General business overview of Tesco

General caper all overview of TescoTesco was founded slightly 1919 by a person call Jack Cohen inLondons atomic number 99 End. In this year as puff up he Jack Cohren started was selling groceries in the commercializes of the East End. After about 5 eld the name TESCO started to pop out 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 both letters of the provider 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 retail merchant, both by global sales and by domestic market sh are, and the quaternionth largest retailer in the world behindWal-Martof the United States,Carrefourof France, andThe Home Depotof the United States. Tesco used to only sell diet besides now it has moved into areas such as wearing apparel,consume r electronics, consumerfinancial services, selling and rentingDVDs,compact discsandmusic downloads,inter shekelsservice and consumertelecoms.Tesco over the years is UKs most popular retailer with over 13 million customers a week, number of non solid food products/services avail fit has gradually add-ond, Tesco.com is the world largest home delivery service in the world and it is operating in 12 different countries with unless expansion in opposite countries. The reason for all these success mentioned higher up is all down to one thing, which is the go about treatn by Tesco on customer centered. Tesco is unique in this way because many retailers would tend to focus only on cabbage. However, Tesco as well as devising profits would kindred to create value for customers, to earn their lifetime loyalty. ( Tesco Interim report, 2005) This piece of ass be seen in Tesco mission statement and the way this is achieved is through embodied strategy. The corporate strategy of this re tailer consist of four parts UK Core Business, Retail function, Non-Food and International. It can be seen from the yearly report that the profits in separately of these four strategies obtain gone up. In the UK Core Business profits went up 14.9% compared with few years back where at that place was an increase of 12.7% , Retailing Services was 40 million pounds exclusively now it is 70 million pounds, Non food was expected market share to only be 6% solely it is really 7% and the ope symmetryns in foreign market is now in 12 countries.The success of this strategy consumes to be broken down in order to provide evidence to show how utile Tesco as been and in what way.1)UKCore Business Tesco has got a vehement 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 thither were only 728 stores in theUK(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 substantial 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 turn in 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 important reason why this has gone up is callable to the concomitant that Tesco has been able to tenderize over 100 up-to-date products including CDs, electrical goods, clothes etc at low prices and at good quality. By doing this, it ordain 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 study 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 rake of products/services non 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. tout ensemble 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 commutation Europe and the Far East would be first to have a Tesco. Since this retailer was so boffo in theUKit did non enter the market in the Western European andUSAbecause it was not ready since it didnt know the market, kitchen-gardening, etc. However expanding inCentral EuropeandFar Eastwas 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 nominal cost. It also allowed them build the store as soon as possible since a range of store formats that can be rolled out quick as required (Tesco Account Watch, 2002). Ever since the first expansion in 2004 Tesco now is operating in 12 different countries with further expansion way out on in Western Europe and in USA. The expansion occurred through six different steps 1st BeingFlexible Approaching market differently since all markets are unique 2nd ActLocal Need to get the worry of the local and build relationship wi th them as well. third KeepFocus- It always take time to establish in a market therefore learn to always be focus on the tasks in hand. 4th BeMuli-format Need to be able to adapt a number of different store format since only format go away not reach the whole market. 5th DevelopCapability Need to be able to train people and develop relationship with others and share the information is decisive for the chance of success. 