Managing Business Strategy: Tesco Case Study – Vision, Values and Business Strategies

Abstract

This case showcased the journey of the company Tesco from its beginning when it was founded as a market stall in London by its owner Jack Cohen in 1919. The mighty giant has built its fortune by pursuing two business strategies; firstly, by pursuing a consistent drive for providing the best value to its customers and secondly, by continuous investment in the latest technology. “The four essentials” help in achieving these ambitions which are; trading responsibly, working on reducing its impact on the environment, making sure that it is a great employer, and helping in making local communities better. These four essentials help Tesco guide how to use its huge scale for good purpose and make it competitively better as well. The Three big ambitions are the steps towards using the scale for a good journey. Tesco is committed to making zero wastage of the food that can be consumed healthily by the customers. Tesco has a consistent growth strategy, allowing it to strengthen its retailing and other group businesses. The “seven-part strategy” followed by Tesco in its business activities is very crucial in the development of successful and long-term strengthening of this position. The six KPIs are used by Tesco for monitoring and evaluating of the performance, and its results for 2017 shows its strong performance.

Introduction: Tesco

This case revolves around the company Tesco, which was founded as a market stall in London by its owner Jack Cohen in 1919. Now, it is considered as one of the largest retailers in the world. Its business in the UK accounts for the majority of the total revenues and profits, about 60% of the total. Of all the retailers in the UK, Tesco has the widest range of variety (Clark & Chan, 2014). The case focuses on the reasons for the success of Tesco to move from a market stall to such heights. It discusses its strengths, right leadership decisions, vision, values, strategies, and community work which made it successful.

Section 1 1. Responsible Retailer

1.1. Competitive Advantage of Tesco

The retailer giant Tesco did not become the largest retailer in the world in days, and with luck only. It worked on many little things in the right way to get to this success. The mighty giant has built its fortune on two business elements. Firstly, by pursuing an insistent drive for providing the best value to its customers and secondly, by following continuous investment in the most relevant and advanced technology. However, this has not been the case from the beginning. During 1990’s, the company was losing its market share, and this caused the then CMO to reposition its strategy and proposed a three-folded solution. It focused on stopping Tesco from following the strategies of Sainsbury and devising its strategy by listening to the customers on every level of the company. Based on this, it urged Tesco to offer the services and goods preferred and valued by the customers as compared to those which Tesco can provide. It is also known as an outside-in strategy which was adopted by Tesco in the 1990s. It aimed its marketing at the middle class. Tesco launched its slogan “Every little matter” and marketed itself as the customer-oriented retailer. Its loyalty club card was introduced in the 1990s and from then on data has been used to feed into the customer management systems.

1.2. Tesco as Responsible Retailer

The term “Responsible Retailer,” shows the awareness and realization of a retailer company of the effect of its actions, priorities, and contributes to its internal and external environment. Tesco considers itself as a responsible retailer. It’s slogan of “Every little help” and the philosophy of putting the customers, employees and the community at the heart of everything that they have made it a responsible retailer. The core values of this retailer include its commitment to the use of its huge scale for good causes. It is evidently seen by its various community preservation investments and initiatives. In its encouragement of its customers of reusing of the plastic bags, and awarding them with club card points for bag-less deliveries, and the addition of the carbon footprint details on each of its products showcases its commitment to the good causes. By winning the Green Retailer Award of the year in 2012 for its contribution to the community in the form of opening zero-carbon stores in Ramsey, its commitment is evident. Tesco has the vision to become fully zero carbon by the year 2050 (Tesco, 2014).

1.3. The Essentials

Another major component of the core values of the company Tesco is their comprehensive ambitions and aims of each of the business activities that they perform. One of these is the “The Essentials.” It is a comprehensive summary of the core values of Tesco followed in their daily operations to make them different from others. It evidently showcases how Tesco gives importance to every little detail of business activities which then collectively benefits it in the form of strategic advantage. The Essentials are a set of core values which Tesco follows to reduce its food wastage global. These four essentials help Tesco guide how to use its scale for good and make it different.

By trading responsibly, Tesco puts its customers first and build a strong relationship with its customers by providing best quality products.
By reducing the impact on the environment of Tesco’s activities, through their aim of becoming a zero-carbon business by the year of 2050 and responsibly utilizing of the scarce resources especially in the supply chain as well.
By being a great employer, the company Tesco offers and creates opportunities that make the colleagues of Tesco content and proud for being a part of Tesco.
By supporting the local communities, Tesco tries to be a good neighbor and run its business to the highest standards (Tesco, 2014).

