Business Environment Analysis - Tesco - Case Study Example

Tesco: Business Environment Analysis Research s Tesco, with headquarter in the UK, is the third largest general merchandising and the grocery retailer in the world operating with total 7,305 stores in 2014. In 2014, with annual revenue of £43,570 million, Tesco operated 3,378 retail stores in the UK alone. The company earns almost 66 percent of its revenue from its home country; however, changing business paradigm such as e-commerce has put its trading profits under severe pressure (Tesco Plc., 2014). On Core Purpose Tesco reads: "We make what matters better, together" (Tesco Plc, 2014). Tesco’s vision statement is a part of strategic choice that asserts on, "the shop of choice for customers, the place people want to work, a business that communities welcome and the retailer in which every shareholder wants to invest" and their value statement is: "We use our scale for good" (Tesco Plc, 2014). Tesco embodies respect and trust as their key thrust areas to develop their customer base. Due to their large scale of operations, millions of people feel associated with Tesco across the country. Keeping this in mind, in 2012, Tesco has formulated ‘the Building a Better Tesco’ plan encompassing six critical areas of business: Price & Value, Service & Staff, Stores & Formats, Clicks and Bricks, Range & Quality, and Brand & Marketing. Economic environment is not conducive for growth. While supply of household goods is perennially increasing in the UK market, it is not supported by corresponding increase in demand levels. A slump in per capita income, on average, in comparison to 2008 levels has put several businesses in jeopardy due to lesser demand. Post 2008 economic crisis, the UK economy is facing tough times as it has not yet reached the GDP levels that it had posted in year 2008 as is evident from the following chart. UK GDP between 2008 and 2014 Source: http://www.tradingeconomics.com/united-kingdom/gdp Unemployment Levels between 2008 and 2014 Source: http://www.tradingeconomics.com/united-kingdom/unemployment-rate Unemployment levels have remained high – above 6 percent at least until mid- 2014; this is enough to explain how the UK economy has been faring in the last couple of years. On face of the weak economic environment, it is obvious that the UK businesses including Tesco have been facing downside in these years. It will be important to see Tesco’s performance post 2008 financial crisis so that real impact of economic environment can be gauged. Performance of Tesco in Last Three Years (In £millions) Key Indicators 2012 2013 2014 Revenue from the UK 42,803 43,582 43,570 Revenue from Europe 9,866 9,319 9,267 Revenue from Asia 10,828 10,045 10,309 Profit from Operations 3,164 1,528 1,912 Source: http://www.tescoplc.com/index.asp?pageid=30 A weak overall economic scenario is reflected in the performance of Tesco as is evident from the table. Competition Monaghan (2014) argues that due to fierce competition among retailers in the UK prices of numerous items are moving southward. People have become more price conscious preferring convenience stores over super malls. Optimal packing size is preferred over large standard size offered traditionally. There is no doubt that Tesco is facing tough challenges from numerous players operating in the UK retail market. To be specific, in the UK, Sainsbury, Aldi, Morrisons and Lidl are major competitors of Tesco. Due to low prices offered by Aldi and Lidl, Tesco has been losing its market share consistently. Tesco is feeling pinch of low-price model of Aldi in its business as any price reduction to maintain market share will lead to lesser gross margin (Butler, 2014). While Aldi and Lidl are regional players, their expansion programme is likely to put Tescos dominance in jeopardy (Creasey, 2014). Industry Environment Globalisation has opened up new vistas for businesses including super chains. Tesco competes with many large players across the world. Due to economic recession, competition in retail business has become so fierce that Tesco had to wind up its US and Japan operations a few years back. Retail is also affected significantly by government and industry regulatory policies that include food hygiene, health and safety, employment law, consumer protection, alcohol licensing, age restriction on employment and so on. It is important to note that the UK retail industry employs 3 million people and the industry pays over £17.5 billion of the taxes to the UK government in terms of VAT, National insurance, Business rates, and Income tax. Online retail sales have reached to almost 10% of total retail sales in the UK amounting to over £29 billion (Department for Business, Innovation & Skills, 2013). While there are opportunities, great dangers lie ahead, in all locations, for small and big retailers as well. Traditional business models are under threat from e-commerce and online offerings backed by money back guarantees across the world. Currently, customers have much wider options and choices