Tesco. Supermarket Industry in England

Introduction

There are many challenges that managers face in an organization and may be due to uncertain environment in which they work in, that is influenced by the way the operations of a company are carried out. Extensive research should be carried out within an organization and its environment so as to overcome these challenges so that growth and development can take place effectively.

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Business Environment England

A business refers to an organization that provides goods and services to the customers and that also transforms the inputs to output so that they can be used in quantifiable proportions.

SWOT analysis

It is a strategic planning tool that is used to evaluate the internal and external factors that may enable an organization to achieve its goals and objectives. These factors are; strengths, weaknesses, threats and weaknesses. Strengths are the attributes that enable an organization to achieve its objectives while weaknesses are harmful attributes that hinder an organization from achieving its objectives. Opportunities are external conditions that help an organization to achieve its objectives unlike threats that cause damage to an organization.

Strengths

England is a country that has an economy with all kinds of people who carry out business activities so that they can generate income that can boost their living standards. It offers quality services to its resident since its employees are qualified to undertake all kind of jobs offered in the market. It has four international airports that are used to ease the process of delivering goods and services from one place to another that are linked to United States and Canada. Deep-sea ports, fast rail links and extensive highway networks are facilities established by the government of England to ease transportation of goods and services.

Weaknesses

In England, there are some supermarkets that are known as Safeway, Wal-Mart, Tesco and Sainsbury that wanted to merge other smaller companies so that they could remain competitive in the market.The Commissioner of Competition denied them permission to carry out their business as mergers would have contributed to price wars within the industry.

Opportunities

These are factors that are external to an organization within a country that enables a company to achieve its objectives. England is advantaged because it has certain features that enable it conduct its businesses well. This includes its strategic location where business can be carried out effectively. Tourism for instance, has in the past been flourishing due to attractive transportation services and sites. Markets have been effectively developed and this has contributed to the growth of the economy.

Threats

They are the factors that cause damage to an organization. The threats that have been affecting the performance of the organization include: limited opportunity for enhancing diversification of services within a country, enforcement of restrictions that are not necessary for an organization. The agricultural sector has not been performing well in the country due to degradation of the environment and traditional agricultural practices have been neglected yet they contribute to higher yields within the organization.

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Market Environment Analysis

These are environments that influence the way the operations of an organization are conducted. They include; internal environment that is composed of staff, office technology, wages and finance while micro-environment consists of external customers, agents and distributors, suppliers or competitors and the macro-environment that is composed of political and legal forces, economic forces, socio-cultural forces and the technological forces.

PEST Analysis

It is an analytical tool that is used by the analysts to undertake strategic planning within their organization so that they can identify the political, or legal, economic, social and technological issues that may be affecting them and the organization when undertaking their duties and responsibilities.

Political factors

These are the factors that are known to influence the way the operations of an organization are carried out; for instance the way businesses are conducted, spending power of the customers and other businesses. An organization can fulfill its obligations if it takes into account factors that may influence the operations of an organization. These are: the political stability of a country and the ways that government influences a company’s laws and regulations. A company should also consider the government policy that may either positively or negatively influence the way the operations of a company are been conducted, country’s culture and its religion.

The major supermarkets in the country stated their interest in taking part in the takeover bids which gave disastrous results since most investors reduced the prices of their goods so that they could be in a position to sell their products to the customers. The Commissioner of Competition in England stated that the takeover bids would be withdrawn because they led to price wars that affected the reputation of the industry as goods were being sold at throw away prices. The suppliers of the supermarkets were also affected by this is because of the management of those customers bought their goods at very cheap prices, lower consumer surplus, restricted choice of goods and services and lacked innovation.

Economic factors

These are the factors that are used in determining the long term and short term state of an economy. The following issues are taken into account while dealing with type of factor; interest rates, levels of inflation, employment level, per capita and the long term prospects of an economy such as the Gross Domestic Product (GDP). A church in England complained bitterly on behalf of the farmers who supplied their produce to the supermarket since they feared they would be victimized by the management of the supermarkets. The majority of the farmers made claims that managers of supermarkets bought their produce at cheap prices, disguised that products produced locally came from Britain, and also facilitated payment deductions and financial inducements that were being paid to the retailers at the expense of the farmers. These factors demoralized the farmers since their income reduced that later on affected their living standards.

