Tesco Analysis Essay

Custom Student Mr. Teacher ENG 1001-04 17 February 2017

Tesco Analysis

History

Tesco was founded about 1919 by a person call Jack Cohen in London’s East End. In this year as well he Jack Cohren started was selling groceries in the markets of the East End. After about 5 years the name TESCO started to appear on labels because Jack Cohen brought a large shipment of tea from a company called T.E. Stockwell. Due to this he put the first two letters of the supplier of tea along with the first two letters of his surname and this spelt out TESCO. The first Tesco store opened in 1929 and now it has 1,800 stores just in the UK and its present felt in 12 countries.

Tesco now is the largest British retailer, both by global sales and by domestic market share, and the fourth largest retailer in the world behind Wal-Mart of the United States, Carrefour of France, and The Home Depot of the United States. Tesco used to only sell food but now it has moved into areas such as clothes, consumer electronics, consumer financial services, selling and renting DVDs, compact discs and music downloads, internet service and consumer telecoms.

Introduction

Tesco over the years is UK’s most popular retailer with over 13 million customers a week, number of non – food products/services available has gradually increased, Tesco.com is the world largest home delivery service in the world and it is operating in 12 different countries with further expansion in other countries. The reason for all these success mentioned above is all down to one thing, which is the approach taken by Tesco on customer focused.

Tesco is unique in this way because many retailers would tend to focus only on profits. However, Tesco as well as making profits would like to “create value for customers, to earn their lifetime loyalty”. ( Tesco Interim report, 2005) This can be seen in Tesco mission statement and the way this is achieved is through corporate strategy.

The corporate strategy of this retailer consist of four parts; UK Core Business, Retail Services, Non-Food and International. It can be seen from the annual report that the profits in each of these four strategies have gone up. In the UK Core Business profits went up 14.9% compared with few years back where there was an increase of 12.7% , Retailing Services was £40 million pounds but now it is £70 million pounds, Non – food was expected market share to only be 6% but it is actually 7% and the operations in overseas market is now in 12 countries.

The success of this strategy needs to be broken down in order to provide evidence to show how effective Tesco as been and in what way.

1) UK Core Business – Tesco has got a strong UK Core Business because this is where everything started from and gradually as the years went on the retailer was able to exploit opportunities. This was done through innovation and having the energy in finding ways to expand. After five years there were only 728 stores in the UK (Tesco Account Watch, 2002). However, now that numbers has dramatically increased to 1,800 stores (Tesco, 2006) with more then 260,000 employees. From this it can be seen that Tesco idea of expansion was a huge success and this is reflective in the profitability where the sales are £32.7 billion pounds and the operating profits are £1.788 million pounds.

2) Non-Food – This is seen as being important for Tesco because in the future they would like be in front of their competitors. This can be seen in an annual report of 2002 where it state that “..in the long term would like to be as strong as it is in food to have 6% market share within the next three years.” (Tesco Account Watch, 2002)However Tesco have succeeded the expected market share by gaining a market share of 7%. (Tesco,2006) The main reason why this has gone up is due to the fact that Tesco has been able to offer over 100 new products including CDs, electrical goods, clothes etc at low prices and at good quality. By doing this, it will allow this retailer to keep customer loyalty for a long time as well.

3) Retailing Services – The effective way of implementing this according to Tesco is through joint ventures with major players in the sector they want to operate. Bu doing this it allows Tesco to the ability to contribute it customer base as well as brand strengths to the partnership and vice versa.

This has been done exceptionally well since Tesco were able to “follow customer” (Tesco Account Watch, 2002) by offering a wide range of products/services not just to existing customers but to new one as well. Tesco offer three things so far; Tesco Personal Finance (TPF), Tesco.com and Tesco telecom. All these have done well with the increase profits of £70 million pounds for TPF, Tesco.com sales nearly £1 billion pounds and the telecom is serving over half a million customers.