6th BuildBrands This allow establishing long relationship with customers.From the to a higher place it can be seen that the strategy that Tesco have are very much cerebrate 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 equipment casualty of profitability.Tesco StrategyFrom examining Tesco strategy it can be concluded that Tesco follow deliberate strategy which can de delimitate as quality of acting intentionallythe y think before they do, (Wit Meyer,2004). Tesco follow this strategy because they intend to do several(prenominal)thing which is realised afterwards. For example one of Tesco strategy is aboutUKwhich involves frequent contact with customers and building new stores which meet different customers needs. From these the profitability for theUKhas 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 unneurotic 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 whitethorn fall in the cate gory 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 go along rivalrous (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. pecuniary AnalysisProfitability RatiosThe following ratios compare Tesco Store Plc and WM Morrsions Supermarkets PLC.Return on InvestmentTesco PlcWM Morrisons Supernmarkets PLC20.08% (Anuual Report 2006)5.55% (Annual report, 2006)The to a higher place ratio shows how trouble use the company pluss to repay 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 mingled with these two companies it clearly shows that Tescos operational counseling is more efficiently making full use of the companys as hard-boiled to pass more sales.Gross ProfitTesco PlcWM Morrsions Supermarkets PLC7.7% (Annual report, 2006)24.58% (Fame-analysis)The above ratio is an important measuring stick 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 man ages to earn a greater percentage of gross profit than Tesco Stores PLC. concluding Profit RatioTesco PlcWM Morrisons Supermarkets plc5.7% (Annual report, 2006)2.6% (Fame-analysis)This figure above shows the companies profit after taking all the expenses off and other be as well from the gross profit. Tesco PLC net ratio is 5.7% whereas WM Morrisons Supermarket PLC is 2.6%.Investment RatioEarning per Share (EPS)Tesco PlcWM Morrisons Supermarkets plc20.07p (Annual report,2006)9.46p (Annual report 2006)The investment in a company tend to be made in stocks/shares therefore the above ratio is essential in the assessing the market value of the companys shares. Tescos share is much greater than WM Morrisons Supermarkets Plc therefore it can offer more to its stockholders. The above figures were taken from annual reports 2006. Also the above shows that investors have trust in Tesco using the money is used to it full capacity.Dividend YieldTesco PlcWM Morrisons Supermarkets plc1.98% (Annua l report 2006)1.23% (Annual report 2006)Just like mentioned above this ratio also allows investors to assess the investment potential in a companys shares. Tesco offer greater dividend yield therefore investors will be interested in this company rather than WM Morriosns Supermarkets. It also shows that investors would be more attracted to Tesco and not to WM Morrisons Supermarkets.Dividend CoverTesco PlcWM Morrisons Supermarkets plc2 times (Annual report, 2006)The Dividend Cover ratio shows how many times the ordinary dividend could be paid out of current earnings. In the case of Tesco it is paying our half of its earning as ordinary dividend.Liquid RatiosCurrent RatioTesco PlcWM Morrisons Supermarkets plc1.091 (Annual Report 2006)0.451 (Fame analysis)The current assets are required to meet the companys debt as they are due. The above ratio indicates this relationship especially for both supermarkets. It shows that both companies are able to insurance change stock into cash. Howe ver, from the above figures it shows that Tesco are much better prospects for lenders as compared to WM Morrisons Supermarkets whose current assets are less than current liabilities.Acid Test RatioTesco PlcWM Morrisons Supermarkets plc0.681 (Annual report-2006)0.231(Fame Analysis)The above ratio is used to compare the current asset without the stock with current liabilities. The ratio itself does not actually provide any assurance that both these companies will meet futures payments. Due to this both the above ratio show the level of stock each company holds because has retailers they are expected to keep certain criterion of stocks.Efficiency RatioStock Turnover RatioTesco PlcWM Morrisons Supermarkets plc25 times (Annual report, 2006)30 times (FAME- analysis)The Stock Turnover Ratio shows the mediocre amount of times stock is held before being change. Since Tesco is big it is expected that stock would be sold more quickly than compared to WM Morrsions Supermarkets PLC.Fixed asse ts turnover ratioTesco PlcWM Morrisons Supermarkets plc2.12 (Annual report, 2006)1.83 (FAME- analysis)Fixed asset enable a company to function more efficiency therefore with Tesco having a high fixed asset ratio compared with WM Morrions Supermarkets are able to generate more sales.Trade debtor collection expirationTesco PlcWM Morrisons Supermarkets plc0 days (Fame analysis)2.53 days (Fame- analysis)The ratio is about debtor and this is the time taken to receive a payment from customers. Tesco get the money straight away with no problems whereas WM Morrsions Supermarkets PLC tends to get the money after couple of days. This may be down to Morrisons having a policy where it takes cheques a couple of day to be cleared or other policies related to cash.Trade creditor payment periodTesco PlcWM Morrisons