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MT301 Business Strategy
Group 37
Francine Zachary Kwan 11527403
Crystalle Liceralde 11473062
Monisha Andruse 12105953
Adriana Cușniriuc 10703343
Valerija Jonikane 11364876
Anne Healy 11353406
Submitted to: Malcolm Brady
Submitted on: 20th December 2013
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Executive Summary
This report was carried out to evaluate the strategic management process of Tesco Ireland.
This investigation was carried out by the students undertaking the module Business Strategy
as part of their course Accounting and Finance at Dublin City University.
The main findings include a detailed company analysis of Tesco and the retail industry in
which it operates using Porter’s five forces, Key Success Factors, SWOT analysis, PESTLE
analysis, Value Chain and a financial analysis.
The report briefly outlines two of the strategic issues currently facing Tesco Ireland. These
include the lack of online security and the fall in market shares.
It is concluded with a recommendation to the management of Tesco Ireland to resolve the
issue of the fall in market shares, which is to identify and assess the risk of losing customers.
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Table of Contents
Introduction................................................................................................................................4
Porter’s Five Forces ...................................................................................................................4
Key Success Factors ..................................................................................................................5
SWOT Analysis .........................................................................................................................7
PESTLE Analysis ......................................................................................................................9
Value Chain .............................................................................................................................11
Financial Analysis....................................................................................................................13
Strategic Issues Facing Tesco Ireland......................................................................................13
Recommendation to Resolve Level of Competition................................................................14
Conclusion ...............................................................................................................................14
Learning Process......................................................................................................................15
References................................................................................................................................17
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Introduction
A good business strategy helps a company to achieve success. A business strategy sets goals
for a company that need to be achieved. It defines the pathway which the company should
progress by assessing its past profile and setting objectives for the future. The following
sections shows how Tesco Ireland’s business strategy helped achieve its goals through their
industry and company analysis.
Porter’s Five Forces
Buyer Power
The power of customers in Irish retail market is fairly high. This has become particularly
evident since the recession started as customers have begun to buy brands that are at a
discounted value rather than buying expensive ones. This is one of the reasons why Tesco’s
Clubcard has a great impact on customers. “It significantly increases the profitability of
Tesco’s business” (Ivory Research 2009). It helps to follow the product range and
environment to suit the local retail market (Butler 2013). To ensure low prices, better choices
and to meet customer needs, discounted offers and promotions help Tesco to control and
retain their customer satisfaction.
Supplier Power
Tesco makes use of its buying power to keep prices paid to its suppliers as low as possible.
Supplier’s bargaining power to raise prices on the products provided to Tesco is considered to
be minimal. Tesco is the largest buyer of Irish food products in Ireland. Its policy is to
increase the Irish economy by supporting over 400 Irish food and drink companies. Any
attempt to increase prices might lead to a contract termination for the supplier, which might
put an end to its business. Currently, the market does not allow for a flexible change of
buyers. This might also be seen as the abusive power of the buyer (Tesco Ireland 2013).
Rivalry
Competition is very strong in the retail industry. According to statistics from research
company Kantar Wordpanel, Tesco’s grocery market is now outperformed by Dunnes Stores,
Lidl and Aldi (Newenham 2013). Substantial growth is seen in the German discount retailers,
Aldi and Lidl, with their market share continually increasing for the past year. In order to
combat this, Tesco has promised to give money back on their customer’s shopping if their
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prices exceed Aldi and Lidl (Sheehan 2013). This will result in between €10m and €13m
being spent on vouchers received by customers as a result of the price difference.
Musgrave companies, Supervalu and Superquinn, are to be merged in February 2014.
According to Musgrave’s CEO, this merging will enable “shoppers to access Supervalu’s
offer nationally, while incorporating the best of Superquinn” (Burke-Kennedy 2013).
Substitutes
There are a great number of substitutes on today’s market for the products offered by Tesco.
These include the German giants Lidl and Aldi. They first arrived in the Irish market in the
late 1990’s but it wasn’t until the financial crisis in Ireland that these two businesses have
grown. Consumers’ spending has switched to the cheaper brands of Aldi and Lidl. This is due
to attractive prices and low switching costs. To compete with these companies, Tesco
introduced the “Price Promise” scheme on October 24th of this year (Reuters 2013). Tesco’s
products are also substituted by those provided by Irish retailers, such as Dunnes Stores,
Supervalu and Superquinn which are supported by Irish nationals.
Threat of New Entrants
A new entrant trying to enter the food retail market would have to pass many barriers in order
to compete with the existing supermarkets. It has become very difficult for a new entrant to
raise the capital required “because of large fixed costs and highly developed supply chain”
(Ivory Research 2009). However, a threat exists from groups established from local retailers
such as Centra and Supervalu, under the Musgrave Group. The recent fact that Superquinn
has transformed to Supervalu means that Supervalu has substantially increased their market
share. Therefore, there is always a fear of replacing the existing products or services
(Newenham 2013).
