Technological.
Tesco’s using brand new and high quality technology in their stores to improve shopping experience for their customers.
- Radio Barcodes helps Tesco to keep information about the products they sell accurate and up to date. That visibility will be throughout Tesco’s supply chain from the factory to the store.(tesco.com/barcodes)
- Tesco has upgraded its transport management software to improve cost effectiveness and environmental performance of its delivery. (Friedlos.D. Computing.co.uk)
- Tesco’s introduces “Self Scan Checkout” that helps customers with the fewer items get served quickly.
Enviromental.
Tesco is aware of a rising environmental issue in a modern world.
- Introduction of new greener stores. In their new stores they are testing a new technology of a renewable energy; also they use “other green technologies such as water cooled refrigeration units with energy-saving LED lighting and 50% more efficient bakery ovens that save enough electricity to power one million light bulbs an hour”.(Tesco annual report)
- Also they looked at transportation, by using double decked trailers that can carry more products; Tesco can cut the number of lorries for transportation of their goods. Also they use battery powered vans to deliver goods from Tesco.com (Friedlos.D. Computing.co.uk)
- Tesco invests in the research of new green technology. It is says in their greener living website that “they working with the Carbon Trust and Brunel University to develop trigeneration combined heat and power technology (which captures and reuses heat) for the stores and distribution centres that could save over 10,000 tonnes of CO2 a year”.(Tesco Greener Living)
Q 2.
Porter’s Five-Forces Model of competitive analysis is a widely used approach for developing strategies in many industries. According to Porter, “the nature of competitiveness in a given industry can be viewed as a composite of five forces: rivalry among competing firms, potential entry of new competitors, potential development of substitute products, bargaining power of suppliers, bargaining power of consumer”. (Campbell.J.D & Tom.G. p432).
Rivalry among competing firms.
Rivalry among competing firms considered to be the most powerful of the five competitive forces. “The strategies pursued by one firm can be successful only to the extent that they provide competitive advantage over the strategies pursued by rival firms”. (David.R.F p101)
Food industry in the UK is considered to be highly competitive as there are several key players that compete with each other. Tesco plc has strong competitors in a face of Sainsbury and Asda.
Potential entry of new competitors.
Threat of a new entrants in UK food industry is considerably small, as the barriers to entry is high, with Tesco, Sainsbury, Asda are already in the market, new supermarket will meet strong competition from the main players that will try to destroy any chances of survival in the market. One of the strategies that can be used is lowering prices in their stores to make the market for the new entrant unattractive. “The Office of Fair Trading blamed the expansion of supermarket groups in the convenience grocery sector in the last five years for reducing consumer choice and said it planned to refer the grocery market to the Competition Commission”.(Smith.G & Rigby.E FT.com) It also condemned the size of land banks retailers have built up, saying it prevented rivals opening new stores.( Smith.G &Rigby.E. FT.com). More common trends for UK food industry are merger of supermarkets chains or acquisition. Safeway supermarket chain is now part of Morison; also Asda is now part of American Wal-Mart.
Potential development of substitute Products.
Tesco is in close competition with the producers of substitute products, as there are different supermarkets that offer the same products and some of them even at lower prices, if the product is expensive in one of the supermarkets, there is an opportunity for the customers to go to another one where they can get it cheaper. For Tesco to be on the top of the market and not to lose their position they always have to develop new products and services, as well as quickly adapt to the current situation. Tesco is adapting its business to suit present situation of credit crunch by introducing to its customers range of discounted brands, in a matter not to lose to its competitors like Aldi, Netto and Lidl. “The recent turbulence in financial markets also brought opportunities for Tesco’s personal finance business, Sir Terry said, that Tesco’s plans to offer current accounts and mortgage”. (Urry. M. FT.com)
Bargaining power of suppliers.
