citi bank

University Degree Business and Administrative studies

INTRODUCTION:

Tesco is the UK’s leading retailer launched its Factory Gate Pricing initiative, it turned to G-Log, a provider of global logistics and transportation software to come up with a new solution to address Tesco’s logistics processes for collecting goods from suppliers and delivering to Tesco’s 23 UK distribution centres.

Tesco was founded in 1924 and over the past 79 years has grown and developed to become Britain’s leading food retailer. Over the years, Tesco has expanded its footprint from selling groceries to offering 50,000 product lines, ranging from food and toiletries to garden products, small electrical goods, clothes and gasoline. One of Tesco’s most recent ventures is the launch of its fixed line phone service.
Tesco handles more than one million inbound shipping movements per year from over 2,500 suppliers. It made sense therefore, for Tesco to require a single-vendor solution to consolidate and manage its logistics planning, control and monitoring processes.

PORTER’S FIVE FORCES:

THREATS OF SUBSTITUTES:

Classical economics predicts that rivalry between companies should drive profits to

zero. This is part of the threat of substitutes. For instance, Tesco has competition from

companies from Sainsbury that can provide substitutes for their goods. This drives the

prices of groceries down in both companies.

BUYER POWER
Buyer power also acts to force prices down. If an item is too expensive in Tesco,

buyers will move to Sainsbury. Fortunately for Tesco, there are few other large supermarket companies. This means the market is disciplined the supermarkets have a disciplined approach to price setting. Discipline stops them destroying each other in a profit war.

SUPPLIER POWER
Supplier power, is wielded by suppliers demanding that retailers pay a certain price for their goods. If retailers don't pay the price, they don't get the goods to sell. Large supermarkets, like Tesco, have an overpowering advantage over the small shopkeeper—they dictate the price they pay the supplier. If the supplier does not reduce the price, they will be left with no retailers to sell to Tesco and the other large supermarkets will have all the customers.

BARRIERS TO ENTRY:

Tesco, Asda, Sainsbury and other supermarket chains put up considerable barriers to

entry. Anyone starting up a new supermarket chain has barriers imposed on them,

implicitly or explicitly, by the existing supermarkets. Tesco also has the advantage of economies of scale. It will pay a lot less for large volumes of goods from suppliers. A new, small supermarket chain can only buy a relatively small volume of goods, at greater expense.

Porter's five forces is a "bottom line" way of analysing a company, from the perspective of the company. In the true spirit of capitalism it looks at economic rivalry as being of central importance, and suggests that you should look only at factors affecting the company's profit in a systemic model defined by that rivalry.

PEST ANALAYSIS:

Political Factors of Tesco:

The retail and food market of the Tescos is heavily operated by the UK government. The UK has highest obesity rate in the Europe, with about 23% of adults obese, according to the government survey announced in the year 2006 figures that are likely to drive demand for healthy products. In February 2007 the broadcasting regulators announced its plans to ban junk food advertisements during television shows watched by people less than the age of 16.

Economical Factors:

Demand for the group’s products and services in part depend on the general economic and political conditions affecting the countries in which the group operates. Changes in demand for its products and services can magnify the impact of economic cycles on the group’s businesses. For instance, in 2006, an improvement in Tesco’s Performance in most of Central Europe, Ireland and Turkey was offset by the effects of continuing weak economy in Hungary. This was a consequence of the strong economic measures taken by the Hungarian government which reduced consumer spending. As result, the group’s non food category was particularly affected. Political uncertainty in Thailand resulted in difficult business conditions for the group in the second half of 2006. Though, the group was able to overcome it due to its strong market position but continuance of the situation may affect the group’s performance.

Social Factors:

Tesco plays prominent role in undertaking important social and environmental challenges. It also makes a significant contribution to communities through its charitable trusts and community based education programmes. Tesco also aimed to provide for disabled customers to the fullest. They will be holding themed customer question times each quarter over the coming year and they launched healthy living club for their customers about four years ago.

Technological Factors:

The company has to invest in latest technology across all sectors of the business if they want to remain profitable in the market. One of the most important ...

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Social Factors:

Technological Factors:

The company has to invest in latest technology across all sectors of the business if they want to remain profitable in the market. One of the most important advances that help Tesco to do things more efficiently is information technology. In 2001 they started a project called Tesco Box by identifying the best practice processes for all areas of the business and designing a standard suite of systems that we can roll out to each and every market. Tesco is spending around 500 million pounds in the next five years to reduce their energy use

SWOT ANALYSIS:

Tesco is one of the largest food retailers in the world. In addition, the group also sells non-food items, including electrical goods, home entertainment technology and clothing. Tesco is the largest retail operating group in the UK. The group’s leading market position in the UK enhances its brand, provides economies of scale and makes it easier for the group to launch private label brands. However, intense competition in both domestic and international markets could adversely affect its profitability.

STRENGTHS:

Market leadership: Tesco is the largest retail group in the UK. The group had 26% share of the UK grocery market as of December 2006. It accounted for 56.1% of all UK supermarket shoppers in 2007. In October 2006, 66.2% of the online food and grocery shoppers purchased online from Tesco. Tesco operates 3,262stores. The group has 30 distribution centres, of which six are dedicated to non-food and clothing.

