Management

It is generally assumed that Tesco has been a dominant player in retailer industry and probably is the biggest player in the market within the UK. Tesco is one of the largest food retailers in the world. In addition, the group also sells non-food items, including electrical goods, home entertainment technology and clothing. Tesco is the largest retail operating group in the UK. The group’s leading market position in the UK enhances its brand, provides economies of scale and makes it easier for the group to launch private label brands. However, intense competition in both domestic and international markets could adversely affect its profitability. The group recorded revenues of £42,641 million during the fiscal year ended February 2007, an increase of 8.1% over 2006. The operating profit of the group was £2,648 million during fiscal year 2007, an increase of 16.1% over 2006. The net profit was £1,892 million in fiscal year 2007, an increase of 20.5% over 2006. (www.datamonitor.com)
However, over the past few years, Tesco’s operations have expanded into newer markets through both geographic expansion as well as extension of the product line (Tesco, 2006a). This implies that while Tesco has successfully capitalized on the growing urban market in other European and Asian countries (Tesco, 2006a) by launching its chain of stores in these countries, it has also stepped into newer sectors by providing financial services, mobile services, fuel, apparel, broadband services, multimedia, books and, very recently, software products (Tesco, 2006b).

PESTEL Framework
The PESTEL framework is tool to assist the macro-environmental analysis of a business entity by addressing the Political, Economic, Socio-demographical, Technological, Ecological and Legal aspects of the environment that the entity operates in (Johnson and Scholes, 2006).

Political
The British Competition Commission serves as regulatory invigilator over the proceedings within the supermarket industry. Moreover, the growing imbalance within the food retail industry in the UK has, for quite some time, been of chief concern to the Competition Commission and the Office of Fair Trading. As an example, a recent report (McClary, 2006) suggests that a ruling on behalf of the Office of Fair Trading could require the giant supermarket firms to part with their ‘landbanks’. Further, the pricing policies of the leading players have raised some more eyebrows and attracted further probe (Fortescue, 2006).
With the supermarket giants like Tesco, Asda and Sainsbury’s cutting costs of every product at a brisk rate, the gap between the leaders and the remaining grocery retailers including supermarket chains like WM Morrison only threatens to widen (Datamonitor, 2005). Thus, the regulatory boards like the Competition Commission have posed several obstacles to the growth of the leaders within this industry.
While the growth of the leaders within UK has been stalled by actions taken by the governing agencies, the international prospects look much brighter due to the liberalization of trade and amendment of trade policies within many nations (Purushothaman, 2003). The significance of this discussion for Tesco is that it can prosper by consolidating within the UK while expanding at a brisk rate in the international domain.

Economic
Data exhibited by the Global Market Information Database (2006) shows a positive change in the earning potential of a typical urban citizen within the UK. However, as is general awareness, a typical metropolitan citizen lives a busy lifestyle making him or her ‘cash-rich and time-poor’ thereby making a one-stop-shop (like the modern-day supermarket) a preferred shopping destination. Moreover, an increasingly urban lifestyle is also being witnessed in the emerging economies of Asia and developing nations of East-Europe (Global Market Information Database, 2006) thereby underlining the significance of these markets for giants like Tesco. This fact, coupled with the developing nature of economies like China and India, is encouraging for firms like Tesco to initiate their operations in these geographies.
The notion that the one-stop-shop culture has usurped the street-chopping culture is confirmed by realizing the fact that consumers perceive a supermarket as “the new market square – a place to meet people, buy clothes and even treat the kids to a meal out” (Rogers, 2003). This highlights the shift in preferences of the consumer populace in general which, in turn, has caused the supermarket players to fiercely compete to earn the initial loyalty of the buyer.