Key Success Factors
Product Quality
Product Quality is one of the Key Success Factors of Tesco Ireland. Tesco provides product
guarantee by publishing logos that indicates product life. For example, the ‘Product Life’
logo is used to help indicate “how long the product is likely to be at its best” (Tesco Ireland
2013). However, it has been reported recently that Tesco burgers have been tested to
determine whether they contain horse DNA and these tests have subsequently proven positive
(Lawrence 2013). Mislabelling of horse meat products as beef forced Tesco to withdraw
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some of their products and apologise to the customers (Ryan 2013). This incident was one of
the biggest food scandals of 21st
century. In the future Tesco must carefully review their
suppliers when purchasing products, or else it will damage the Product Quality reputation of
Tesco forever.
Brand Image
Tesco has built up a reputation within the retail industry that it is a company that works hard
and cares for its customers. According to its website, Tesco works harder “than anyone else”
(Tesco 2013). In November 2013, two separate incidents reported to have found pain relief
tablets in the Tesco ice cream cones. Following the report, Tesco took immediate action by
warning customers not to consume the product and advising them to return the affected
batches to a Tesco store. The proactive approach of Tesco shows how the company wanted to
protect customers as well as their brand (The Irish Times 2013).
Customer Service
Tesco takes pride in the customer services by providing both online and offline services.
They have various contact numbers for each sector of their business. This saves time as it is
direct to the specific need of the customer rather than going through a long process on the
phone. Tesco uses famous social media providers such as Facebook and Twitter where
customers can complain and ask queries about products or general information that they need.
Based on their Facebook page, there seems to be a quick response coming from the Customer
Service team (Tesco 2013).
Operating Costs
Tesco avails of many features which minimise its operating costs. With more than 140 stores
located all around the country, Tesco benefits from large economies of scale. This is of a
great advantage to its performance. Using its expertise, Tesco has developed a business
operating model, consisting of business processes and IT systems. This model is adopted by
all of its subsidiaries and is an efficient way of cutting operating costs. Starting with 2013,
Tesco aims to save €20m a year on cooling costs, by using business intelligence technology
to keep temperature constant all across the stores (Computer Weekly 2013). Tesco’s policy is
to keep its customers happy by saving time and money.
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Expertise
Tesco are experts in considering people as their greatest asset, valuing their customers and
employees as playing a very important part of their success. Tesco provide great customer
satisfaction through excellent special offers in store and online and providing good
competition for their rivals. Tesco is also renowned for considering its employees as an
integral part of the business. They provide many employment opportunities for young people
and also encourage current employees to progress in their career through further education to
improve their skills (Tesco 2013).
Research & Development
Tesco is actively involved in the research of customer insights and preferences through the
analytics performed by Dunnhumby (2009). The initiative to use Clubcards in Tesco
analytics has led to Tesco using its findings in marketing and other functions. Tesco is very
efficient in providing proactive responses to developing new products and services, for
example the Tesco Value Range grocery products, Tesco Mobile and Tesco Banking, and
developing good price deals with branded suppliers such as Coca-Cola, Pringles and
Guinness. Tesco is also great at adapting the new technologies such as online shopping and
interaction with social networking, which proves that it is continually developing in line with
current IT trends (Dunnhumby 2009).
SWOT Analysis
SWOT
STRENGTHS
Customer
Retention
Outsourced
Systems
THREATS
Competition
WEAKNESSES
Web Security
Damaged Brand
Name
OPPORTUNITIES
Improve
Customer Service
Push Own Brand
Products
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Strengths
One of the strengths of Tesco Ireland is its loyalty card. Tesco Clubcard is a very useful tool
to analyse and understand customers’ behaviour. With the data captured, Tesco can market
certain products accordingly and they can provide customised services according to their
spending capabilities. This customised service adds value to customers (Steiner 2012).
Likewise, some Tesco stores were ran quite coolly while other stores were overheated. This
generated an idea to outsource their heating systems to allow synchronisation. Tesco linked
its systems to suppliers from each Tesco store to a data warehouse over the internet. With this
idea, Tesco is able to reduce its maintenance cost.
Furthermore, Tesco is on a trial stage whereby, refrigerators in its major stores are being
monitored by a computer system to ensure that all refrigerators operate at the right
temperature. IBM research has found that 20% of cost can be saved if the project is
implemented. With the data collected, Tesco aims to save up to €20 million a year across
3,000 stores in the UK and Ireland (Computer Weekly 2013).
Weaknesses
Tesco have a poor web security. It has been reported that a number of customers have been
affected by the Tesco Clubcard fraud. Customers’ accounts on the Tesco website were
hacked through scammers obtaining customer information through phishing emails (Jones
2013).