Social cultural factors

These are the factors that influence the way the operations of an organization are carried out for example dominant religion within a country, attitudes of the people towards products and services, time spent by consumers while undertaking their operations, roles of men and women in society and also the different categories of people within the society.

Technological factors

These factors are used by the analysts to evaluate whether a company has a greater competitive advantage or not. Technology determines whether goods and services can be produced cheaply or not within an organization. This factor takes into account whether the business can offer innovative products and services to the customers such as internet banking and new generation mobile telephones to their customers. The supermarkets in England used the latest and new technology that enabled them to serve their customers more effectively. These companies were in a position to offer competitive prices to their customers and this led to their increased returns that brought about growth and development within the country Alan, M. (2002, p. 34).

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Environmental factors

These are the factors that address environmental issues that occur in different areas in the world such as international, local and national areas. When analyzing environmental factors, other issues such as environmental regulation, market values, global factors and shareholder values should also be taken into account. Citizens in England should be provided with education, training and guidance by the environmental agency with an aim of protecting the environment from further damage. The agency also ensures that the country’s natural resources such as air, land, and water resources are not damaged so as to protect them as they can be used by the future generations. The government launched an Environ wise and Defra program that was aimed at helping the businesses to remain competitive by ensuring that the environment was not affected and resources were effectively utilized by the residents of the country. The program was aimed at advising companies on ways in which they could reduce waste through recycling the useful resources.

Legal factors

These are the factors that address the regulations undertaken by a government to avoid carrying out of illegal activities within an organization. Some companies have taken several measures to assist them in regulating the illegal activities that take place within them. The following strategies have been selected so that companies can eradicate illegal practices; current home market legislation, regulatory bodies and processes, environmental regulations, employment laws, consumer protection and competitive regulation.

Legal executive officers are enforcing laws that meant to regulate the way businesses are conducted so as to avoid businesses from venturing in illegal businesses within the country. The government has also taken the chance of regulating real estates and construction industries to reduce illegal activities so as to encourage effectiveness within companies.

Porters five analysis

It is an analytical tool that is used to analyze an industry and to apply the business strategy within the organization. It is used to determine whether a market is competitive and attractive within the market. A market is considered to be attractive when it can derive some profits that can bring about development within a country. It affects the operations of a company and its generation of profits.

It is composed of three forces from the horizontal competition such as threat of substitute products, threat of established rivals and threat of new entrants within the market. The two vertical competitive forces are; bargaining power of the suppliers and the customers. The analytical tool known as porters five analyses can be applied within this sector this because it analyses an industry’s performance in greater details.

Threat of substitute products

This occurs when products can easily be substituted within the market such that customers choose easily from a variety of products that suits their need and wants. Customers can easily substitute goods when there is product differentiation, higher buyer switching cost and when the relative prices of the substitute products been offered in the market is high (Alan, M). The customers in England were in a position to obtain different kind of products because there were different suppliers of products which would meet the needs of the customers at the appropriate time (2002, p. 34).

Threat of entry of new competitors

There are instances where a number of firms generate considerable higher returns, and new investors join the market so as to earn the profits generated by those firms, but this may affect the profits being derived as they can decrease with time due to higher supply of commodities against the demand which may be lower. The supermarket industry proved to be generating greater returns for the investors and this led to other companies desire to join into the industry. The entry of new investors reduced the returns that were being earned by the already established companies.

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Bargaining power of the customers

This is a porter force analysis that stipulates how the customer can put pressure on the firm on the way it should conduct its business. It also affects the customers sensitivity to price changes. It may occur due to buyer switching ability that is relative to firms switching costs, differential advantages of the industry products. Supermarket businesses offered fair prices to its products that attracted customers as the prices were affordable therefore they switched from various types of business so that they could purchase goods at fair prices at the supermarket.

Intensity of the competitive rivalry

Where there are many investors within the market, they influence the way the operations of a company can be carried out. This situation arises when the number of the competitors is high, diverse competitors and economies of scale is been exercised where the fixed cost of allocating the value added to goods and services is being practiced. In the year 2003, the supermarkets in England such as Safeway, Wal-Mart, Tesco and Sainsbury supermarkets announced that they would offer takeover bids to the customers so as to increase their sales revenue in the market.

