen up to 20 % on the prediction on government to finance on huge deficit (HM Treasury 2010).

There was a increase in the minimum wage to about 15.5 % which was found by the analysis that was done by the Low Pay Commission Report (National Minimum Wage, 2009).

Porter’s Five Forces Analysis

According to (Porter, 1985) the effective source of competitive advantage is determined by detailed analysis that is done on the structure of the industry.

Threat of substitute products and services

Substitutes in the retail market of grocery is always considerably low for food items and medium-high for non-food items .

Small chain of convenience stores are considered to be the substitutes for major food retailers in the retail market and are not to be considered as threats by supermarket like Tesco where products are sold at a considerably low price ( Financial Times 2009).

New competitors

There is not much new competition in the food retail industry.

Huge capital is needed to beat the competitors and create a valued brand name. (Mintel, 2010).

Competitive rivalry

Competition is intense in this sector.

Tesco, Asda, Sainsbury’s, Morrisons and Waitrose: among these Asda has gained increase in terms of the market share to 16.8% from 16.6% , Sainsbury’s has improved from 15.8% to 16.1% and Morrisons has gained from 11.3% to 11.6% (Euromonitor, 2010).

Market growth rate is inversely proportional to competitive rivalry.

Bargaining power

Buyer

It is fairly high in terms of the buyer.

As the cost for switching is low, buyers can easily change brands.

Low prices attract customers.

Supplier

This is pretty low

Suppliers do not want to loose major consumer brands.

SWOT Analysis.

Strengths

Tesco is third largest in the food industry (Datamonitor, 2010) with 30.7% share (Euro monitor, 2010).

It is financially strong with a £54 billion turnoveand great performance efficacies ( Fame, 2010):

Fig 4: Tesco – Yearly Growth in Key Performance Indicators

• Affordability is the key and online presence boosts accessibility (Tesco, 2010).
• Customer retention through club cards.

Weaknesses

• Product recalls have tarnished image and hence the last year was bad
• Localised within the UK with 75% customer base and hence not geographically diversified.

Opportunities

• Geographic diversification is a great scope for tesco (Mintel, 2010).
• Growing popularity is a plus (Guardian, 2010).
• Global expansion esp. To Indian market in franchise with TATA group (Daily Mail, 2010).
• General rise in the food retailing sector is advantageous (Euromonitor, 2010).

Threats

• UK’s economy hit due to the recession is a big threat to the UK based companies in general.
• Unemployment translates to income decline and this translates in the market.
• Rising competition makes it impossible to hold and retain market share.

Fig 5: Tesco SWOT Analysis

Value Chain Analysis

Fig 6: Value Addition in Value Chain of Tesco

Inbound Logistics

Cost leadership is the strategy combined with lean and inbound function. Drawing upon market position is used to achieve cost effectiveness Abeysinghe (2010). Large scale production helps achieve advantage by economies of scale. Upgrading production and distribution strategies to achieve maximum profits.

Operations Management

IT systems have been effectively employed to generate revenue. £76 million was invested in the Tesco Digital program (Tesco, 2010) this has generated £550 million in profits.

Outbound Logistics

Online and offline supremacy helps gain leadership. Maximum exposure to the customer is acheived

Fig 7: Benchmarking Analysis

Conclusion

Cost differentiation and strategic positioning with the help of internet presence and information technology, customer loyalty retention through club card schemes agile supply chain management have all effectively contributed to the success of the company and added futuristic value to its services.

References

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Audretsch, D. B. (1995), Innovation and Industry Evolution, (Cambridge: MIT Press) BBC (2009), Czech, Greek presidents support Turkey's EU bid, BBC Monitoring Europe, December 2, 2009. Available at can’t find link, post link here [accessed 07/07/2010] Daily Mail (18 Jan 2010), “Tesco starts Pounds 1bn price war”, Daily Mail, Jan 18, 2010. 7

Datamonitor (2010), ‘Company Profile – Tesco’, Datamonitor Europe, 2010, Ref Code: 1674

DunnHumby (1996), Databases in direct marketing, IDM lecture presented at Bristol Business School, Bristol, November 21, 1996.

Euromonitor (2010), Industry Profile – Food retailing, Euromonitor International, 2010

Fame (2010), Annual Reports Analysis – Tesco plc, FAME International

Herald Scotland (2005), Baby boom gone bust, Policies needed to tackle worryingly low birthrate’, Herald Scotland, November 11, 2005. Retrieved online from website http://www.heraldscotland.com/sport/spl/aberdeen/baby-boom-gone-bust-policies-needed-to-tackle-worryingly-low-birthrate-1.37681

HM Treasury, (2010), Evidence on the UK Economic Cycle, July 2010 [cant find] but is it the following? HM Treasury, (2008), ‘Evidence on the economic cycle’, HM Treasury, Retrieved online from website http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/24_11_08_pbr_economiccycle.pdf

Keynote (2010), Keynote Report on Food Retail Industry, Keynote International [cant find. Wrong date. Need to provide link]

King, I. (2009), Tesco shows its claws, Sun, Jan 18, 2009. p.42

Lynch, R. (2006), Corporate Strategy (4th ed.) (Harlow: Pearson Education Limited)

Mintel (2009), Food Retail Industry – Including Online, Mintel Research

National Minimum Wage (2009), Low Pay Commission Report 2009, National Minimum Wage. Retrieved online from website http://www.lowpay.gov.uk/lowpay/report/pdf/7997-BERR-Low%20Pay%20Commission-WEB.pdf

Office for National Statistics (2009), Internet Access Households and Individuals’, Office for National Statistics, Retrieved online from website Available at http://www.statistics.gov.uk/pdfdir/iahi0809.pdf

Porter, M. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, (Location: The Free Press)

Poulter, S. (2009), Debt problems piling up for younger generation, Daily Mail, Nov 14, 2009

Shales, A. (2009), An unpalatable attitude towards food, Financial Times, Oct 22, p.19

Tesco (2009), Corporate Responsibility Report, Tesco. Retrieved online from website http://www.investis.com/plc/cr09/crr09.pdf

Tesco (2010), Annual Report and Review 2010, Tesco. Retrieved online from website http://ar2010.tescoplc.com/en/downloads.aspx

Tomlinson, H. & Evans, R. (2010), Tesco stocks up on inside knowledge of shoppers’ lives, Guardian, Retrieved online from website http://www.guardian.co.uk/business/2005/sep/20/freedomofinformation.supermarkets

Turban, E., Rainer, R.K., & Potter, R.E. (2001), Introduction to Information Technology, (Chichester: Wiley)

Wood, D. (2009) Are We Cooked Yet? Treasury & Risk Management, 15(6), pp.1424

Yuthas, K., (2009), Inputting the Environment: Reconsidering the Environmental Information

Matrix, Journal of Information Systems, 19(2), Fall 2005, 105-109 [2 dates do not tally – 2009 or 2005?