Supermarkets plc26.60 days (FAME ANALYSIS)36.24 days (Fame-analysis)This shows that it takes on average a month for a supermarket to pay back to creditors. Tesco are able to do this qu icker than Morrisons because of it ability to turn stock into cash very quickly.All the above refer to Appendix 1 which is related to Tesco, Appendix 2 which is related to WM Morrison and Appendix 3 which is related to calculations.Value Chain AnalysisThe radical ActivitiesWithin the primary activities it can be seen that a key element of Tescos strategy is to have a relationship with suppliers which is quick and cost effective. The reason for this is due to the fact that ..the greater the number of participants, the greater the synergy opportunities and the greater the change of leveraging action within the logistics and network services provider community. (Fernie Sparks, 1999) By having a strong relationship with suppliers will enable Tesco to exchange information with suppliers which will result in having a greater opportunity to adapt to the changing environment. The approach taken by Tesco is an important aspect especially achieving competitive advantage. However, Tesco shou ld do it not only with cost in mind but bearing in mind that the highest quality goods are prepared more quickly and efficiently. The transformation of its distribution operations has over the part 10 years seen the introduction of Tesco own brands which pissed that these goods will stay in Tescos control longer than other goods. The decisions of management along with the introduction of effective technology such as software and IT systems, laser scanning which automatically re-orders goods, have all helped Tesco to position itself in the market place. One of the reasons for Tesco success is due to technology in all parts of the business because technology has a powerful effect on competitive advantage in either cost or differentiation. (Porter, 1998)Tesco work very closely with suppliers to get across growing seasons for particular crops like strawberry which is available throughout the year. In this situation Tesco do depend on the suppliers making the crops during the year. Ho wever, in the longer period Tesco will be able to save costs. By extending growing season there is a lower dependency on the warehouse and JIT production of goods.The need to work closely with suppliers and transport services is critical and using local producers wherever possible results in Tesco dealing with a number of companies and according to Christopher,1998 effective logistics management can provide a major source of competitive advantage a position of enduring superiority over competitors in terms of customer preference. The main thing is being innovative and looking at how to improve things constantly as well as considering the environment impact of its action. This once more will reinforce the competitive position as Porter, 1998 suggested companies achieve competitive advantage through act of innovation. It is very difficult for a supermarket like Tesco to produce the same success again therefore Tesco must continue to re -invent itself to stay ahead in this market.The Supporting ActivitiesThe companys infrastructure is based on decisions of management which help communication and control. Support functions such as accounting, administration, public relation and marketing. There are many people who deal with investigation and sourcing products for example, for non food products there are over 100 people. Tesco employs over 260,000 people, (Tesco, 2006) which is a huge cost especially in terms of minimum wage. The other costs which are knotted are recruitment, training and development. Other things such as planning, public affairs, quality assurance are all time consuming.Technology development is important because it allows Tesco to be able to adapt to its changing environment. Tesco on line shopping is a huge success along with other things like financial service, mobile phone, clothes and electrical goods.Tesco recognizes regional differences when it comes to procurement. They have established utilise buying teams In the UK. Tesco have also ma de arrangements not only with large producers or manufacturers of goods, but also individual farmers. Their Fairtrade policy ( Tesco CR , 2006) ensures that the farmers receive a fair price and that consumers pay a fair price. Long term relationships with suppliers are important, with over 1500 suppliers working with Tesco for five years. Tesco works with suppliers and encourages them to develop regional offices in line with Tescos own distribution centres.In Tecso it can be seen that the value chain for competing in a particular diligence is embedded in larger streams of activities.. (Porter, 1998).The primary activities for Tesco can be seen in Appendix 4 and the supporting activities can be seen in Appendix 5. pounder AnalysisPoliticalThere are many external influences which affect Tesco like local business taxes as well as government introducing taxes on different products. When Tesco