Tesco has reported a £1.28bn annual profit, narrowly beating analyst expectations after a tumultuous few years.
The retailer on Wednesday said that group sales for the 2016/2017 financial year rose 4.3 per cent to £49.9bn and in the UK, like-for-like sales added 0.9 per cent, meaning the company had its first full year of growth since the 2009/2010 period.
“Today our prices are lower, our range is simpler and our service and availability have never been better,” said Dave Lewis, Tesco’s chief executive.
“Our exclusive fresh food brands have strengthened our value proposition and our food quality perception is at its highest level for five years,” he said. “At the same time, we have increased profits, generated more cash and significantly reduced debt.”
Mr Lewis added said that the company is now ahead of where he had expected it to be at this stage and that he was confident that the group would be able to “build on this strong performance in the year ahead”.
In January Tescp announced its intention to merge with wholesaler Booker in a £3.7bn deal that would create Britain’s leading food business.
Several major shareholders have publicly spoken out against the proposed deal, but on Wednesday Mr Lewis underscored the benefits that he sees in a tie-up, saying that a deal would “bring together two complementary businesses, driving additional value for shareholders by realising substantial synergies and enabling us to access the faster-growing ‘out of home’ food market.”
The group reported that net debt for the financial year had fallen by 27 per cent and that it intended to continue to cut costs by £1.5bn in the coming year.
Tesco has had a turbulent few years, plagued by a major accounting scandal, and shares fell again on Wednesday’s results, taking losses for the year to around 10 per cent. But some strategists said that they now see value in the stock.
“Improvements in product availability and customer service have both contributed to a good set of full-year results released this morning,” said Chris Beckett, head of research at investment management group Quilter Cheviot, adding that “management actions to reduce complexity and cost within the business are paying off.”
He said that he now believes the stock has strong recovery potential and a management team capable of delivering it.
According to analysts at UBS, Tesco’s recovery is “sustainable” and a merger with Booker would present growth opportunities, especially in the convenience market.
In September 2014, the supermarket admitted that it had identified a £250m overstatement of first-half profits for that year.
The supermarkets watchdog later found that Tesco had deliberately and repeatedly withheld money owed to suppliers to boost its sales performance artificially, in a serious breach of regulations.
Scores of investors sued the company as a result of a dramatic fall in the group’s share price, alleging they lost millions because they bought shares on the basis of misleading accounts.
More recently, though, the company has managed to move on from that. It’s focused hard on reviving its main grocery business in its home market, selling its South Korean business and divesting in Turkey too. It’s also sold off its Giraffe restaurant chain.
Late last year market researcher Kantar Worldpanel said Tesco’s sales were rising at the fastest pace for three years.Reuse content
Business news: in pictures
Unit 7 Business Strategy Assignment - Tesco PLC
|Course||BTEC Higher National Diploma in Business|
|Unit Number and Title||Unit 7 Business Strategy|
|QFC Level||Level 5|
a) Company Profile, Mission and Vision statement, Goals and objectives, Core Competencies
Company Profile:Tesco Plc was founded by Jack Cohen in the year 1919. It is one of the largest retailers in UK. It has got the highest yearly sales after Wal-Mart and Carrefour. They serve in 14 countries with almost more than 500,000 colleagues. At different locations under its banner they have Tesco superstores, Tesco Express, Tesco Home-plus, Tesco metro etc. Dave Lewis is the current CEO of the company.
Mission & Vision Statement:The vision statement of Tesco plc is to be the supreme business environment with the cooperation of the customers whom they serve, the communities where they operate, trustworthy colleagues and the shareholders (Brannen et al, 2013). With this kind of vision they have a very simple mission that they would make only what would be best for all. From both the vision as well as the mission statement it is very clear that they believe in working together and treat others in the same way as they wants to be treated.