Socio-Demographical
As is general knowledge, the single population within the UK has been expanding for the last few years. This expansion includes both – the working males and working females. The ‘singles’ lifestyle implies that the working youth spends less time in the kitchen that bodes well for the superstores that have flooded their shelves with various ready-to-eat items. The ‘single’ nature of living also implies that the individual is left with more disposable income on leisure as opposed to the family person – which translates well for a superstore like Tesco that has an enormous product line for recreation and entertainment.
The growing significance of superstores can be highlighted from the statistic revealed by Rogers (2003) that informs that 49% of the questioned adults confirmed that “their regular supermarket” was “playing a big part in their everyday life”. The same article also informs that a substantial budget of the family is spent within the supermarkets owing to the extensive range of products, especially non-food products, on offer.

Technological
The advent of the World Wide Web and easy access of this technology to the urban population provided the retail sector with a plethora of opportunities and new channels to reach the end consumer. In a similar vein, supermarket chains like Tesco, Asda and Sainsbury have been operating their online retail outlets with enormous success (Quilter, 2005). The online shopping system also provides these retail service providers with important information about the consumer, thereby enhancing the prospects of direct marketing, which, as Watts (2006) argues, provides the business with priceless information about the buyer.
Reports have also suggested that Tesco is set to incorporate the RFID (Radio Frequency Identification Technology) technology to enhance its in-store security (computer Weekly, 2005). Moreover, computer systems that can generate and transfer information about the inventory and stocks promise to lubricate the in-store operations thereby improving the efficiency of service. In short, technological advances, mostly in digital technology, are being used and provide increased prospects of being used effectively to ensure the convenience of the service and product user that retains his or her loyalty with for the preferred brand.

Ecological
Environmental concerns also play a huge role in the operations of the supermarkets. For example, Tesco had recently launched an awareness program requiring its customers to re-use the plastic shopping bags (Huntington, 2006). As an incentive, it also planned to award its Clubcard members with additional points if they contribute by curbing the usage of supermarket bags (Charles, 2006).

Legal
Tesco has been accused of using employing children in Bangladesh to produce its clothing range (Guardian, 2006). Evidently, if proved correct, this accusation could result in Tesco facing legal actions pertaining to child labor. However, whether the allegations prove to be correct or not, the investigation leaves the firm in bad light especially since, as the same article informs, Tesco is also a founder member of the Ethical Trading Initiative.

Porter’s Five Forces Framework
The Porter’s Five Forces framework reflects at the immediate task environment of the business entity under consideration by analyzing the powers that rest with the buyers and suppliers, the barriers to entry into entity’s market, the threat of substitutes and the degree of rivalry amongst the market players (Johnson and Scholes, 2006).

Supplier Power
The unending price war that characterizes UK’s supermarket industry (Datamonitor, 2005) results in severe cost-cutting measures being taken by the superstores. With cost-cutting as their primary focus, the burden is easily transferred to the suppliers who have to provide the products at lower prices. Thus, it is safe to assume that the suppliers to supermarkets do not enjoy much power within the sector.
In a similar display of power over its suppliers, Tesco recently hinted at the suppliers of certain products to attach RFID tags to the products for improved security (Hadfield, 2006).

Buyer Power
With a plethora of options available to the end user in terms of the number of supermarkets, the different supermarket establishments have to indulge in fierce competition to attract the expenditure and loyalties of the buyer. The continuing price war (Datamonitor, 2005) is also a result of the need to consolidate and penetrate the exsisting consumer base. Evidently, the power here lies with the buyers resulting in competitiveness within the market.

Barriers to Entry
The writer opines that the supermarket industry within the UK seems to be beyond the growth stage in the industry life cycle thereby leaving little room for newer players to arrive and succeed. Moreover, the huge size of the existing players gives them a two-fold advantage - an edge through huge economies of scale and scope; and an apprehension within the prospective entrants on the basis of massive capital requirements. Further, the supermarkets enjoy impetus provided by the brand equity, supplier relationship and early-mover advantage making the supermarket industry a sector with high barriers to entry.

Threats of Substitutes
On circumspection, it is realized that perhaps the only substitutes to the superstores could either be the local grocery suppliers and online retail portals. As far as the former are concerned, the size, variety and the low costs available within supermarkets renders the local grocer impotent as a substitute. Moreover, the supermarkets themselves have indulged in establishing online retail portals thereby ruling out the possibility of any form of substitution. Thus, the threat from substitutes remains negligible.