Strong performance of Tesco.com:Tesco.com is the largest online grocery shopping services in the world. It is the fourth biggest online retailer in the UK, behind Amazon, Dell and Argos. Its revenues grew by 29.2% in 2007, reaching£1,226 million in turnover.

Strong brand image:Tesco has an impressive brand image. It is associated with good quality, trustworthy goods that represent excellent value. Tesco’s has innovative ways of improving the customer shopping experience.

WEAKNESSES:

High dependence on the UK and Europe, Tesco is heavily dependent on the UK market. In fiscal 2007, it derived 76.6% of its total revenues from the UK, 13% from the rest of Europe and 10.4% from Asia. One of its competitors, Wal Mart derived 22.1% of its revenues from its international operations.

Weak returns:Tesco has recorded weak returns in the last few years. Its return on assets, return on investments and return on equity during 2005-2007were 7.1%, 8.3% and 16.8%, respectively. Whereas, one of its competitors Marks and Spencer’s recorded return on assets, return on investments.

Weak inventory turnover: Tesco has recorded weak inventory turnover in the fiscal year 2007. Its inventory turnover ratio for fiscal 2007 was 25.1. One of its competitors J Sainsbury recorded an inventory turnover of 29.4 for the same period.

OPPERTUNITIES:

Retail environment in the Euro zone: The Euro zone retailing has been showing growth in 2007. In February 2007, Euro zone retail sales experienced a 1.1% growth compared to February 2006 figures. Again, Euro zone retail sales were stronger than expected in March 2007, rising 2.2% relative to the same month previous year. In April 2007, they had a 1.6% year on year growth.

Opportunities in private label and non-food markets: The private label market in the UK is witnessing a strong growth in sales. In 2006, out of total consumer packaged goods sold in the UK. Tesco could leverage its strong portfolio of own brands to increase its margins. Tesco’s UK non-food sales are still small, but hold significant growth potential

Opportunities in India and other international markets: India is the second fastest growing economy in the world. The strong economic growth of India has led to higher personal incomes, which are fuelling demand for consumer goods. The Indian retail industry is expected to grow 14.6% annually during 2005-2010, to reach $517.6 billion by 2010.

THREATS:

Rising labour wages in UK: The UK government announced that the adult minimum wage rate would rise from £5.05 to £5.35 per hour in October 2006. The national minimum wage is expected to further rise to £5.52 an hour.

High interest rates in the UK: Interest rates in the UK stood at a high of 4.5% at the end of January 2006. This was further raised to 5.25% in January 2007, 5.5% in May 2007 and was proposed to be raised further by 25 basis points to 5.75% in July 2007.

The high cost of credit will act as a brake on consumer expenditure encouraging households to limit non-essential expenditure, particularly on deferrable big ticket purchases and this could adversely affect Tesco’s performance.

Intense competition: The UK retail industry is highly consolidated with Tesco, Asda, Sainsbury's and Morrison’s dominating the sector. Tesco is facing intense competition in the retailing business from other supermarkets and discount stores. Its main competitors include Sainsbury and Asda, in addition to numerous small and local store operators. Tesco faces intense competition from Asda, which has the second largest retail market share in the UK.

PORTER’S VALUE CHAIN ANALYSIS:

INBOUND LOGISTICS:

Tesco, with over 930 stores worldwide, will use the software to effectively manage in

excess of one million global inbound shipping movements per year. Tesco stores stock over 20,000 product lines, including food, drink, household items, garden products, toiletries, domestic electrical goods, clothes and petrolThey chose G-Log's logistics and transportation technology because their solution will support and enhance our low-cost, high quality approach to growth in the retail market," said Alex Laffey, Primary Distribution Director of Tesco Stores Limited.

"Major factors in their decision to select G-Log were the close and demonstrable fit of their software to our requirements, and their ability to rapidly deploy the solution in phases to meet our aggressive project timeframe."

The capabilities of the G-Log solution in providing visibility, optimization, and execution will enable Tesco to integrate their suppliers, partners and logistics service providers, delivering real-time visibility of in-transit orders, whilst optimising the transportation resources by both consolidating loads and selecting the most cost-effective carrier

OPERATIONS:

Tesco, wants to be a good neighbour and run a business that is responsible, honest and fair,because their customers and other stakeholders (staff, suppliers, investors, and non-governmental organisations) wants them to do their bit towards building a sustainable world - with our stores providing support for their community. They listen and respond not only to customers but to a wider range of stakeholders - staff, suppliers, investors, and non-governmental organisations.

"Our core values 'no-one tries harder for customers' and 'treat people how we like to be treated' characterise our approach to Corporate Responsibility. We believe we can achieve most when we work together on practical things that make a difference. 'Every little helps' can become a great deal when everyone pulls in the same direction." Sir Terry Leahy, Tesco CEO.