decide to build new stores it will not be straight forward to do because the local and regiona l planning policy is extremely costly and time consuming. Complying with government legislations is a must for Tesco since it relates to food hygiene, employment, health and safety. Tesco is also under the pressure on a number of different issues. For example Friend of the Earth who believe that Tesco is using every trick in the book to dominate the retail market and drive local authorities. ( Friend of the Earth, 2006) and also from something call Tescopoly. Tescopoly is to challenge the negative impacts of Tescos behaviour along its supply chains both in theUKand internationally, on small businesses, on communities and the environment (Tescopoly, 1995) It also makes sure that the products are made from recycle items and protecting the environment is the key.EnvironmentThis is a major focus not just for Tesco but for all businesses in theUKas well as overseas. The issue of global warming and climate change affects everyone. Tesco is addressing the issue by minimizing waste and rec ycling, by reward customers for re using bags (Tesco Report, 2006). They have also spent over 100m on a range of products from wind turbines to gasification plants. Another thing Tesco is seek to do is disregard energy consumption (Tesco Report, 2006) with the introduction of improved heating and ventilation systems.SocialThe social impact of opening new stores is immense. By opening new stores Tesco are creating new employments for many people and also they are using local suppliers rather then getting suppliers from different part of theUK. Tesco is a very dedicated supermarket which always gives money to a charity every year. It also encourages healthy eating with their healthy option menus therefore encouraging the nation to get fitter and fitter combined with charitable activities like the Race for Life. (Tesco corporate, 2007)TechnologyTechnology has improved massively over the years and it has dramatically affected Tesco. By introducing on line shopping, improved refrigera tion techniques, sophisticated software for monitoring customer loyalty shoppers and their buyers pattern and new services being offered have all together improved customer service, reducing costs and sustaining competitive advantage.LegalThe main legal issue here is related to what was mentioned above. Since the introduction of new products/services there is a chance of customers being exposed to credit card fraud. The legal department within Tesco is kept busy with the need to respond to customer complaints and salary claims, such as the recent fuel issues. Another thing is complying with any rules or regulations which are set out from the government to the Competition commission.EconomicThe main issues which have been talked about recently are fuel costs, congestion or mileage charges will also affect Tesco profitability. On the other hand some positives can be taken for example charitable donations made by Tesco to local and regional areas. Tesco by using local suppliers will a lso have an impact on the economy. Tesco is promising lower prices (Tesco Report, 2006) because it want to provide a range of products which are of high quality to all customers especially those families with low income.The PESTLE Analysis for Tesco can be seen in Appendix 6Porters Five Forces ModelCompetitive RivalryThe supermarket industry is high competitive in theUKwith four supermarkets dominating the market Tesco, Asda, Sainsbury and Morrisons. This market has never been more ferocious in the battle to capture the customers loyalty (Bevan, 2005). The one which is leading the other supermarkets in theUKis Tesco with 32% market share (Wekepedia, 2005) whilst the rest of the supermarkets have each got less then 20% markets share.The competitive rivalry in theUKis not based on the types of products sold because all supermarkets sell the same products. However, the rivalry is based on pricing and value for money (Seth Randell, 2001).The use of technology allows this market to be m ore competitive because the use of technology allows a number of advantages including quicker way to speed up stock replenishment. For example in Tesco they use Electronic Point Of sale (EPOS) not just for checkout but for a range of things likefully integrated accounting, inventory management, open to buy forecasting, customer relation management (CRM), service management, rental, and payroll modules. (Thompson,2003). Another thing which Tesco also use is EDI(Electronic Data Interchange ) which is a set of standards for structuring information to be electronically exchanged between and within businesses, organizations, government entities and other groups. Other supermarkets use the above as well but the way Tesco use this is why Tesco is the largest supermarket in the UK.The competitve rivalry may get evenmore tense if for example other global competitors like Carrefour decide to come into the UK market by acquisition of weaker companies.Threat of new appetisersSince the UK indu