Rivalry within the industry
The continuing price wars, as discussed above (Datamonitor, 2005), and counteracting measures adopted by rivals to hinder the growth of competitors (Finch, 2006) hint at the intense rivalry that characterizes the UK supermarket sector. However, it may be noted here that the competition is prevalent only amongst the top four players while the gap between these and the other supermarket stores is huge and ever-widening (Datamonitor, 2005) – a concern of the Competition Commission and the Office of Fair Trading.

SWOT Analysis
Strengths
Assessing from the previous discussion, one of the key strengths of Tesco is its access to customer information through the Clubcard which provides it with valuable information about changing consumer trends and shopping patterns.
Another strength of Tesco is its market leader position that provides it the momentum and also the massive size of operations that provides it economies of both scale and scope. Thus, the firm can easily enter newer markets at minimum costs while also catering to a high market base.
Weaknesses
Amongst Tesco’s weaknesses is the inability of Tesco to keep away from bad press. For instance, the accusations of child labor being employed by Tesco have brought the firm into bad light. Moreover, Tesco seems to be less capable in maintaining healthy relations – a factor that further adds to the bad press.

Opportunities
Newer products and services always provide an opportunity for businesses with such a size and diversity of product line as Tesco’s. However, specifically for Tesco, the developing nations provide a massive opportunity for Tesco to make use of the first-mover advantage and, hence, the retail giant should penetrate the market in a much stronger way than it currently is doing.
Threats
Tesco’s threats could arise from both within and from external sources. Over-emphasis on cost-cutting poses the danger of leaving the employees unsatisfied. Tesco’s top management itself has to refrain from getting complacent following its continued growth.
Externally, actions from rivals that could directly hinder the growth of its business pose a major threat to Tesco.

Grimwade, M. et.al., 1997. Global Business Strategy. London: Thomson Business Press.
Lynch, R., 2003. Corporate Strategy. 3rd ed. London: Prentice Hall.
Cravens, W.D & Piercy, N.F., 2006. Strategic Marketing. 8th ed. London: McGraw hill.
Thompson, J.L., 2001. Strategic Management. 4th ed. London: Thompson Learning.
Grant, R.M., 2005. Contemporary Strategy Analysis. 5th ed. London: Blackwell Publishing.
Hanrahan, J. & Walters, D., 2000. Retail Strategy. London: Macmillan.
McClary, S. (2006) “Forced land sale threat looms over supermarkets”. Estates Gazette, Issue 620, p34.
Fortescue, S. (2006) “Pricing in supermarkets prompts investigation”. Farmers Weekly, Volume 144, Issue 11, p10.
Guardian (2006) “Tesco Denies Child Labor Claims”. accessed on 24th October, 2007.
Rogers, D. (2003) “Supermarkets see value grow in eyes of consumers”. Marketing, 2/13/2003, p4.
Tesco (2006a) “Tesco Annual Review and Summary Financial Statement 2006” accessed on 25th October, 2007
Tesco (2006b) “Tesco enters software market”. accessed on 25th October, 2007.
http://search.ft.com/ftArticle?queryText=tesco+relationship+with+suppliers&y=0&aje=false&x=0&id=050603009063&ct=0&nclick_check=1 accessed on 15 December, 2007
Fernie, John. Logistics and Retail Management : Insights into Current Practice and Trends from Leading Experts.
London, , GBR: Kogan Page, Limited, 2004. p 105.
http://site.ebrary.com/lib/anglia/Doc?id=10074933&ppg=123 accessed on 29 November, 2007

http://www.leanuk.org/articles/creating_a_customer_driven_supply_chain.pdf accessed on 12 December, 2007
(http://www.solarnavigator.net/ accessed on http://www.oppapers.com/essays/Management/149378

Management 7.8 of 10 on the basis of 1792 Review.