Tesco’s brand name has been damaged due to unsafe products. In recent news, there has been
a presence of pain tablets in their value line product of ice cream cones (The Irish Times
2013). This shows that there is a possibility that there is no strict management when it comes
to safety within the supply chain.
Opportunities
With increasing technological advances in the modern world, there is no doubt Tesco can
take this opportunity to improve customer service and create profits. They are already in
close co-operation with Rocket, known mainly for incubating e-commerce start-ups (Lunden
2013). Although this project has only commenced in South East Asian countries, there is
always a possibility that this could extend to other emerging markets of the company across
the globe.
Tesco is losing their sales to the German companies Lidl and Aldi. They are increasing
competition in the retail industry by opening up a number of stores as well as having lower-
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priced products. The company has an opportunity to push their own brand, which are lower
priced when compared to branded products.
Threats
The level of competition between retailers is continually increasing. This year, Aldi and
Lidl’s market share increased to over 14% while Tesco’s share decreased to 26.5%
(Newenham 2013). Musgrave group are merging Supervalu and Superquinn due to the steady
decline which means that Supervalu is just behind Tesco with a 25% market share (Hancock
2013).
As a multinational company, Tesco is continuously expanding. Not only is there a large
amount of money relating to market and research costs, there is also a high probability that
customers in foreign countries will not easily adapt to the UK chain and hence, there will be
no significant amount of returns. Cultural problems could also arise if there is no strong
ethics code implemented within the company (The Observer 2013).
PESTLE Analysis
Political
Companies within the retail sector in Ireland have an advantage as they can easily trade and
transport goods with other EU countries. They comply with Irish and EU laws and
regulations in that they provide equal employment opportunities for all, so that there would
not be a chance for discrimination. Tesco is a business that is constantly growing and is
abundant with opportunities for both the customer and colleagues. Tesco offer their
colleagues many opportunities to advance in their careers through development programmes
and encouraging employees to study for a qualification whilst at work with the business.
Employees are also encouraged to work in different areas of the company which shows the
extent to which Tesco values employees as an important component of its business (Tesco
2013).
Economical
Retail accounts for over 10% of Ireland's GDP (Ibec 2013). One of the most influential
factors on the economy is high unemployment levels, which decreases the effective demand
for many goods. Consumer spending has fallen every year since 2008; however we can see a
positive trend as it has stabilised this year, and IBEC predicts that it will rise in 2014 (Ibec
2013). Retailers welcome the freeze in fuel duties and VAT rates. However, the excise duty
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increase will negatively impact on responsible consumers and reduce spending. Ireland loses
approximately €400 million every year from not receiving taxes from illegal sellers. If some
of this money could be recouped, it would protect retail jobs and boost the domestic economy
(Retail Ireland 2013).
Social
Current trends indicate that Irish customers have moved towards ‘one-stop’ and ‘bulk’
shopping. In response to that, Tesco have increased the amount of non-food items available
for sale. Demographic changes such as an increase in female workers, the aging population
and a decline in home meal preparation have led to a demand for added-value products which
are quick and easy to prepare, yet nutritious. Consumers are becoming more aware of health
issues, and their attitudes towards food are constantly changing. Tesco has adapted its
product mix to accommodate an increased demand for organic products. By understanding
customers shopping patterns, customers feel like they belong to a “special group” and Tesco
is able to treat them as people would treat their friends (Tesco Ireland 2013).
Technological
The growth of internet and e-commerce greatly affects the retail industry, as online retailing
competes with the high street. The top-class retailers now operate in the multi-channel
environment, both in-store and online. Tesco is very successful in adapting to online retailing.
As online retailing evolves, so too does mobile, with new tools designed to support the
consumer’s purchase decision, such as research and price comparison. Social media
influences a larger proportion of sales, driven both by consumers, who become much more
active in sharing their buying preferences among their friends, and by retailers who have
become more clever at exploiting and targeting their followers.
Retailers collect large streams of data from mobile devices and club cards, however this raw
data has to be analysed for it to make sense and contribute to decision-making. This means
buying software and hiring analysts, which is a huge investment; however Tesco is very
effective in using analytics (Dunnhumby 2009).
Legal
There are numerous laws in Ireland in relation to the retail industry. Food businesses within
the retail industry are required by Irish law to comply with EU food hygiene regulations, one
of these laws is Food Safety Authority of Ireland Act 1998. The Food Safety Authority issues
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food standards which guide companies on how to comply with EU laws and regulations. An
example of one of these standards is I.S. 341: Food Hygiene in Retailing and Wholesaling.
Businesses carrying out any stage of the production, processing or distribution of food are
required to have a procedure in place based on the Hazard Analysis and Critical Control Point
(HACCP) procedure (Food Safety Authority of Ireland 2013). Every person working in a
food handling area is required by Regulation (EC) No 852/2004 to maintain a high degree of
personal hygiene. Training and supervision is also to be provided to these employees in all
areas of food handling. Those that are responsible for the HACCP procedure must have
received adequate training to carry out this task (Food Safety Authority of Ireland 2013).
