The food and drink retail sector represents the largest industry in the UK. In recent years UK supermarkets have come under increased scrutiny over their treatment of suppliers, customers and their competitive position in the market. The report below provides an insight into the supermarket company, Tesco, with emphasis on its external environment analysis and company's analysis of resources, competence and culture.
Tesco is one of the largest food retailers in the world, operating around 2,318 stores and employing over 326,000 people. It provides online services through its subsidiary, Tesco.com. The UK is the company's largest market, where it operates under four banners of Extra, Superstore, Metro and Express. Many Tesco stores have gas stations, becoming one of Britain's largest independent petrol retailers.
The company’s goals as mentioned by their CEO in 2002 were to develop a strong core U.K. business, and expand its operations in the non foods business as much as in the food business; to develop a strong profitable retail business domestically as well as internationally.
Tesco had been the market leader till 1999 but had to take aggressive steps in order to survive further. Increasing number of competitors in the industry and an expanding consumer market had changed the competitive environment of the sector globally. The successful retailers will be those that establish themselves worldwide and achieve new competences that generate a self-reinforcing competitive advantage through scale and technology deployment on a global scale.
As Michael Porter says in his article Strategy and The Internet, that with Internet in picture it is inevitable for companies to develop strategies to differentiate themselves and use Information Systems like Internet as a complement to their core business operations
2.0 The evolution of ‘Tesco Way’ (The strategies to gain competitive advantage)
Initially, during 1947, Tesco adopted the American supermarket “pile it high and sell it cheap” strategy which led to Tesco paying more attention to his suppliers and ignoring customers. As a consequence the company earned so much criticism that “doing a Tesco” became a British jargon for snatching defeat from the jaws of victory.
In 1980, MacLaurin became the CEO of Tesco. He improved the strategic position of Tesco by aggressive expansion and streamlining small Tesco stores into more economical 30,000 square foot stores in suburbs. However, he failed to introduce innovation in the business and copied everything that their competitor Sainsbury did. As a result, the switching cost for Tesco customers was very low and Tesco failed to maintain the loyalty of its customers. Tesco failed to differentiate itself to attract and maintain the loyalty of his customers.
According to Michael Porter, a company can gain competitive advantage by three primary strategies: 1)
Cost leadership : It results when the organization aims to be the lowest cost producer in the marketplace 2)
Differentiation: Results when the organization qualifies its product or service in a unique way. 3)
Focus: Focus allows the organization to limit its scope to a narrow segment and tailor its offerings to that group of customers. Thus in order to return back in competition Tesco needed to frame its business strategy in a way that it could gain maximum out of its resources and channels.
In 1992, Terry Leahy, the new CEO of Tesco reframed the business strategy of Tesco and regained its focus on value creation by recovering focus on customers, employees and growth. Many improvements were made in the organization and Tesco returned in the competition arena. Tesco implemented parts of all fundamental competitive strategies suggested by Porter. It developed a “value line”, a low priced no-frills range of basic items. It retrieved its focus on customers and implemented strategies to reduce long lines at the checkout counters. Moreover the...
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