Goals and Objectives:The goals and objectives of Tesco plc are to be a popular global retailer, to enhance the core business at UK, to be equally strong in non-food items as in food items, to cultivate retailing facilities like Tesco Personal Finance, Telecoms and Tesco.com and to take care of society in which they perform.
Core Competencies:Core competency is something which is unique to the company and it can perform the best in that area in comparison to the competitors. The core competency of Tesco plc is the way in which it understands its customers (Erickson et al, 2012). They have a scheme of Club-card reward system which helps them to understand their customers. With the help of the collected information Tesco brings in required changes in the service which add value for the customers.
b) Analyse the factors that have to be considered to formulate strategic plans. How does the Ansoff’s matrix help your chosen firm to manage the strategic decision to consider strategic plan
All the organization have their own strategic plans, which depends on the type of business and market in which they operate. The strategic planning is usually a long term process which needs to keep in mind about the visions, mission and values of the company too. Hence it is a very complex process and requires a cohesive approach. It is very important to analyse the market properly with the help of various tools like PESTEL, SWOT etc. before going for strategic planning (Teece, 2010). The results which are expected from the strategic planning at Tesco Plc are as follows:
- To ensure an uplift in UK market so that it could be used as a model for global market
- Perform equally in food as well as non-food market
- To be the best in other verticals like Tesco Finance, Telecom too
- Expand business at other locations
Ansoff Matrix is a strategic tool which helps the companies to plan their growth with the help of combination of current as well fresh products in current as well as new market. An Ansoff Matrix is as following:
There are four growth strategies given by Ansoff Matrix:
Market Penetration:This is used when company wants to increase its’ market share as in this growth is achieved with the help of prevailing products in the prevailing market.
Market Development:This is used when prevailing products are used in the fresh market
Product Development:The existing customers are targeted with the new product
Diversification:When both the market as well as the product is new diversification is used (Ireland et al, 2011)
Ansoff Model for Tesco Plc
For Tesco Plc the following methods would be best:
- Market Penetration:With the help of market penetration Tesco will be able to ensure an uplift in the UK market, as it wants to make UK as a model for global market.
- Market Development: In order to make sure that they get entry into other parts of the country, it is important that they take their existing successful products to the new market and promote them to the target customers. Once they get entry into the new market, they can also promote their other non-food items too.
- Diversification: Diversification is the most risky plan but as Tesco wants its Tesco Finance, Telecom etc. to flourish, it is best to enter a new market with the new products.
They want to perform equally well in food as well as non-food products so diversification is the best option.
c) Evaluate the effectiveness of strategic planning techniques to be used when developing strategic business plan.
The various tools that could be used by Tesco for strategic planning could be SWOT analysis and the BCG Matrix (Brannen et al, 2013). With the help of SWOT analysis the company could know about its strength, weakness, opportunities and the threats which plays a significant role in strategic planning. It is one the methods with the help of which Tesco Plc could know the areas on which they have to concentrate and what are the areas which they can use to grow. They could prepare themselves against the threats and could make use of the opportunities in the best possible way.
SWOT Analysis of Tesco Plc
The next method is the BCG Matrix. BCG matrix is the tool for strategic planning which is based on the product life cycle. The main idea behind BCG Matrix is that the various units of the company could be divided into four basic units which are known as following:
Cash cows:Cash cows rule the matured market and so they cover the maximum market share but since these are matured they have slow growth. There is no investment required for these instead they generate money which could be used for other units (Erickson et al, 2012).
Star:Stars also have huge market cover but they also have a growing industry i.e. they have not reached the maturity stage. They make huge use of all the investment for themselves as they perform in the growing market. With the passage of time when the products get matured, these get converted into cash cows
Question Mark (Problem Child): They occupy small share in the growing market. They use a lot of money but still their success remains a question mark.
Dog:Ddogs have small market share in mature industry, they make use of money but they do not grow i.e. they just keep the money which cannot be used anywhere else too. Mostly companies liquefy these units (Teece, 2010).