Environmental
Environmental issues have become very important for managers within the retail industry to
deal with in recent years as there is more concern about a company’s contribution to climate
change and how this can be reduced to a satisfactory level. The retail industry in Ireland is
governed by many laws and regulations in the area of environmental protection and waste
reduction, an example being the Waste Management (Amendment) Act 2001 (Enviro Centre
2013).
Value Chain
Inbound Logistics
Tesco concentrates on creating long-term relationships with its suppliers and continuously
ensures that it meets high quality standards and gives customers value for money. Recently,
Tesco has invested in 25 new 51-foot Gray and Adams refrigerated units. These trailers will
be used to deliver store inventory from regional distribution centres. According to Cliff
Smith, Tesco’s fleet engineering manager, there has been a 13% increase in productivity, and
Inbound
Logistics
•Relationship
with Supplier
Operations
•Auomated
Data Collection
•Waste
Management
Outbound
Logistics
•Strategically
placed
Supermarkets
•Online
Experience
Sales &
Marketing
•Clubcard
•Scan As You
Shop
•Hudl
After Sales
Services
•Wide range of
customer
services
•Facebook
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at the same time lower emissions. These new trailers are all part of Tesco’s F-Plan: fuller
cages, fuller trucks, fewer miles, and fuel economy (O’Reilly 2013).
Operations
Tesco is using the automated data collection to predict patterns in order to properly stock
store shelves. By looking at historical data, Tesco can accurately what products the customers
want at the right time at the right area and then supply those stores accordingly (Master
2013).
Tesco Ireland must rethink its operations after the food wastage reported from UK stores. It
was reported that 68% of salad bags are thrown out while 40% of apples, a quarter of grapes
and a fifth of bananas are unused (Griffin 2013). Furthermore, almost half of bakery items go
to waste. Taking all this into consideration, Tesco can rethink what type of products and how
many of each product can be stocked into the shelves of each store (Breaking News 2013).
Outbound Logistics
Tesco has the largest number of supermarkets across Ireland. There are 142 stores consisting
of 13 Extra, 93 Supermarkets, 6 Metro and, 30 Express. These stores are strategically placed
in different locations in small towns and cities in order to achieve a large customer base and
hence, increasing profits (Tesco 2013).
Tesco also has an easy online shopping process which entices customers to use this method
of shopping. In 5 easy steps: Registry; Booking a delivery slot; Order groceries; Review and
Checkout; and Delivery, the customer will be able to receive the groceries they have ordered
right at their doorstep. Tesco currently is the leader in online shopping in both Ireland and the
UK.
Marketing and Sales
Using the Clubcard, Tesco is able to target customers according to their spending capabilities
through a customised web page online and to “offer everyday value range to price sensitive
customers” and deliver its finest range to more affluent customers (Steiner 2012).
Scan as You Shop accounts for 20% of Tesco’s sales in the UK and 300,000 customers use
this medium each week. Although it is not widely used yet, this new technology helps
customers keep track of what they buy and how much they are spending. It is also more
efficient as customers can pay at a console and leave straight away (Quinn 2012).
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Tesco is also currently developing a multi-channel strategy. They have recently launched a
new tablet called Huld which is tailored to customers’ needs. This portable device is not only
priced fairly but will also make it easier for customers to access services such as “Blinkbox
movies and music, Clubcard TV, banking” and grocery shopping. This device is family-
friendly and is up-to-date with the current advancements in technology (Dennys 2013).
After Sales Services
Tesco offers a wide range of customer services. They have various contact numbers for each
sector, i.e. one for grocery, clubcard, car insurance and mobile (Tesco Ireland 2013). This
makes it easier for customers to directly contact the area in which they have a problem.
Furthermore, they have a strong online presence. They have a Facebook page readily
available to customers to ask queries. An online administrator actively responds to these
queries within hours. Customers can also provide feedback, which Tesco can take into
account in order to improve their customer services.
Financial Analysis
Sales in Tesco Ireland increased by 1.9% in February 2013, compared to the same period in
2012. However, when looking at like to like sales (excluding any new store openings) the
sales have fallen by 0.3% when compared with the same time last year (Tesco Ireland 2013).
The pre-tax profit has fallen by 1.96bn or 51.6% when compared to last year. However, if we
look at full-year profit it has has fallen by just 14.5%, largely due to the cost of a turnaround
plan for its home market (RTÉ 2013).