Tesco’s biggest advantage over their suppliers is their size, as they have 2115 trading stores only in UK and with 30.4 percent market share they can dictate the prices, if the supplier doesn’t agree to sell at offered by supermarket price they will be left with no retailers to sell to. Suppliers to Tesco, the UK's biggest supermarket, have complained that “the retailer is not allowing them to increase their prices until the end of its financial year in a matter to keep prices in their stores down”. “Some claim the retailer has launched an initiative called "Project Iceberg", which has frozen the price Tesco pays suppliers for goods”. (Hall.J Telegraph.co.uk) Tesco’s denies that such a project exists.
Bargaining power of consumers.
The last of the forces I will look at is the bargaining power of consumers. It can be argued that buyers are loyal to their local store, regardless of the company. Also we can say that consumers also have no bargaining power with supermarkets, as all prices are set and cannot be changed. On the other hand with many alternatives available, consumers may choose to shop elsewhere if they don't like a specific store, as product differentiation between the supermarkets is relatively small or they think that the products are too expensive. Supermarkets are known as price makers for their suppliers as they tend to bring customers into the store by offering as low prices as they can, so customers will be attracted by the low prices.
Q 3.
Strategic management is all about gaining and maintaining competitive advantage. “Getting and keeping competitive advantage is essential for long-term success of an organization”. (David. R. F p8) Tesco is the largest British retailer by both global sales and domestic market share with profits exceeding £2 billion. I will look at the main point that I consider gives Tesco advantage over its competitors.
- Tesco has over 30% market share in the UK that gives them advantages are often referred to as economies of scale - the advantages of large scale production that result in lower costs per unit produced.
- Tesco uses mixed store strategy. We can see Tesco stores as big as Tesco Extra outside of town centres to the small stores near tube stations. With the mixed size stores Tesco has better chance of targeting more customers. Compare to their opponent Asda that builds their stores only outside of town, where most of the customers will have to drive to get there.
- Tesco has a very strong brand that helps them get noticed and differentiated among others in a very competitive retail world. A strong brand means it will cost less to win a customer.
- Loyalty cards have been introduced by Tesco since 1994, that help them to gain important information about their customers spending habits, also Tesco ClubCard is used to pass on benefits to their customers. Sir Terry Leahy: “Quite a lot of Tesco’s success can be attributed to the use of customer data. Of course, it is absolutely confidential, and no individual details are ever released. Learning how customers shop and what they buy helps us to understand their needs better, and we can target our resources - all of which leads to better marketing”. ( Anon.2006. FT.com)
- Tesco also has an advantage of international trading. They operate in 13 international markets, nowadays Tesco’s profits are not coming just from the UK market that is very helpful in a current economic situation. (Bloomberg news. International Herald Tribune)
- Tesco was one of the first retailers to go online back in 1995. With the investment of £60 million since 1995, it now has £300 million turnover. The main point of Tesco.com is that they have decided to use in store staff to pick the online orders from the shelves in a store rather than opening special warehouses for the products that were ordered online. While other retailer mainly were using warehouses. Tesco forecasted that the large warehouses will bring chaos and will be a recipe for disaster. (Design Council.p21 )
Q 4.
Porter’s five forces is a useful tool for mangers that seek to understand the competitive environment in which their company is operating, but the framework that has been developed in 1980 has a several drawbacks in modern business environment.
- Porters five forces cannot be applied equally to all business in the industry, the strength of the forces will vary from business to business. For example, large businesses will face less threat from a supplier than smaller ones, also companies with a stronger brand will be less susceptible to a buyer power and substitutes than those with a weaker brand.
- It is said that the framework makes it possible to assist potential profitability of a particular industry. But in a modern rapidly changing business environment, company’s specific factors are more important for the profitability, than industry factors. (Evans. N & et al p 183) It can be a case that company will want to enter not very attractive industry, but with new approach and technology, it has opportunity of winning a market share.
- In Porters five forces competitors and buyers have to be overpowered in matter to gain profitability, but in reality, relationships within industries are more complex. (Campbell.J.D p142) It is often happens that buyers and suppliers develop relationships that could last for decades, and can be characterised as partnership.
- Also the framework outcomes are relevant only in a constant environment, with a continual move towards more complex environments means that Porters five forces finding has to be constantly reviewed.(Campbell. D & et al p142)
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