stry is dominated by four major supermarkets the threat of new entrants is high. This is due to enconomies of scale in terms of shopping area and length of distribution channels. These two are important factors especially in the UK however, the cost of these two are very high and a new entrant would suffer. Similar to this is that new entrant have limited access to distribution channels in the UK because the supermarkets have already got control of these. Another problem for a new entrant is that it will be difficult to achieve cost adavntage. The reason for this is due to the fact that the four major supermarkets in the UK have occurred cost advantage through continually development in studying customers (buying patterns, money spent etc) and competitors. The important part is regard to building relationship with suppiers and customers because it takes time to gain someone trust. Due to this trying to change customers brand loyalty is very difficult to achieve.The main problem for Tesco and other supermarkets is related to the fact that large european supermarkets may decide to set up stores in the UK. This can be seen from Lidl which is a German company which has got a number of stores opened in the UK.Threat of substituteIn the UK exclusively there many substitutes because a lot of small stores like newsagent, local shops, etc sell the same products like supermarkets but the difference is that these small stores can offer discounts. Due to this it is said that supermarkets are vulnerable. One of the reason for supermarkets being vulnerable is about discounts and the other reason is that small stores can steal customers from supermarkets. For example Argos- The enumeration Shop can get a percentage of customers from the supermarkets from under their noses. This is done by offering customers the chance to have catalogue delivered to their doors and collection of orders by post, band or internet. For some supermarkets this is a problem but for Tesco it is n ot. The reason for this is that Tesco has a number of different stores opened across the whole UK and offers a range of products includind non food products through the internet at reasonable prices. (Tesco direct,2006). By offering non food products Tesco is in competition with Argos as well as Currys and Comet over electrical goods. From this it can be seen that Tesco are being tuff because they want to be the best in all departments.Bargaining power of buyersIn the UK the bargaining power buyers is strong especially for supermarkets in the UK since the buyers are the customers. The power of these buyers is high because of the availability of several alternatives. The switching cost from one to the other is low because if a customer is not happy he/she can go to the other supermarkets. For the supermarkets Asda, Morrisons and Sainsbury this is true but for Tesco it is not since it is the other way around, Tesco are able to influence the buyers. Tesco are able to do this by having different stores Express, Metro etc in the UK all different to one another.Porters five forces model for Tesco can be seen in Appendix 7SWOT ANALYSISStrengthsTesco is theUKis a well established and recognised retail brand in theUKoffering a range of products and services from food to non food items. Tesco has grown in the four areas it wanted to grow with a 7% market share in the non food items. They provide fresh food at great value with many special offers being made each week. They support fair trade and local products with over 7000 products being supplied in theUK. The culture of Tesco is important to its success. Also the focuses on people, from the customers to the staff are essential for the smooth running of the organisation.WeaknessesTesco just like many businesses in theUKwill have problems which need to be overcome. Since Tesco is big it has 260,000 employees which would result in Tecso paying a lot of money in term of wages and also training and development. Also costs related to sickness and absenteeism will also affect Tesco. Similar to this is that ..80% of group sales come fromUK (Tesco, 2006) and could be more globally focused. Another weakness is that increase in the cost of fuel may result in loss of profitability and also an increase in the local business taxes will be bad.OpportunitiesThe opportunities existing for Tesco is further product introduction more opticians and pharmacies into the stores. There also opportunities for Tesco to expand and increase market share. Since Tesco is very popular in theUKand should turn their focus on the international market. The acquisition or merger of a competitor would provide SYNERGY in terms of cost reduction, improved productivity, expanded range of products, although it may well be that because of Tecso dominant position in the market already the commission may not agree to such development.ThreatThe current problem which has occurred over the last few weeks was related to problem with the fuel s ince it was claimed that it is contaminated. Due to this poor quality fuel may be suppl