Strategic Issues Facing Tesco Ireland
Online Security
Recently, it has been found that Tesco Clubcard vouchers had been spend by fraudsters. In
November 2013, a Tesco shopper found his Clubcard voucher already been spend before
even using it. After investigation, it had been found that this theft related to an incident
happened in January, when Tesco's security people identified some "irregular activity"
connected to "a small proportion" of Clubcard accounts (Papworth 2013). Although the
police investigation is undertaking, many questions arises in dealing with Tesco’s online
security. On the other hand, it is not a requirement for Tesco staff to see customer’s Clubcard
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as a proof when using vouchers. If Tesco does not take the necessary action, this may lead
into many bigger problems in the future.
Level of Competition (Market Share)
The greatest issue faced by Tesco in 2013, was the stiff competition level, which the retailer
had to put up with. Its sales have decreased by 8.1% in Ireland, counting for the greatest fall
out, compared to all the other European branches. Tesco has been losing ground to Lidl and
Aldi, with a €400m loss in sales for the third quarter of this year. This decline in sales
represents Tesco’s poor risk management and its lack of preparation in responding to the
competition faced. The success of the competition found Tesco off guard, without any
immediate differentiating actions to save its market share (Mulligan 2013).
Recommendation to Resolve Level of Competition
Tesco has a lot of advantages compared to its competitors. It avails of a large amount of
modern technology and great expertise in delivering high quality services. It is very clear that
where it finds itself at the moment is because of unpredicted events. Tesco had no strategy in
place to confront the unexpected performance of its competition and needs a stronger
approach in keeping its customers close. In order to combat this, Tesco should identify,
assess and manage its risk of losing customers. It should invest in risk management to accept
possible opportunities, while controlling unwanted results. Besides the “Price Promise”
guarantee, Tesco should focus more on customer relations. It should take action on the
feedback received from customers and always respond promptly to their needs. Customer
satisfaction will bring about loyalty.
Conclusion
In summary, Tesco Ireland’s business strategy in dealing with the retail industry and their
company is developed through the Porter’s five forces, Key Success Factors, SWOT analysis,
PESTLE analysis, Value Chain and the financial analysis. Through these analyses, we could
see how Tesco deals with the current strategic issues while staying on top as the biggest
market share holder in Irish market.
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Learning Process
For our first group meeting, we booked a room in the library and discussed about which
company to choose. One of the suggestions was to do Ryanair as our company since our main
aim is to pick a company that has a lot of weaknesses. Another member suggested picking
GlaxoSmithKline. However, since GSK has only limited information available in their
website, we rejected the option. Finally, we decided to choose Tesco Ireland as there is a lot
of information available on their website.
Our task was to find as much information about Tesco’s Mission, Vision and Values for the
next meeting. Therefore, everyone brought the information they gathered and we decided to
divide the work. For this, we created a Google Drive and typed in everyone’s work on the
drive. Although our work went over the limit of one page, we tried to cut down our work to
fit everything into one page. At the end, each member rechecked their work and a person sent
the document to the lecturer.
Our next meeting’s agenda was about the presentation. We decided to divide up the work, so
two members would do PESTLE Analysis and two others would do Company Analysis while
the other two work on Corporate Governance and CSR.
Even though we decided on a deadline within two weeks, everyone got busy with other
assignments and class tests and so the deadline had to be postponed. When we had our
presentation date due near, we met up and considered how much work everyone had done.
One member volunteered to work on PowerPoint slides and animations. Therefore, everyone
put up their work on Google Drive and the slides were done three days prior to the due date.
Our next meeting was in the actual room of the presentation for rehearsal. We decided to
wear business attire and tried to keep within the time limit. However, in the actual
presentation we went over the time. This was mainly because we were careless about the
time. If we had a timer on in front of us, we might have been able to speed up our talks.
Similarly, we were not prepared for the questions after the presentations. We had struggled a
lot as a team to find answers to the questions that were asked. We believe we could have
done better if we had some questions and answers prepared.
On our next meeting we had a discussion about the report. At first we read out the
requirements and thought we had to do all of the ten topics and themes given in the course
outline. Therefore, we divided up the work and were half way through. We were stressing
over so much on our work. However, one of the members coincidentally talked to the lecture
on a doubt that had arisen and discovered that we did not have to do all of the ten topics. We
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then had to call up an emergency meeting and re-divide the work. Finally, we put our work
together and rechecked everything. From this we learned that we should read the
requirements very carefully before starting the work.
Overall, we have learned to co-operate with fellow team members and have gained valuable
presentations skills. Even though there had been confusions and difficulties in completing the
work, we learned to manage our time and meet the deadlines.
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References
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Irish Times [Online], 16th
November. Available from:
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tablet-contamination-1.1597674 [Accessed 3rd
December 2013].
The Irish Times 2013. Top 1000: Our guide to Irish Business [Online]. Available from:
http://www.top1000.ie/tesco [Accessed 4th
December 2013].