The importance of the integration of the companies would be to help them remain competitive in the world market as most people had invested in the supermarket industry. Tesco company has been facing competition from rival companies that have been selling the same products and therefore, to overcome the competition, the management of supermarkets companies have been reducing prices for their products that has led to price wars as companies try to remain competitive in the world market Alan, M.,( 2002, p. 34 ).

The bargaining power of the suppliers

The suppliers may influence the way the operations of a company are being carried out since they may refuse to work within the firm as they can charge exorbitant prices to products that are being offered in the market.In case of the England’s supermarkets, the suppliers of goods and services to this supermarkets complained bitterly of how they products were being bought cheaply so that supermarket could offer lower prices for their produce and be in a position to remain competitive in the market. Suppliers took action by failing to supply the goods demanded by the supermarket at very cheap prices.

Tesco Company

This company was established by John Edward Cohen in 1924 at East End of London. It was later on incorporated in 1932. John Cohen once visited the United States of America and was impressed by the way the self service industry was being conducted. He noted that it was cost effective and customers were being served at a faster rate. It is from these developments that made him to reconsider investing in the self service industry. He established the first supermarket in St Albanas, but it did not become as successful as he expected. He later on requested the parliament to abolish the Retail Price Maintenance Act as it would allow the manufacturers and suppliers to set up prices for their goods and services so as to boost their performance in the market.

Tesco Company is located in United Kingdom where it carries out grocery and general merchandising retail businesses. This company operates more than 900 stores, 2291 supermarkets, superstores and convenient stores in United Kingdom, Europe and Asia. In essence, it has created employment for over 240,000 people who undertake various operations within the organization (McGoldrick, 2002).

Strategic analysis refers to the long term planning process that involves examining factors that influence the company’s progress and performance now and in the future. The company has been performing well in the market it ventured in the non-food business that involved clothes, consumer electronics, consumer financial services, internet services and consumer telecoms that enabled it to generate income within the industry.

Tesco’s strategy

The management of this company has been developing the following strategies within the organization like developing international stores, building non-food stores, enlargement of its retailing services in sectors such as insurance and banking which has significantly contributed to the success of the organization. The other strategy has been the application of oligopsony where prices of goods supplied to the supermarket are lower so that it can generate higher profits from the customers. This strategy has been criticized as it has led to exploitation of the suppliers who have not been deriving enough resources to run their operations effectively. The management of the company has ventured into the non-food product that consists of photo-labs; pharmacies for electrical goods have been generating higher returns for the organization since they command greater profit margins than the traditional products which can be bought at larger quantities which has greater economies of scale.

The operations at the Tesco International Sourcing Company have been ongoing for a period of 30 years. Its obligation has been to undertake strategies that could improve the performance of the company. Its headquarters are in Hong Kong where different kinds of products are developed so that they meet the needs of different kinds of customers in the market. It also works with the manufacturers so that they can provide competitive prices, offer unique differentiated products and to maintain quality standards that have enabled them to perform effectively in the world. Currently, it has employed over 100 people in Thailand, India, Sri Lanka, Mauritius, Bangladesh and China who have been in a position to carry out extensive research. The research has enabled them to understand the world market and the customers so that the right kind of information can be provided to them at the right time and place Alan, M., (2002, p. 34).

Management of Tesco Company has been facing challenges from competitors who have been complaining of its expansion strategy. Tesco Company has a number of competitors and they have been occasionally complaining of about their low prices that they offer to customers. This is because, their expansion policies had in the past led to price wars within the country as other supermarkets tried to remain in business.

All organizations set up strategies that were meant to assist the community to improve its living standards since the people within it can determine whether it will be successful or not. Tesco Company has been in the forefront of exercising social responsibility by: giving schools money so as to improve on its performance and to bring about development into schools so that children would have an environment where children would undertake their tasks effectively Peggy (1997 p. 25).

The good infrastructure that accompanies the Tesco Company has enabled it to perform effectively in the world market. The management of the company has been in a position to increase its operations through introducing many businesses such as: the non-food business, personal finance, an internet shopping. This company has had profitability for a long time and this efficiency has contributed to increased sales and institutionalization of its sales and purchasing operations. The other factors that contributed to its success were; offering cheap prices to its customers, provision of better service value and a variety of products to the customers and this proved to be a convenient way of carrying out their operations and for increasing the sales revenue for the company.