4) International – The expansion of Tesco overseas first took place in 2004 where it was decided that Central Europe and the Far East would be first to have a Tesco. Since this retailer was so successful in the UK it did not enter the market in the Western European and USA because it was not ready since it didn’t know the market, culture, etc. However expanding in Central Europe and Far East was a good choice to start off with because it allowed them to use the best practice suitable for them for developing stores efficiently and at minimum cost. It also allowed them build the store as soon as possible since “a range of store formats that can be rolled out quickly as required” (Tesco Account Watch, 2002).

Ever since the first expansion in 2004 Tesco now is operating in 12 different countries with further expansion going on in Western Europe and in USA. The expansion occurred through six different steps: 1st – Being Flexible – Approaching market differently since all markets are unique 2nd – Act Local – Need to get the attention of the local and build relationship with them as well. 3rd – Keep Focus- It always take time to establish in a market therefore need to always be focus on the tasks in hand.

4th – Be Muli-format – Need to be able to adapt a number of different store format since only format will not reach the whole market. 5th – Develop Capability – Need to be able to train people and develop relationship with others and share the information is vital for the chance of success. 6th – Build Brands – This allow establishing long relationship with customers.

From the above it can be seen that the strategy that Tesco have are very much related to giving customers the best service by offering a range of products at low prices and at different places. By putting all their attention on customers would allow them to exceed expectations in terms of profitability.

Tesco Strategy

From examining Tesco strategy it can be concluded that Tesco follow deliberate strategy which can de defined as “…quality of acting intentionally…they ‘think’ before they ‘do’, (Wit & Meyer,2004). Tesco follow this strategy because they intend to do something which is realised afterwards. For example one of Tesco strategy is about UK which involves frequent contact with customers and building new stores which meet different customer’s needs. From these the profitability for the UK has gone up therefore it was realised that this strategy is working well. Similar to this is that the other strategy about international, non food products and services have all seen an increase in the profitability.

Tesco tend to have a plan for each strategy which further illustrate that Tesco follow deliberate strategy. When Tesco started off it the strategy was “pile it high and sell it cheap”. This was unsuccessful and a plan was put together and a new strategy came which was about achieving customers loyalty for a lifetime. This is a success and if the fundamental purpose of Tesco.

Tesco on the other hand strategy may fall in the category of emergent strategy. This can be seen from the non food products. Tesco offering telecoms, internet etc falls here because the opportunities were there which needed to be exploited. Similar to this is that if Tesco did not take these opportunities with both hands the threat was that other supermarkets would take full advantage of this. Also a threat was that if a competitor does something the supermarket “must follow to remain competitive” (Elsevier bookshop, 2006).

Overall the approach taken by Tesco is a rational planning approach. The reason for this is because Tesco knows the direction it went to go, the main purpose of the business is known and the objectives are established. All these are done differently through different analysis such as External/Internal environment, assessing current position etc.

Financial Analysis

Profitability Ratios

The following ratios compare Tesco Store Plc and WM Morrsions Supermarkets PLC.

Return on Investment

Tesco Plc

WM Morrisons Supernmarkets PLC

20.08% (Anuual Report 2006)

5.55% (Annual report, 2006)

The above ratio shows how management use the company assets to generate revenue. In the above ratio it can be seen that Tesco Plc, 20.08% earning are much higher compared to WM Morrisons Supermarket PLC which is 5.55%. Due to the big gap between these two companies it clearly shows that Tesco’s operational management is more efficiently making full use of the company’s asset to generate more sales.

Gross Profit

Tesco Plc

WM Morrsions Supermarkets PLC

7.7% (Annual report, 2006)

24.58% (Fame-analysis)

The above ratio is an important measurement in terms of profitability since it basically measures the trading effectiveness and basic profit earning capability of a company. From the above ratio it quite strange that WM Morrsions Supermarkets PLC ratio is much better in comparison with Tesco Stores PLC. Therefore it shows that the production and distribution efficiency of WM Morrisons Supermarket PLC that it manages to earn a greater percentage of gross profit than Tesco Stores PLC.

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