The Observer 2013. Tesco on the retreat as overseas expansion turns in rotten returns. The
Guardian [Online], 11th
August. Available from:
http://www.theguardian.com/business/2013/aug/11/tesco-retreat-overseas-rotten-returns
[Accessed 16th
December 2013].

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Tesco Ireland Strategy

  • 1. Page 1 of 22 MT301 Business Strategy Group 37 Francine Zachary Kwan 11527403 Crystalle Liceralde 11473062 Monisha Andruse 12105953 Adriana Cușniriuc 10703343 Valerija Jonikane 11364876 Anne Healy 11353406 Submitted to: Malcolm Brady Submitted on: 20th December 2013
  • 2. Page 2 of 22 Executive Summary This report was carried out to evaluate the strategic management process of Tesco Ireland. This investigation was carried out by the students undertaking the module Business Strategy as part of their course Accounting and Finance at Dublin City University. The main findings include a detailed company analysis of Tesco and the retail industry in which it operates using Porter’s five forces, Key Success Factors, SWOT analysis, PESTLE analysis, Value Chain and a financial analysis. The report briefly outlines two of the strategic issues currently facing Tesco Ireland. These include the lack of online security and the fall in market shares. It is concluded with a recommendation to the management of Tesco Ireland to resolve the issue of the fall in market shares, which is to identify and assess the risk of losing customers.
  • 3. Page 3 of 22 Table of Contents Introduction................................................................................................................................4 Porter’s Five Forces ...................................................................................................................4 Key Success Factors ..................................................................................................................5 SWOT Analysis .........................................................................................................................7 PESTLE Analysis ......................................................................................................................9 Value Chain .............................................................................................................................11 Financial Analysis....................................................................................................................13 Strategic Issues Facing Tesco Ireland......................................................................................13 Recommendation to Resolve Level of Competition................................................................14 Conclusion ...............................................................................................................................14 Learning Process......................................................................................................................15 References................................................................................................................................17
  • 4. Page 4 of 22 Introduction A good business strategy helps a company to achieve success. A business strategy sets goals for a company that need to be achieved. It defines the pathway which the company should progress by assessing its past profile and setting objectives for the future. The following sections shows how Tesco Ireland’s business strategy helped achieve its goals through their industry and company analysis. Porter’s Five Forces Buyer Power The power of customers in Irish retail market is fairly high. This has become particularly evident since the recession started as customers have begun to buy brands that are at a discounted value rather than buying expensive ones. This is one of the reasons why Tesco’s Clubcard has a great impact on customers. “It significantly increases the profitability of Tesco’s business” (Ivory Research 2009). It helps to follow the product range and environment to suit the local retail market (Butler 2013). To ensure low prices, better choices and to meet customer needs, discounted offers and promotions help Tesco to control and retain their customer satisfaction. Supplier Power Tesco makes use of its buying power to keep prices paid to its suppliers as low as possible. Supplier’s bargaining power to raise prices on the products provided to Tesco is considered to be minimal. Tesco is the largest buyer of Irish food products in Ireland. Its policy is to increase the Irish economy by supporting over 400 Irish food and drink companies. Any attempt to increase prices might lead to a contract termination for the supplier, which might put an end to its business. Currently, the market does not allow for a flexible change of buyers. This might also be seen as the abusive power of the buyer (Tesco Ireland 2013). Rivalry Competition is very strong in the retail industry. According to statistics from research company Kantar Wordpanel, Tesco’s grocery market is now outperformed by Dunnes Stores, Lidl and Aldi (Newenham 2013). Substantial growth is seen in the German discount retailers, Aldi and Lidl, with their market share continually increasing for the past year. In order to combat this, Tesco has promised to give money back on their customer’s shopping if their
  • 5. Page 5 of 22 prices exceed Aldi and Lidl (Sheehan 2013). This will result in between €10m and €13m being spent on vouchers received by customers as a result of the price difference. Musgrave companies, Supervalu and Superquinn, are to be merged in February 2014. According to Musgrave’s CEO, this merging will enable “shoppers to access Supervalu’s offer nationally, while incorporating the best of Superquinn” (Burke-Kennedy 2013). Substitutes There are a great number of substitutes on today’s market for the products offered by Tesco. These include the German giants Lidl and Aldi. They first arrived in the Irish market in the late 1990’s but it wasn’t until the financial crisis in Ireland that these two businesses have grown. Consumers’ spending has switched to the cheaper brands of Aldi and Lidl. This is due to attractive prices and low switching costs. To compete with these companies, Tesco introduced the “Price Promise” scheme on October 24th of this year (Reuters 2013). Tesco’s products are also substituted by