The Origin and Growth of Tesco
The Origin and Growth of Tesco
1. Identify the development directions that Tesco had followed from its origins as a UK based grocery retailer.
2. Identify the development directions ‘available’ to the company in the future and assess the relative suitability of each of these options by ranking them (using Illustration as an example).
3. For each of the top four development directions in your ranking compare the relative merits of each development method (internal, acquisition or strategic alliance).
4. Complete your evaluation of the options that now appear most suitable by applying the criteria of acceptability and feasibilityTesco group has indicated significant progress in last years, which can be found in figures from balance sheets. Profit and Sales of the Group in UK have doubled comparing with recent four years to £2.28bn and £39bn. Looking further in to statistics of business there also is increase in number of stores that had tripled to 2672 and amount of workers boost a 60% to 273.000 people. Focusing on European performance there was increase in sales by 4 % to 13%. Asian figures didn’t disappoint founders either there was 5 % increase in sales gaining 11% on Asian markets.
Clearly there is development in Tesco business, but which moves justify increase in profits. There’s been long way from its origins as average grocery store to what Tesco is currently. Tesco invested heavily in every part of the offer that could bring more satisfaction to customer. Management understood that availability is very important for customers in effect Tesco is open 24/7. Customers can do the shopping any time any day. Tesco targets view variety of customers that’s why Group diversified its range of products. From cheap products, available almost to everyone, to more expensive – satisfying more demanding customers. Company understood as well importance of local differences, by adjusting its offer to local customers’ taste. Not having only standard products, allow company penetrate market and its niche more efficient.
Another step in development of company was way of reaching customers. Society differs in preference of how they like to do the shopping, which explain why Tesco modifies its format of retailing. Introducing e-sales through website it helps to minimize time spent for shopping, some customers must really appreciate this solution. Tesco also increased sales area in shops to just satisfy customers who came to do big shopping buying wide verity of products. Tesco place those big stores in city centre as well as on boarder of cities.
The last parts of Tesco’s selling chain are the small “express” shops that make shopping more convenient. It’s quite popular in Poland, customers prefer to go out from home and buy few products in the nearest small shop then go with the car to the big store. Another big step for Tesco was to launch non food products in its offer. This appealed more people to come to big stores or website. It influenced culture of shopping; buying products became a family event.
Group Tesco with its growth decided to move to new business sectors. Now they provide financial services, advertised under the slogan of simplicity. Tesco become virtual telecommunication operator thanks to partnership with O2. Tesco group entered electricity sector by becoming middleman that connects demand with supply. Customers thanks to site http://www.tescoenergy.com/tesco/ now can easily find cheapest supplier that satisfies their needs. Another great success Tesco achieved when they launched DVD online rental services.
To identify future development paths it’s required to evaluate current situation and issues that Tesco has to deal with. Company has noticed that loyalty of customers has been falling down lately, as well as young customers don’t find Tesco attractive brand. From my personal perspective in Poland Tesco is perceived as store that gathers “grey people” who count every cent. Stores like Carrefour, Geant, Auchan managed to create image of retailer that is not expensive but still not cheap.
It’s worth to mention that Carrefour is the second most prosperous brand after the Wall-martIn long term perspective it’s important to gather attention of young clients since they will get old and leave more and more money in Tesco if they will be satisfied with shopping experience. In modern world selling is all about the feeling that customer gets after purchase of a product. Poland is emerging country with time society will get wealthier (even in global scale society gets wealthier), young clients will be adults and the image of being very cheap store might not be the most efficient appeal.
To gain sustainable growth Tesco needs brand management to change perception of its customers. Good, fresh and strong image will help to grow Tesco in retails as well as in other business sectors that company is already present and is going to be present in Future.
To improve image Tesco group will have to:1. Redesigned logo and corp. website2. Change stores interior3. Special advertising that emphasizes on experience, reliability, constant innovation, and rightly priced products4. Advantage that brings customer5. Be present at cultural, sports, charity events and shopping malls6. Increase quality of customer serviceImproved image allows company to-gain loyalty of customers,-penetrate global market more efficiently-launch in to new business sectors (with less risk after gaining trust and recognition of customers)Another issue of Tesco is that Brand is not unified, some countries have access to e-store or financial, travel services etc. and other nations don’t have access. Global company should provide the same standard product.
There is difference of quality Tesco’s products in United Kingdom and Poland. To gain sustainable growth Tesco has to localize in global scale, also increase the net of stores in European countries, as well as launch other services in order to penetrate them better. In Future internet will be medium that is as obvious as TV today. Tesco should invest in e-retail now since it brings lots of profit. Costs of e-store are much lower, than regular store, amount of visitors might be much higher since there is not distance limitations, customer doesn’t loose time standing in queue, doesn’t have to spend on gas going to store. It’s very convenient for supply and demand side. Tesco should launch e-stores first in countries where internet is already widely spread then move to countries where is not so popular to make people to get used to doing shopping online. The sooner Tesco will be available online the more customers it will reached in future.
Tesco should also invest in logistics department to avoid issues from past like entering new markets (example: India) by developing net of local partnerships that will allow have enough suppliers. Logistics will also play key role in e-commerce, when products have to be delivered to customer world wide. It should be fast and efficient. Outsourcing might be very costly; there is possibility of taking over transport companies.
To reduce risk in business Tesco should divesificate its source of income it might be buying under valued companies on stock market and selling them with profit.
*Graph* (in attachment)Possible Obstacles:Improving image will take a lot of time and planning as well as consume larger amount of money. There is difficulty in finding proper image that would appeal worldwide consumer and work efficiently on local markets. Management of local image can not be pursuit from global chair. Trouble with introducing new advantage over widely spread competitionUnification of standard in provided Tesco’s products will be another cost, unification of services sometimes might be impossible thanks to local differences and lack of demand for them or lack of infrastructureBetter access: Increasing net of stores might be difficult if there is limited area that can be rented or purchased, or lack partners that are willing to cooperate by supplying stores. Resistance to new technologies like e-commerce can bring some losses on certain areas in short term. Lack of access to internet decreases potential customers.
Logistics department:Intensity of management especially in e-commerce, not efficient work can cause out flow of customers. Difficulties in entering new markets, caused by strong and experienced competition.
New sectors of business:Strong brand should appeal new customers however it will take time to gain loyal group of customers. Looking profit on stocks market might bring sometimes loses.
Wrong strategic alliances or acquisitions can decrease profits.
Tesco group is successful company that managed to increase its profits, however to reach more markets and more customers has to develop sustainable strategy that improves current issues and forecast future trends in order to prepare and be ready follow them. Tesco cares about their customer, which is why it should improve its brand on global scale. Good brand and reliable service in its core business will allow Tesco to reduce risk in fields that it has never been before. Conquering new markets and developing in existing markets group never should omit cultural factor.
Case study: Colaris Research “Supermarket Exelence: Tesco”http://www.coriolisresearch.com/pdfs/coriolis_tesco_study_in_excellence.pdf