OUTBOUND LOGISTICS:

Tesco is offering the most competitive rate and always turns up at factories or depots on time". More than 65% of goods bound for Tesco's distribution centres were now arriving on Tesco's own lorries or trucks run by contractors, he said. Suppliers operating on this basis with Tesco were selling their goods at factory gate prices, without distribution costs built in. They want to assure suppliers that it is an absolute priority for them to tackle this. They want to have honest and open discussions with suppliers to improve the situation". Meanwhile, Tesco is launching a web-based information portal to help suppliers plan production more effectively to service demand. Tesco Link, which is being piloted with 10 of the retailer's suppliers, contains store-specific electronic point of sale information plus data on stock levels throughout Tesco's supply chain and depot network. The next generation of Tesco Information Exchange [a similar information portal] that suppliers can access through a secure password, but it provides extra granularity of information. It's also free".

SALES AND MARKETTING:

Tesco currently controls over 30% of the UK grocery sector, but has only 3% market share in clothing. However, it is one of its fastest growing areas. Online shopping has steadily grown in popularity in the UK. In 2006, online spending grew by 33.4% to £10.9 billion. The online retail sales are forecasted to from £10.9 billion in 2006 to £28 billion in 2011. The online retail sales as a percentage of total retail sales are expected to increase from 4%in 2006 to 8.9% in 2011. With a strong foothold in online services, Tesco is well placed to benefit from growing online spending. A strong online presence enables the group to serve new customer

segments, avoid investments in physical infrastructure and earn better margins.

SERVICES:

Tesco has followed its customers into the growing world of retailing services. They

aim to bring simplicity and value to complex markets. Customers with busy, stressful

lives increasingly want simple choices. They do not want to have to make ever more

complex decisions about what they buy. Tesco also offers a digital download which gives customers access to almost 60,000 DVD titles and games. Anticipating the even larger opportunity in online non-food markets, the group launched Tesco Direct for catering to non food segment in August 2006 and this was made online through tesco.com. Tesco has also placed its online non-food ranges like electrical goods, books, wine, music and movies under one virtual roof - Tesco Extra

INFRASTRUCTURE:

Tesco has put in the retail sector's largest ever publicly announced order for EPC RFID readers in the supply chain - 4,000 of them will be in use across the country.The supermarket giant has signed the deal with ADT, which will supply the 4,000 readers and 16,000 antennae by autumn of this year, with 1,300 UK Tesco supermarkets and 35 distribution centres getting the tracking equipment. Retailers were also more convinced the technology would benefit them then other businesses - 83 per cent of retail firms said they agreed or strongly agreed that having partners and suppliers use the technology would benefit them, compared to 68 per cent of manufacturers and 50 per cent of logistics or transportation firms. But while the firms queried might have been enthusiastic about the technology into the supply chain, 78 per cent of retailers also predicted it would mean significantly overhauling their infrastructure.

TECHNOLOGY:

New phase in Tesco's deployment of Radio Barcode technology in the supply chain the technology has come a long way since we first started working on Secure Supply Chain. There has been continued development of Radio Barcode technology within retail and as a result our project has moved onto the next phase of development - Unit of Delivery Secure Supply Chain proved to us that the technology works and that it can deliver clear benefits to our business, giving us greater visibility of the supply chain and a simpler process for staff, and customers through improved availability, better service and cheaper prices. Unit of Delivery will build on what we learned from Secure Supply Chain. Unlike Secure Supply Chain, which was limited to the tagging of trays delivering high value goods such as razor blades and mobile phones, Unit of Delivery will see the tagging of returnable transport items delivered to stores from distribution centres. Initially this will be cages and dollies, and in the future we will include all returnable transport items. It will enable us to cover a much larger part of our business than Secure Supply Chain. Initially Unit of Delivery will be implemented into one depot and 40 shops. They intend to roll out to all shops and depots in the UK in the next few years They continue to work with standards bodies to ensure that we find global solutions to the challenges presented by this new technology. The technology continues to evolve and we have made great strides forward in developing appropriate solutions to meet our business needs. Tesco is planning a wider rollout of the technology and may eventually take RFID technology to its international business in the future

PROCUREMENT:

Tesco listens to its shoppers, and analyses this information. And it is prepared and able to adapt quickly to meet changing needs.There are several consumer trends which will continue to have an enormous impact on product procurement. Tesco has ensured its buying professionals deliver the goods.Their buying teams are similar to those of any other supermarket, but we ensure that what they buy is generated from the customer end. As the most powerful UK retailer and a growing international force, Tesco has the potential to exercise considerable clout over the thousands of manufacturers that stock its shelves.

HUMAN RESOURCE MANAGEMENT:

Tesco have been looking at different aspects of human resource management. The guiding principle have covered is to remember that effective management of human resources contributes to the success of the firm. An important part of the retention of staff, reducing staff turnover and minimising absenteeism at work is ensuring that staff are properly motivated. If staff are absent from work, they are unable to carry out the functions for which they have been employed. In many businesses, these functions have to be taken on by someone else - if not, the customer could suffer. Reducing absenteeism is an important feature of human resource management.

CONCLUSION:

Tesco is the UK’s biggest retail successful industry which is likely to be praised for its business strategy and its growing power. Tesco is committed to the principle of sustainability in their product sourcing. In overall the company is showing interest on its product development under its own brand and it is also showing interest in expansion.