those provided by Irish retailers, such as Dunnes Stores, Supervalu and Superquinn which are supported by Irish nationals. Threat of New Entrants A new entrant trying to enter the food retail market would have to pass many barriers in order to compete with the existing supermarkets. It has become very difficult for a new entrant to raise the capital required “because of large fixed costs and highly developed supply chain” (Ivory Research 2009). However, a threat exists from groups established from local retailers such as Centra and Supervalu, under the Musgrave Group. The recent fact that Superquinn has transformed to Supervalu means that Supervalu has substantially increased their market share. Therefore, there is always a fear of replacing the existing products or services (Newenham 2013). Key Success Factors Product Quality Product Quality is one of the Key Success Factors of Tesco Ireland. Tesco provides product guarantee by publishing logos that indicates product life. For example, the ‘Product Life’ logo is used to help indicate “how long the product is likely to be at its best” (Tesco Ireland 2013). However, it has been reported recently that Tesco burgers have been tested to determine whether they contain horse DNA and these tests have subsequently proven positive (Lawrence 2013). Mislabelling of horse meat products as beef forced Tesco to withdraw
  • 6. Page 6 of 22 some of their products and apologise to the customers (Ryan 2013). This incident was one of the biggest food scandals of 21st century. In the future Tesco must carefully review their suppliers when purchasing products, or else it will damage the Product Quality reputation of Tesco forever. Brand Image Tesco has built up a reputation within the retail industry that it is a company that works hard and cares for its customers. According to its website, Tesco works harder “than anyone else” (Tesco 2013). In November 2013, two separate incidents reported to have found pain relief tablets in the Tesco ice cream cones. Following the report, Tesco took immediate action by warning customers not to consume the product and advising them to return the affected batches to a Tesco store. The proactive approach of Tesco shows how the company wanted to protect customers as well as their brand (The Irish Times 2013). Customer Service Tesco takes pride in the customer services by providing both online and offline services. They have various contact numbers for each sector of their business. This saves time as it is direct to the specific need of the customer rather than going through a long process on the phone. Tesco uses famous social media providers such as Facebook and Twitter where customers can complain and ask queries about products or general information that they need. Based on their Facebook page, there seems to be a quick response coming from the Customer Service team (Tesco 2013). Operating Costs Tesco avails of many features which minimise its operating costs. With more than 140 stores located all around the country, Tesco benefits from large economies of scale. This is of a great advantage to its performance. Using its expertise, Tesco has developed a business operating model, consisting of business processes and IT systems. This model is adopted by all of its subsidiaries and is an efficient way of cutting operating costs. Starting with 2013, Tesco aims to save €20m a year on cooling costs, by using business intelligence technology to keep temperature constant all across the stores (Computer Weekly 2013). Tesco’s policy is to keep its customers happy by saving time and money.
  • 7. Page 7 of 22 Expertise Tesco are experts in considering people as their greatest asset, valuing their customers and employees as playing a very important part of their success. Tesco provide great customer satisfaction through excellent special offers in store and online and providing good competition for their rivals. Tesco is also renowned for considering its employees as an integral part of the business. They provide many employment opportunities for young people and also encourage current employees to progress in their career through further education to improve their skills (Tesco 2013). Research & Development Tesco is actively involved in the research of customer insights and preferences through the analytics performed by Dunnhumby (2009). The initiative to use Clubcards in Tesco analytics has led to Tesco using its findings in marketing and other functions. Tesco is very efficient in providing proactive responses to developing new products and services, for example the Tesco Value Range grocery products, Tesco Mobile and Tesco Banking, and developing good price deals with branded suppliers such as Coca-Cola, Pringles and Guinness. Tesco is also great at adapting the new technologies such as online shopping and interaction with social networking, which proves that it is continually developing in line with current IT trends (Dunnhumby 2009). SWOT Analysis SWOT STRENGTHS Customer Retention Outsourced Systems THREATS Competition WEAKNESSES Web Security Damaged Brand Name OPPORTUNITIES Improve Customer Service Push Own Brand Products
  • 8. Page 8 of 22 Strengths One of the strengths of Tesco Ireland is its loyalty card. Tesco Clubcard is a very useful tool to analyse and understand customers’ behaviour. With the data captured, Tesco can market certain products accordingly and they can provide customised services according to their spending capabilities. This customised service adds value to customers (Steiner 2012). Likewise, some Tesco stores were ran quite coolly while other stores were overheated. This generated an idea to outsource their heating systems to allow synchronisation. Tesco linked its systems to suppliers from each Tesco store to a data warehouse over the internet. With this idea, Tesco is able to reduce its maintenance cost. Furthermore, Tesco is on a trial stage whereby, refrigerators in its major stores are being monitored by a computer system to ensure that all refrigerators operate at the right temperature. IBM research has found that 20% of cost can be saved if the project is implemented. With the data collected, Tesco aims to save up to €20 million a year across 3,000 stores in the UK and Ireland (Computer Weekly 2013). Weaknesses Tesco have a poor web security. It has been reported that a number of customers have