for shopping at the prices that were never heard of previously. Internationalisation In recent years, Tesco has been facing tough times in its international operations. In Poland, for example, consumers prefer to patronise convenience stores rather than buying from Tescos out-of-town hypermarkets. People prefer shopping from stores closer to their homes rather than driving long to save on fuels. Innovation and adaptation is the key to internationalise the business. Adapting to the needs of customers, Tesco has launched several innovative initiatives. Tesco is in the process of refreshing 450 Express stores as well as refitting 160 large stores. Remodeling will involve changing layout giving priority to food stores. Tesco has done away with annual tendering process and instead have begun engaging suppliers with a long-term contract that may last for minimum 2 years. Strategic suppliers have been engaged with 3-5 years contract to provide stability and easing planning process. Tesco has been introducing a bistro dining concept as a differentiation strategy in its stores to gain a competitive edge over rivals. Tesco has withdrawn from the US and Japan markets. In China, Tesco has partnered with China Resources Enterprise, the biggest food retailer in China, owning only 20 percent of a joint venture that comprises of over 3000 stores across China. Global expertise and local understanding has become a necessity for success (Ruddick, 2013). Annotated Bibliography Aldi (2015). aldi.co.uk. [Online]. Available from https://www.aldi.co.uk/ [Accessed 11 Apr 2015] The site provides a fair idea how it competes with large supermarkets such as Tesco. The site mentions about special buys and offerings to the UK people. While Aldi is on large expansion spree in the UK, such details can be had from this site under the head new stores. How it is likely to pose a big threat to Tesco in the days ahead can be understood from the daily discount offerings of Aldi from this site. Butler, S. (2014). How Aldi’s price plan shook up Tesco, Morrison’s, Asda and Sainsbury’s. theguardian.com. [Online]. Available from http://www.theguardian.com/business/2014/sep/29/how-aldi-price-plan-shook-up-tesco-morrisons-asda-sainsburys [Accessed 11 Apr 2015] The Guardian, the winner of the Pulitzer Prize, is a national daily newspaper published from the UK. While its existence goes back to over 150 years, the paper is also known for exposing the phone hacking scandal in 2011. The investigation resulted into the closure of one of the top newspaper in the UK – the News of the World. Creasey, S. (2014). The Grocer. Troubled Tesco to Face Further Competition for Market Share. thegrocer.co.uk. [Online]. Available from http://www.thegrocer.co.uk/channels/supermarkets/tesco/tesco-to-face-further-competition-for-market-share/356637.article [Accessed 11 Apr 2015] The Grocer is a respected weekly magazine published from the UK providing business information about the food industry. The magazine is owned by William Reed Business Media Ltd having a long history of publishing that dates back over 150 years. The weekly is known for its in-depth study and open views on the issues concerning food industry. Hundreds of thousands of household owners in the UK diligently read well analysed articles on the topics covered on this site that interest them. Department for Business, Innovation & Skills (2013). A strategy for Future Retail. gov.uk [Online]. Available from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/252383/bis-13-1204-a-strategy-for-future-retail-industry-and-government-delivering-in-partnership.pdf [Accessed 11 Apr 2015] The government site vividly describes the current scenario of retail industry in the UK that include changing consumer paradigm, global opportunities and the impending threats from e-commerce. Lidl (2015). LidlSurprises. lidl.co.uk. [Online]. Available from http://www.lidl.co.uk/en/index.htm [Accessed 11 Apr 2015] The site is a successful chain of grocery business operating across the UK and Europe that posing major challenge to Tesco on its retail operations. The site provides information about sensational deals and product information that it caters. It also provides store details across the UK. Monaghan, A. (2014). Fierce competition sees prices in UK shops fall by 1.8% in September. [Online]. theguardian.com. Available from http://www.theguardian.com/business/2014/oct/08/competition-prices-uk-shops-fall- almost-2pc-september [Accessed 11 Apr 2015] The Guardian, the winner of the Pulitzer Prize, is a national daily newspaper published from the UK. While its existence goes back to over 150 years, the paper is also known for exposing the phone hacking scandal in 2011. The investigation resulted into the closure of one of the top newspaper in the UK – the News of the World. Montague-Jones, G. (2014). Tesco to alter supplier deals as it goes bigger and bolder on innovation. thegrocer.co.uk. [Online]. Available from http://www.thegrocer.co.uk/channels/supermarkets/tesco/tesco-to-go-bigger-and-bolder-on-innovation/357298.article [Accessed 11 Apr 2015] The Grocer is a respected weekly magazine published from the UK providing business information about the food industry. The magazine is owned by William Reed Business Media Ltd having a long history of publishing that dates back over 150 years. The weekly is known for its in-depth study and open views on the issues concerning food industry. Hundreds of thousands of household owners in the UK diligently read its well analysed articles on the topics that interest them. Office for National Statistics (2015). Publications. [Online]. Available from http://www.ons.gov.uk/ons/publications/index.html?pageSize=50&sortBy=none&sortDirection=none&newquery=GDP&content-type=publicationContentTypes [Accessed 11 Apr 2015] All important economic details published by the government of the UK can be had from this site. The site provides macroeconomic details, summaries, reports, and datasets for latest and previous years pertaining to the UK industries. Ruddick, G. (2013). Is Tescos dream of building an international empire unravelling? telegraph.co.uk. [Online]. Available from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10349392/Is-Tescos-dream-of-building-an-international-empire-unravelling.html [Accessed 11 Apr 2015] The site is a digital publication from one of the leading newpaper "The Telegraph" of the UK. The site encompasses several sections of public interest that include national news, world news, sport news, fashion and cultural sections, finance, technology, automobiles, economic news, real estate and hosts of other topics. The paper is known for its non-partial views without having any politial leaning. Sainsburys (2015). sainsburys.co.uk. [Online]. Available from http://www.sainsburys.co.uk/sol/index.jsp [Accessed 11 Apr 2015] The site provides not only history of one of the major competitor of Tesco but details about its supermarkets and convenience stores. The site mentons about its business strategy and objectives that include values and its business structure. The financials of sainsbury can be had from this site. Tesco Plc (2014). Core Purpose and Values. [Online]. Available from http://www.tescoplc.com/index.asp?pageid=10 [Accessed 11 Apr 2015] Tesco.plc is the website of the super retailer Tesco providing information regarding its history, its businesses, its core purposes and values along with annual results of the company. The website also mentions about career opportunities offered by the company. Media releases from the Tesco headquarter can be read on this website. UK GDP Growth Rate (2015). tradingeconomics.com. [Online]. Available from http://www.tradingeconomics.com/united-kingdom/gdp [Accessed 11 Apr 2015] The site provides economical indicators of most countries on this earth that include GDP growth rate, unemployment rate, inflation rate, interest rate, credit rating, tax rates, population numbers and so on. It also provides market forecasts of economic indicators for varius countries. The site is updated in a short period of time to provide latest information. References Aldi (2015). aldi.co.uk. [Online]. Available from https://www.aldi.co.uk/ [Accessed 11 Apr 2015] Department for Business, Innovation & Skills (2013). A strategy for Future Retail. gov.uk [Online]. Available from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/252383/bis-13-1204-a-strategy-for-future-retail-industry-and-government-delivering-in-partnership.pdf [Accessed 11 Apr 2015] Lidl (2015). LidlSurprises. lidl.co.uk. [Online]. Available from http://www.lidl.co.uk/en/index.htm [Accessed 11 Apr 2015 Monaghan, A. (2014). Fierce competition sees prices in UK shops fall by 1.8% in September. [Online]. theguardian.com. Available from http://www.theguardian.com/business/2014/oct/08/competition-prices-uk-shops-fall- almost-2pc-september [Accessed 11 Apr 2015] Montague-Jones, G. (2014). Tesco to alter supplier deals as it goes bigger and bolder on innovation. thegrocer.co.uk. [Online]. Available from http://www.thegrocer.co.uk/channels/supermarkets/tesco/tesco-to-go-bigger-and-bolder-on-innovation/357298.article [Accessed 11 Apr 2015] Office for National Statistics (2015). Publications. [Online]. Available from http://www.ons.gov.uk/ons/publications/index.html?pageSize=50&sortBy=none&sortDirection=none&newquery=GDP&content-type=publicationContentTypes [Accessed 11 Apr 2015] Ruddick, G. (2013). Is Tescos dream of building an international empire unravelling? telegraph.co.uk. [Online]. Available from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10349392/Is-Tescos-dream-of-building-an-international-empire-unravelling.html [Accessed 11 Apr 2015] Sainsburys (2015). sainsburys.co.uk. [Online]. Available from http://www.sainsburys.co.uk/sol/index.jsp [Accessed 11 Apr 2015] Tesco Plc (2014). Core Purpose and Values. [Online]. Available from http://www.tescoplc.com/index.asp?pageid=10 [Accessed 11 Apr 2015] UK GDP Growth Rate (2015). tradingeconomics.com. [Online]. Available from http://www.tradingeconomics.com/united-kingdom/gdp [Accessed 11 Apr 2015] Read More