1.4. Tesco’s CSR

The CSR is at the heart of Tesco and not just a subsidiary or side activity. It is not done for promotion or gaining good will. It is embedded in the values of Tesco, and it believes firmly on the paying back to the society and community for the profits and trust that they offer. The CSR programs are developed by the Corporate Responsibility Committee of the company. Tesco’s dependence on the CSR initiatives has been far greater now than ever because of the various scandals that it faced during the last years regarding the unethical profit reporting, and bad supplier treatment.

Food Waste:

It was one of the only retailers to publicize its data on the UK food waste from its operations. It is also committed to making zero wastage of the food that can be consumed healthily by the customers.

Health:

It has cut short the sugar content in its soft drinks in the UK by 5% a year. It provided free fruit to the children in all stores in the UK. It raised £ 13.7 million for Charities foundation.

Human Rights and Labor standards:

Tesco has supported through various programs about 450,000 people from whom the source resources were supplied.

Environment:

Tesco reduced its carbon emissions by 3% on year on year basis. It joined the sustainable agriculture initiative (Tesco Plc, 2016).

These activities aid Tesco in positioning itself in a competitive position in the retail market.

1.5. Three Big Ambitions

The Three big ambitions are the steps towards using the large scale of Tesco for a good journey. The Three big ambitions are all about the intention and performance of the company regarding its journey of using its large scale for good (Cohen, 2014). The three big ambitions are:

To become the leading organization in the reduction of food waste globally

For this purpose, Tesco has identified and published the key areas of wastage in their supply chain and operations. The next step is to tackle the food wastage hotspots across the supply chain identified by it. Then the surplus of the food will be donated to those in need.

To improve the health and tackle the obesity crisis

For this purpose, Tesco has invested a lot in researching the drivers of health choices and habits. The “healthy little differences tracker” is the central approach used to measure the nutritional content of the shopping baskets, and identify the drivers of healthy and unhealthy food choices. It has removed three billion calories from the soft drinks by the “Tesco eat happily project.”

Creating new opportunities people

For this purpose, Tesco has invested in studying through research, study groups, the need for the young professionals and the challenges they face. The establishment of vocational training programs in the Thailand business is one such step (Tesco, 2014).

Section 2 2. SWOT Analysis of Tesco

2.1. Strengths of Tesco

The strength of Tesco Plc is evident in its historical baggage of knowledge, experience, and values. Its increasing market share evidently in the year 2016 is its strong point. After 2011, Tesco has recovered its market share from 28.1% to 28.2% a year after. Still, it is the leading shareholder of the UK grocery market and can win back its lost position (BBC.com, 2016). Its strong financial position and its large size give it the immense strength in negotiations to win it from the largest manufacturers as well. Its low-cost leadership is another strength which makes it competitive in the grocery market.

2.2. Weaknesses of Tesco

The product recalls by Tesco has the potential of affecting its position. Furthermore, the scandal of inappropriate profit recording has sabotaged the position of the company very gravely. The company has been in the recovery phase from then on, working on regaining its past customer’s trust (BBC.com, 2016). The company’s reliance purely on the UK market can become a weakness as it depended totally on the profits from UK operations. Any changes in the UK supermarket industry would substantially affect the company Tesco Plc. One example of such major effect can be if Morrison group took control of the Safeway chain then the dynamics of the supermarket industry would change drastically affecting the power share tremendously. Its debt obligations and tied up capital in long-term operations like in the opening of new stores in space has left less cash for any other operations.

2.3. Opportunities For Tesco

Being the market leader in the grocery market of UK and with constant market growth, Tesco has the potential to exploit many opportunities. The company has the potential to diversify and expand its operations more in the non-food retail business. Through its large brand worth, Tesco has successfully diversified (McCaughren, 2017) and has the potential to further get benefit from diversifying opportunities. The telecom venture and the Tesco bank are some of the operations which have been purely disconnected with the core business but have used the brand name to be successful. There are plenty of markets which are still untapped by the retail giant and is in the planning phase of expanding internationally in the markets of Central Europe, Middle East and Korea (Butler, 2015).

2.4. Threats For Tesco

The financial downturn faced by Tesco after the scandal of the inappropriate reporting of the profits, decreasing income, and increased competition can become a threat to the company, if not tackled successfully. The concentration of the business majorly in the UK can also become a threat to the company if any drastic changes in the market share or regulations of the supermarket industry will emerge. The pricing war in the UK supermarket industry can also hurt Tesco in loss of market share. Furthermore, the expansion plans and acquisitions of firms can become unsuccessful because of the cultural unfit, or lack of synergy. The potential merging of any of the retail giants can cause threat for the Tesco as it did when purchasing of ASDA by the US retail giant Wal-Mart made it stronger in competitive pricing, making difficulties for Tesco on its retail position (Fernie et al., 2013).

