Tesco PLC: Success and Future

Products and Services Offered

Business Expansion

Cultural Dimensions

Location Factors

Tesco’s Future (Porter’s Competitive Model)

Suppliers’ Bargaining power

Buyers’ Bargaining Power

Possible Entry of Competitors

Substitutes’ Threat

Extent of Rivalry

Tesco PLC is a UK-headquartered general merchandise store, with outlets in eleven other countries. Tesco is the largest of its kind in the United Kingdom, and only second to Wal-Mart, in the world. It began as a small group of stalls in 1919. The name ‘Tesco’ was, however, only adopted later in 1924; and the first store opened in Middlesex five years later. By mid-1990s, the company had hit the 500 mark in terms of operational stores. This number almost tripled in the following decade, and the chain currently consists 2,500+ branches, spread across twelve countries. Besides being an FTSE 100 component, the company is listed on the LSE, and controls a significant share of the United Kingdom grocery market.

This text explores the operational activities of Tesco. It describes the company’s product range and the forms of expansion it has undergone over the years. Additionally, it examines the possible role of cultural policies and location factors in the company’s success, and analyses its prospective future growth.

2.1 The Products and Services Offered

Food and groceries are the core retail items in Tesco stores (Yusuf, 2011). However, the company also deals in electronics, game items such as DVDs, toys, and clothing. Tesco electronic products operate under the common brand name technika. These range from the company’s own computers, television sets, DVD players, etc. (Tesco, 2013). As a matter of fact, Tesco, in September this year, launched its very own Hudl tablet computer (Cellan-Jones, 2013). The company also stocks exclusive brands of clothing such as F+F, stone bay, etc. (Tesco, 2013). In addition to the range of products available in the Tesco stores, the company deals in additional out-of-store products such as pharmaceutical products, pastries from the Tesco pharmacy and bakery brand images, respectively.

Moreover, Tesco offers a range of services including restaurant, phone shop, and optician services (Google Finance, 2013). Tesco also provides insurance and banking services through the newly-established Tesco Bank (Tesco, 2013).

2.2 Business Expansion

Product differentiation (variation) and acquisitions / mergers are the two major ways through which business expansion is realized (Dlabay & Burrow, 2007). Tesco’s expansion can be attributed to both factors. Acquisitions have played a major role in Tesco’s expansion, especially within the UK. Product differentiation, on the other hand, causes expansion by inflating the range of products offered. It involves bringing in a variety of new brands, flavors, packaging, etc. (Dlabay & Burrow, 2007). Tesco has witnessed massive growth, which has seen the development of branches scattered in Asia, Europe and America. This international expansion translates to a larger market, and, consequently, to more variations in tastes and preferences. Products need to be varied and new designs brought in, to take care of the increasing variations in tastes and preferences.

Tesco’s international expansion takes the circular form of business expansion. First, the expansion is accompanied by a change in the output pattern (product variation), and secondly, because the expansion has resulted in the production of products that are unrelated and totally different (Osborn, 1967). Tesco’s expansion has benefited its customers, who now have a wider variety to choose from, and lead to the creation of more opportunities for employment.

2.3 Cultural Dimensions

Culture has to do with the attitudes, values and beliefs shared by a certain group. Culture is, to a large extent, linked to communication. Communication is likely to be easier when people share a common culture. Culture influences business environment in the same way. Businesses can, therefore, only succeed in international markets if they understand, and respond to the variations in culture. Tesco has managed to thrive in international settings, mainly because of its ability to respond to the values and traditions in different nations. This it does, through effective management of organizational culture. Tesco’s core aim, for instance, goes beyond just profits (Tesco, 2013). It encompasses the aspect of ‘being the best’, in order to maintain customer and employee loyalty (Tesco, 2013).

Tesco, therefore, works by understanding the need of a particular community, and then tailoring its activities to respond to that particular need. This recognizes, and appreciates the fact that the needs of one community differ from those of another. This appreciation for cultural diversity explains why Tesco puts more emphasis on green policy in the UK, and in poverty alleviation in China. Tesco’s zero-carbon green business strategy in the UK is evidence of this (EMCC, 2013).