BCG Matrix for Tesco Plc
Star:The retail industry is the star for Tesco Plc. It has got a high market share and it performs in a high growing market. It is the part of Tesco that gets maximum amount of income, and this is the reason Tesco can plan to invest more here.
Cash Cows:Food market of Tesco PLC could be a cash cow as they have a large market share and the products have reached to their maturity point. It is very important for them to bring in some innovation in the products and services to maintain the position.
Question mark:It is not a question mark, as there are many units like Tesco financial service, Tesco insurance and the Tesco Mobile which have not reached the maturity (Teece, 2010).
Dog: In case if they identify any idle product then could be considered as a dog.
a) Conduct an organizational audit of the chosen business. How the evaluation of Porter’s five forces model in the perspective of your chosen organization is useful for business environment and strategic positioning.
The organizational audit could be conducted by following two methods. The first one is PESTEL analysis which gives the details of the external factors which could have an impact on the company and the other is Porter’s Five Model which is easy tool to understand that where the control lies in the industry.
PESTEL Analysis of Tesco Plc
Political Factor:Retailing companies perform worldwide and hence they have to take care of political factors as they have a direct impact on the operations of the company. Today most of the countries want that the retailers should get jobs to their people. Tesco is able to fulfil this demand, and it creates a lot of opportunities for the local people due to which they are able to enter new markets worldwide.
Economic Factor:The Company should keep a track of any changes in the taxation or any other such economic factors as they are most likely to influence prices, demand, revenues and expenses (Ireland et al, 2010).
Socio-cultural Factor:Tesco realized that the customers in UK market are getting more aware about the health issues and hence they get very particular about the food items, and Tesco shifted its’ focus towards organic food. The demand of the products depends on the social beliefs of the customers and hence the company needs to keep a track of changing attitude.
Technological Factor:With the development of technology, Tesco also brought in some significant changes like online shopping and self-service check out points. These changes made shopping mush easier for the customers.
Environmental Factor:Today it is very important for the companies to take part in corporate social responsibility and make sure that they provide some benefits to the community. With this point in mind Tesco decided to reduce the carbon imprint by 50% till 2020. It is also minimizing the waste products at its stores (Ireland et al, 2010).
Legal Factor:The legislative factors have a direct impact on the companies. For example, the Food Retailing Commission brought in a Code of Practice which introduced ban on many of the practices like altering prices without any prior notification or asking for overheads from supplier. Tesco keep a track of all these issues and make arrangements to deal such situations.
Porter’s 5 Model for Tesco Plc
Threat of substitute products and services:The threat of substitute is usually considered low for food products and average to high for non-food products. The substitutes in food market are small convenience shops or the off licenses shops which are not much threat to super stores like Tesco. Whereas the threat for non-food items like clothing is fairly more.
Threat of Entry of New competitors: A lot of investment and time is required to establish the brand name and position in the food market. Hence there is not much threat of new entrants in this field (Ireland et al, 2010).
Intensity of Competitive Rivalry:The competitive rivalry is too high in the food market management. There are number of rivals like Asda, Sainsbury, Morrison’s and Waitrose. The competition is based on prices of the products mainly. Hence appropriate discounts at right time could help the company to handle this situation.
Bargaining Power of Buyers:The bargaining power of buyers is high as the customers could easily switch from one product to another as there is not much difference in the prices of the product.
Bargaining Power of Suppliers:The bargaining power of suppliers is low as they do not want to lose their contracts with these big stores, otherwise would be left with small buyers of food and grocery (Brannen et al, 2013).
b) Explain the significance of stakeholders’ analysis while formulating new strategy of your chosen business.
Stakeholders are the most important and significant part of any company. It is the support of stakeholders due to which the company operates. All the strategies will have a direct impact on the stakeholders and hence it is very important to keep them in consideration while formulating the new strategies. The stakeholders of Tesco Plc are as following:
Customers:These are the most important stakeholders. The profit and loss of the company depends on them. Tesco has got a good understanding of its customers and hence they have a good and strong set of customers.