Strengths of Tesco Company

There has been creation of employment opportunities for a large number of people in all their branches and in other parts of the world. It has employed thousands of employees who have contributed to the growth of the economy as various industries has been selling products in wholesale and they later on sell to the customers at retail prices.

This company has been in operation for a long time therefore, it has been deriving greater returns as it has known its customers, suppliers and therefore provision of its services has been good. Many challenges are faced by new investors in the grocery and merchandising industry while entering into the company’s established market and this is because of the high cost of capital requirements that have been involved. These new investors lack the necessary knowledge and skills that would have enabled them to perform their activities effectively Peggy (1997 p. 25).

Due to the size of the Tesco Company, it has been in a position to purchase a wide variety of its produce that has enabled it to enjoy economies of scale. This factor has enabled it to have relatively good prices that are fairer than those of its rival companies such as Sainsbury and Asda. In service courses of employees have been taking place at the Business Strategy Academy where they are expected to acquire a wide variety of ideas on how they should carry out their activities in the industry, so as to increase the sale revenue for the industry.

Weaknesses of Tesco Company

Its major weaknesses are that it has not dominated various parts of the country as this would have enabled it to increase its sales volume. Tesco Company has not delegated out its services that would have enabled it to reach out to all its customers because they have various needs and desires that should be satisfied within a stipulated period of time. It has also been accused of selling its products at low prices and this has been caused by the suppliers of the goods to the company since they have not been in a position to generate returns that can meet the cost of running the operations of the organization Peggy (1997 p. 25).

Financial analysis of Tesco Company

Financial analysis is the process that is used by analysts to understand the true financial position of an organization using the ratio and DuPont analysis. It is also used in conducting a survey on the company’s strategic plan, financial planning, and for ensuring that business valuations are undertaken effectively. The financial ratios showed that the performance of the company was improving each year. The management of Tesco Company recorded increased profits due to its ability to capture a bigger market in the grocery and merchandising industry, which enabled it to carry out its activities effectively. It also sold its products at fair prices which contributed to the success of company since it enjoys large scale economies of scale.

Value chain

Value chain refers to the path that products follow in order to gain relevant value that is useful within an organization. It enables a company to have a greater advantage over other organizations in terms of competition. Value chain is used in analyzing an organization by determining the behavior of the costs incurred as a result of running its operations. It is achieved through separating the business into a series of value generating activities that enhance competitive advantage and shareholder value to take place effectively. Companies can exercise the value chain by undertaking activities such as supplying and selling goods and services between persons such as suppliers, competitors, and customers within a market. The management of Tesco Company stated that they would redevelop a value chain that would enable the company’s products to be accepted in the international market. The call centers were later on installed so that the customers would be served effectively. Pick and Pack model was used within the organizations so that the employees would collect the online sales in the store and deliver services to customers at an appropriate time.

It is important for all organizations to carry out extensive research on strategies that can bring about growth and development within a country. For instance, in the management of Tesco Company undertook several measures to ensure that the operations of the company were been undertaken effectively such as purchasing goods in bulk thus could have economies of scale which led to offering of low prices to the customers.

References

  1. Alan, M., 2002, “There Is More in Store for Tesco with T&S Buy,” Marketing Week, p. 34.
  2. Buyer ProfileTesco.
  3. Church proposes independent ombudsman to stop supermarkets squeezing farmers.
  4. Chris, C.1995. “How Tesco Took the Low Road to Scotland,” Grocer, p. 14
  5. Johnson, G., Schools, K., Whittington, R.2005. Exploring Corporate Strategy Text And Cases, 7th Edition: England, FT Prentice Hall
  6. McGoldrick, P. 2002, Retail Marketing – 2nd Editions, Maidenhead: McGraw Hill
  7. Peggy, H. (1997).”The Skier Keeping Tesco away from Slippery Slopes,” Financial Times,  p. 25.
  8. Susanna, V., 2000, “UK: Stepping Back Quietly from a Dream Spree,” Financial Times, p. 22.
  9. Tesco Strategy Report Pestle Factors.
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