2.5. Competitive Strategy of Tesco:

Tesco has a consistent and well-established growth strategy, allowing it to strengthen its core retailing business in the UK and also allows it to expand in the international market as well. The dependency of the retail business on the information provided by the customers to build the gap and offer the products and services as per the demand of the customers has been the strategy which has made it competitive in the market. Its cost leadership and strong financial strength give it the ultimate power in negotiations. The approach to sustainability, environment-friendly, and zero carbon imprints has led it to have a special place among its rivals.

Section 3

3. Strategic Planning of Tesco

Tesco has a core vision which always remains constant, but the strategies and business activities change over time with the changing needs and demands of the customers.

3.1. Vision & Values of Tesco

The vision of the Tesco is composed of five elements that show what type of company it wants to become.

The company Tesco Plc wants to become needed and wanted all over the world. It means that it wants to align its business activities with the needs and wants of the world.
The company Tesco PLC has aspired to be a growing business always offering opportunities. It means that it wants to become the best and largest employer, expanding its operations worldwide.

Furthermore, the company Tesco wants to be identified as an innovative, modern company. It means that it wants its customers to be attracted to the new unique services and products that it offers.

It also wants to win locally and globally. It means that Tesco wants to use its knowledge and experience gathered from local practices on global operations successfully.
Lastly, it wants to be inspired and earns the trust as well as the loyalty of the customers, communities, and colleagues around the world. It shows that the company wants to contribute to the lives of each with whom it gets in touch.

The mission statement of Tesco, “We make what matters better, together” shows how it is derived from the vision and is further embedded into the strategies implemented in the company at all levels.

The values of the company Tesco are:

We treat everyone how we like to be treated.
No one tries harder for customers.
We use our scale for good. (Tesco, 2014)

3.2. Tesco’s Seven-Part Strategy

These seven strategies are:

To grow in the core business of the UK

As shown, this involved the increment of the staff numbers by 20,000 within two years. It also included the renovation of the existing stores and new promotional introduction at these existing stores.

Creation of highly valued brands

For this purpose, the company involved itself in the development of the own-labeled brands like the Tesco Finest, and F&F clothing for providing the best-valued brands to the customers.

Outstanding International Retailer

For this purpose, the company has generated 30% of its group profits from the international business. The opening of the new F&F stores in new markets like Azerbaijan, Saudi Arabia, Georgia, Kazakhstan, and in the Middle East come under this strategy.

Growth in Retail Services in all Markets

For this purpose, the company Tesco Plc has generated over £ 1 billion of revenue in the year 2012. The latest revenue of £ 157 million in Tesco bank shows the company’s efforts in growing the retail services in all markets (Tesco Plc., 2017).

Serving Communities:

The report above shows the tremendous input in this part-strategy by serving the community. Tesco has made its responsibilities to the community the core value and strategy of the business. The three big ambitions underpinned by the four Essentials demonstrate this strategy at best.

Building Team

The most important asset of any company is its people; its human resource. Tesco values its people and trains them to live by their values to work in a manner that is best for the customers. Within the Group, each director is given appropriate training and development programs after discussion of the training needs within the board and the chairmen (Tesco Plc., 2017, p.43).

Getting Strong into Non-Food Sector

Food has been the strongest point for Tesco, but it has and needs to strengthen its position in the non-food industry as well (Lawson, 2012). The continuous diversification and addition to the wide range of products and services in the form of Tesco Bank and telecom venture are evidence of this strategy.

3.3. Monitoring & Evaluation

Tesco utilizes a wide range of techniques to collect the data for monitoring of the progress and compare it against the set targets. The club card scheme and the telephone-based research with the help of the online panel of customers help in the determining of the customer’s needs and how it was satisfied or not satisfied by Tesco.

3.3.1. Key Performance Indicators:

The performance is monitored at Tesco on a regular basis and evaluated against the set targets for each of the KPIs. The six KPIs used by Tesco for monitoring and evaluating of the performance and its results for 2016 are as follows:

Group Sales:

In 2016, the company increased its revenue by increasing the number of transactions and by increased volume. The increase in the group sales was found to be 1.1% as compared to last year. The target achieved was the target and stretch mark.