Environmental Scan and Human Resource: The Case of TESCO2009Environment Scan for TESCOTESCO is one of the four major supermarket chains that control 40 percent of the industry in the United Kingdom. In the UK, supermarkets are defined as stores above 600 sq m of which 300 sq m is devoted to sale of food and non-alcoholic beverages. Besides food and beverages, supermarkets also sell cleaning products, toiletries and other household products. A supermarket, or multiple grocer, chain is a company that owns 10 or more such stores. Besides TESCO, the major players in this segment are ASDA (which is a subsidiary of Wal Mart, the largest global supermarket chain), Safeway and Sainsbury (Competition Commission, 2000).
While the other three players are mainly limited in the UK, TESCO has also been expanding abroad. However, of late, TESCO has also been facing competition from new players like Aldi and Morrison (Independent, 2008). Supermarkets have been the major sellers of food and beverages in the UK. As much as three-fourth of bread, milk, fruit and meat are sold in the country through supermarkets (Fox & Vorley, 2004).
However, since the market for food and grocery is heterogeneous, it is not possible to calculate market shares of each player as there are a large number of independent grocers as well. Although the four major supermarket chains stock all types of food, grocery and household products in the typical large format out-of-town stores, the independents sell particular or a group of products. However, the distinctions are getting blurred over the years as the large chains like TESCO have been buying up niche players like T& S and increasingly stocking non-household products like electronics, apparels and ready-to-eat food services as well (Fox & Vorley, 2004).
As a result of aggressive growth and channel-blurring, TESCO and the other three supermarket chains have developed oligopsony power, that is bargaining power with respect to suppliers. Hence, while a large retailer can contribute as much as 10-20 percent of sales of suppliers, each supplier may contribute only about 1-2 percent of the retailers’ sales (GPN Working Paper, 2004). Since the 1990s, competition among supermarket chains in the UK has grown tremendously, particularly with the entry of ASDA.
Since there is not much product differentiation in the store collections, each player in the industry has had to evolve innovative methods of procurement and selling to reduce costs. This has been all the more crucial through the financial recession since the last two years as consumer spending has stagnated and even declined. TESCO has been aggressively increasing the number of stores and been procuring globally so that costs can be reduced. Besides, TESCO and other supermarket chains have also been aggressive in selling own-label products, which has drawn the criticism from the branded product industry.
The pressures of cost reduction on the supermarket chains like TESCO has also brought it to conflict with the suppliers who are discouraged in product innovation and investment because of the low prices that they receive from the supermarkets (Fox and Vorley, 2004). As a result of the financial meltdown and its effect on consumer spending, retailers and especially the large supermarket chains have been facing reduced sales and higher competition. Besides, tough competition from players like ASDA resulted in TESCO posting the worst financial results in 17 years in 2008 (Independent, 2008).
While sales for the entire retail sector in the UK grew by 5.9 percent in 2008, excluding fuel, consumer spending on retail products grew by only 2 percent. Aggressive cost reduction by competitive discount stores led TESCO to engage in launching of a host of private label products and branded products like Trattoria Verdi pasta and Packers Tea, which were the first big branded product launch by the company since 1993, as a knee-jerk reaction to falling food product sales (Independent, 2008).
Bargain discounters like ASDA and Aldi had snatched away a major customer base from TESCO primarily because of the recession.