2.4 Location Factors

Location plays a significant role in the choice of business location. Factors such as availability of raw materials and proximity to other businesses have to be considered. It has, however, been speculated that an area’s demographic profile is the most prominent factor in Tesco’s store-location choices (Joseph, 2010). A significant number of Tesco stores in the U.S. are located across Las Vegas, San Diego and Phoenix (Joseph, 2010). These neighborhoods may not be the most affluent, but they have almost similar demographic features (Joseph, 2010);

i) High household and population density.

ii) Large extents of cultural diversity; a relatively large non-white population.

iii) A bulk of the population is aged between 15 and 25.

Implication: Young adults and teenagers are seen to lead an ‘on-the-go’ style of life; and would more often than not prefer ready-made foods (Joseph, 2010). Additionally, this group would make only small purchases of the same, due to their low incomes. However, since this group constitutes a bulk of the population, then these small, yet frequent purchases would translate to relatively higher sales; compared to an area where people make purchases in bulk, to prevent multiple trips to the store. The second argument derives from the idea of cultural diversity. Tesco, being a chain store that operates internationally, would naturally stock, in all its branches, products that are more or less similar. A culturally-diverse population would prevent a situation where some products move too fast, and others stay on the shelves too long.

2.5 Tesco’s Future

The Porter’s competitive model can be used to gauge whether or not, in the near future, Tesco will still be the market leader in the UK.

2.5.1 Suppliers’ Bargaining Power: Suppliers have relatively low bargaining power. The market is not saturated, and large firms, such as Tesco, can easily negotiate, and make choices between suppliers (Yusuf, 2011).

2.5.2 Buyers’ Bargaining Power: The buyers have a high degree of power to bargain and influence prices. They can easily shift from one supermarket to another, especially because information on prices is readily available on online websites (Yusuf, 2011).

2.5.3 Possible Entry of Competitors: Tesco enjoys a significantly large market share, and economies of scale. It has an established position, and reputation, which new firms may find difficult to match. Competition could possibly come from other large firms, but not new entrants (Yusuf, 2011). However, this may not be the situation in countries where Tesco has either just entered the market, or does not have much influence (Yusuf, 2011).

2.5.4 Substitutes’ Threat: This does not pose much threat, since Tesco conveniently offers lower prices than independent and local stores; and can compensate for the same by spreading the loss across the wide product range (Yusuf, 2011).

2.5.5 The Extent of Rivalry: This is significant. Tesco is one of the four large retail stores in the UK. The other three offer massive competition. Tesco, however, still enjoys considerable advantage, especially in terms of space availability (Yusuf, 2011).

Tesco takes advantage of its scale and scope economies to provide high-quality goods at relatively lower prices (Yusuf, 2011). Gauging from the four forces above, it is likely that Tesco will remain market leader for a considerable time into the future. If the current situation is anything to go by, then Tesco will obviously undergo more growth, and spread to more countries worldwide.

3.0 Conclusion

Location and cultural considerations have played a massive role in Tesco’s success, growth, and stability. Other businesses need to appreciate diversity, and devise suitable approaches to cultural variations if they are to succeed and, at least, match Tesco’s level of operations.

References

Cellan-Jones, R. (2013). Tesco Enters the Tablet Fray with Hudl. BBC News Technology. Retrieved from http://www.bbc.co.uk/news/technology-24203271

Dlabay, L.R. & Burrow, J.L. (2007). Business Finance. Mason, OH: Cengage Learning.

EMCC (2013). United Kingdom: Tesco Case Study Report. European Monitoring Centre on Change. Retrieved from http://www.eurofound.europa.eu/emcc/labourmarket/greening/cases/tescouk.htm

Google. (2013). Tesco PLC. Google. Retrieved from http://www.google.co.uk/finance?cid=4116076

Joseph, J. (2010). Retail Case Study: Anatomy of a Tesco Fresh and Easy Neighborhood. MetriScient TM. Retrieved from http://metriscient.com/tesco.htm

Osborn, R.C. (1967). Business Finance: The Management Approach. Avenue South, NY: Meredith Publishing Company.

Tesco PLC. (2013). Core Purpose and Values. Tesco PLC. Retrieved from http://www.tescoplc.com/index.asp?pageid=10

Yusuf, J. (2011). Tesco PLC Company Analysis. Investment Brain. Retrieved from http://www.investmentbrain.co.uk/latest/tescoplctscocompanyanalysis