Employees:Employees are the lifeline of any organization. Without them it is impossible for any organization to perform (Brannen et al, 2013). Hence it is very important to make sure that employees are happy satisfied in the company. Tesco makes sure that its, employees always get an excellent working environment.
Shareholders:The existence of any company is because of its’ shareholders. Shareholders are the people who share the profit as well as the loss of the company.
Competitors:Competitors are the stakeholders as the competition in the market motivates to perform better. Hence it is very important to have competitors so that the performance could be enhanced. Competition is said to be the mother of innovation.
UK Government:The Government make various policies and rules which needs to be followed by the companies. Also if the company will perform well, they would pay the taxes on time (Erickson et al, 2012).
c) Present a new strategy for the chosen business based on organizational audit and stakeholders analysis
From the above analysis, the new strategy which Tesco should choose and implement is make sure that they continue to diversify but on the other hand they should not lose their focus from the core business. They should try to keep a balance between the new and the existing market and the products. They should also try to get some more interesting method like Club-card reward system in order to increase the customer loyalty towards themselves. There is no doubt that Tesco is doing fairly well in the market, it just has to maintain the same pace and get into new markets with new as well as the existing markets.
In order to make sure that similar message is being delivered to the stakeholders of the company, it is very important that the message is being communicated to them in the best possible way (Erickson et al, 2012). When strategy planning is done, it should always have some short term as well as long term targets. Both the long term as well as the short term targets should be communicated to the stakeholders properly. As mentioned earlier there are number of stakeholders of Tesco Plc, hence the plan should be delivered in a proper way. It should be made as a corporate message so that each and every category of the stakeholders could understand it. In order to do so, a stakeholder mapping is being done which will ensure that all the stakeholders could understand the message properly.
Stakeholder Mapping at Tesco Plc
a) Evaluate appropriateness of alternative strategies relating to market entry, substantive growth, limited growth or retrenchment of your chosen organization
The possible alternative strategies relating to market energy substantive growth, limited growth or retrenchment for Tesco Plc could be as following:
Product Market Mix: According to market growth matrix, the growth of the business depends on whether it plans to sell its prevailing or innovative products in prevailing or innovative market. There are different combinations like market penetration where prevailing products are sold in the prevailing market. In this method the income is increased by endorsing the merchandise or repositioning the product. The second method is market development in which the prevailing set of products are targeted for new customers at new market. The third method is product development, in this method alterations are made in the existing product and are targeted to the prevailing consumers. Usually the prevailing products are being updated or sometimes even substituted with the new product (Casadesus & Ricart, 2010). The last and fourth method is diversification where new products are being targeted to completely new set of consumers. There are mainly two types of diversification, first one is related diversification i.e. the new product developed is from the same field and the second is unrelated diversification where the new product is completely new to the industry. For Tesco Plc a product market mix will be the best option and as mentioned earlier they should try for all the four categories.
Synergy:When the combination of two resources produces better results in comparison to individual then it is called as synergy. There are four types of synergies. First is Marketing synergy where the shared marketing services are utilized. Second is operating synergy i.e. well use of operations, wholesale procurement etc. Third is investment synergy where more use of common investment in fixed assets etc. is done (Dawson et al, 2006). The last and fourth one is management synergy i.e. the management skills grown for prevailing operations are transferred to new processes. Tesco Plc should try to combine resources so that they could make best use of it.
Divestment strategy:This is the method in which a part of the business is being sold or a particular product is being pulled off the market. This could be done because of limited resources or liquidation. Mergers are also one of the method to increase the market shares and grow geographically. Tesco should try to pull out the products which are not from the core business and hence not performing well (Ellis et al, 2007).
b) Select an appropriate future strategy and justify why you selected that strategy for the chosen business organization
The appropriate future strategies for Tesco would be as following:
Total focus on UK retail (Market Penetration): The UK market is the biggest customer hub for Tesco, it has got many loyal customers in this market and hence Tesco must try to make greatest revenues from this market. It is very important that they do not lose their brand loyalty to the UK customers and hence they should make sure that the products are available to them on time. Market penetration is the most important future strategy for Tesco Plc.
Diversification:This is one of the other strategy on which Tesco should focus, as it needs to grow its market (Holbeche, 2013). Their objective is to be successful in food as well as non-food items and hence it is very important that they diversify i.e. get into new market with the new products.
Divestment: Divestment is one of the other strategy which is very important for Tesco plc, as it is important to pull off the products which are not doing well. It is very important to do so in order to save the cost and spend the same in the areas or the products which are giving good returns.
a) Analyse how you would plan for the implementation of the strategy in the perspective of following issues:
i) The roles and responsibilities for strategy implementation in the chosen organization
After planning, implementation of the strategies is the next most important factor. Proper implementation of the strategies is the key success factor for any organization. Implementation is the process in which all the available resources are being put together in a way that they perform to bring success (Ndungu, 2011). The most important role in successful implementation of the strategies is played by the management. It is management’s duty that all the resources are being allocated properly. Also management needs to make sure that sufficient amount of human resource is available to implement the strategies. The management also needs to make sure that an appropriate strategy is being chosen at the right time. There are various strategies which need to be implemented at different situations and hence the choice of strategy should be done appropriately. As mentioned earlier, Tesco gives a lot of importance to its stakeholders and hence the stakeholders should be given importance while making any decision. They should be involved in the process of taking decision (Sarraf & Ellis, 2006).
The management should also make sure that the employees get a good working environment so that they can give their performance. In order to maintain the customer loyalty Tesco plc had got many innovative ideas like Club-reward point card system. The management should also make sure that the employees in the company are trained enough to accept any changes. For example, in case if any mergers or acquisitions happen, the total working structure changes, but the employees must co-operate and understand that any step taken will be in their favour too.
ii) Identify and evaluate resource requirements to implement a new strategy for the chosen organization
The success of any strategy depends on the fact that the various resources available are utilized properly. The different types of resource required to implement new strategy for Tesco Plc are financial resources, physical resources, human resources, technological resources. As mentioned earlier in this essay that the company would go for product development and diversification strategy (Ioana et al, 2009). In order to get the new products the research and development department should be very strong. Hence, most of the resources like investment, human resource etc. should be used for R&D. The employees capable enough to bring in positive changes in the product should be recruited. Sometime the changes in packaging and labelling also do wonders for the product. Hence the new employees should be able to understand this fact. They should be given the freedom from the company to do their experiments and come up with great inventions.
b) Evaluate the contribution of SMART targets to the achievement of the strategy implementation of the chosen organization
A SMART target plays a very crucial role in any organization. If the target is SMART then it will be much easier for the employees to achieve it. The SMART target means:
Specific: It is much easier to understand and achieve a specific target instead of general targets. In a specific target almost all the important points like people involved, estimated time, location etc. are specified (Woods, 2007).
Measurable:There must be a proper guidelines for the measurement of the completion of the target. It should be in a way such that even the progress of the plan could also be measured.
Attainable:The targets should be feasible in nature. The goals must be set according to the capacity of the employees, availability of the resources and time etc. The employees must feel that the target could be achieved then only they will work towards it otherwise they will leave it simply if seems to be impossible to achieve.
Relevant:Again the target should be realistic in nature. One must not decide the targets just for the sake of name, it should be as per the capacity and willingness to perform to achieve the target.
Timely:There should always be set time to achieve a particular time. If there will be no time limit, the employees will not understand the importance of the work (Sarraf & Ellis, 2006).
Tesco Plc always makes sure that all the set targets are SMART so that the employees could understand them easily and give their best performance to achieve them on time.
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