been affected by the Tesco Clubcard fraud. Customers’ accounts on the Tesco website were hacked through scammers obtaining customer information through phishing emails (Jones 2013). Tesco’s brand name has been damaged due to unsafe products. In recent news, there has been a presence of pain tablets in their value line product of ice cream cones (The Irish Times 2013). This shows that there is a possibility that there is no strict management when it comes to safety within the supply chain. Opportunities With increasing technological advances in the modern world, there is no doubt Tesco can take this opportunity to improve customer service and create profits. They are already in close co-operation with Rocket, known mainly for incubating e-commerce start-ups (Lunden 2013). Although this project has only commenced in South East Asian countries, there is always a possibility that this could extend to other emerging markets of the company across the globe. Tesco is losing their sales to the German companies Lidl and Aldi. They are increasing competition in the retail industry by opening up a number of stores as well as having lower-
  • 9. Page 9 of 22 priced products. The company has an opportunity to push their own brand, which are lower priced when compared to branded products. Threats The level of competition between retailers is continually increasing. This year, Aldi and Lidl’s market share increased to over 14% while Tesco’s share decreased to 26.5% (Newenham 2013). Musgrave group are merging Supervalu and Superquinn due to the steady decline which means that Supervalu is just behind Tesco with a 25% market share (Hancock 2013). As a multinational company, Tesco is continuously expanding. Not only is there a large amount of money relating to market and research costs, there is also a high probability that customers in foreign countries will not easily adapt to the UK chain and hence, there will be no significant amount of returns. Cultural problems could also arise if there is no strong ethics code implemented within the company (The Observer 2013). PESTLE Analysis Political Companies within the retail sector in Ireland have an advantage as they can easily trade and transport goods with other EU countries. They comply with Irish and EU laws and regulations in that they provide equal employment opportunities for all, so that there would not be a chance for discrimination. Tesco is a business that is constantly growing and is abundant with opportunities for both the customer and colleagues. Tesco offer their colleagues many opportunities to advance in their careers through development programmes and encouraging employees to study for a qualification whilst at work with the business. Employees are also encouraged to work in different areas of the company which shows the extent to which Tesco values employees as an important component of its business (Tesco 2013). Economical Retail accounts for over 10% of Ireland's GDP (Ibec 2013). One of the most influential factors on the economy is high unemployment levels, which decreases the effective demand for many goods. Consumer spending has fallen every year since 2008; however we can see a positive trend as it has stabilised this year, and IBEC predicts that it will rise in 2014 (Ibec 2013). Retailers welcome the freeze in fuel duties and VAT rates. However, the excise duty
  • 10. Page 10 of 22 increase will negatively impact on responsible consumers and reduce spending. Ireland loses approximately €400 million every year from not receiving taxes from illegal sellers. If some of this money could be recouped, it would protect retail jobs and boost the domestic economy (Retail Ireland 2013). Social Current trends indicate that Irish customers have moved towards ‘one-stop’ and ‘bulk’ shopping. In response to that, Tesco have increased the amount of non-food items available for sale. Demographic changes such as an increase in female workers, the aging population and a decline in home meal preparation have led to a demand for added-value products which are quick and easy to prepare, yet nutritious. Consumers are becoming more aware of health issues, and their attitudes towards food are constantly changing. Tesco has adapted its product mix to accommodate an increased demand for organic products. By understanding customers shopping patterns, customers feel like they belong to a “special group” and Tesco is able to treat them as people would treat their friends (Tesco Ireland 2013). Technological The growth of internet and e-commerce greatly affects the retail industry, as online retailing competes with the high street. The top-class retailers now operate in the multi-channel environment, both in-store and online. Tesco is very successful in adapting to online retailing. As online retailing evolves, so too does mobile, with new tools designed to support the consumer’s purchase decision, such as research and price comparison. Social media influences a larger proportion of sales, driven both by consumers, who become much more active in sharing their buying preferences among their friends, and by retailers who have become more clever at exploiting and targeting their followers. Retailers collect large streams of data from mobile devices and club cards, however this raw data has to be analysed for it to make sense and contribute to decision-making. This means buying software and hiring analysts, which is a huge investment; however Tesco is very effective in using analytics (Dunnhumby 2009). Legal There are numerous laws in Ireland in relation to the retail industry. Food businesses within the retail industry are required by Irish law to comply with EU food hygiene regulations, one of these laws is Food Safety Authority of Ireland Act 1998. The Food Safety Authority issues
  • 11. Page 11 of 22 food standards which guide companies on how to comply with EU laws and regulations. An example of one of these standards is I.S. 341: Food Hygiene in Retailing and Wholesaling. Businesses carrying out any stage of the production, processing or distribution of food are required to have a procedure in place based on the Hazard Analysis and Critical Control Point (HACCP) procedure (Food Safety Authority of Ireland 2013). Every person working in a food handling area is required by Regulation (EC) No 852/2004 to maintain a high degree of personal hygiene. Training and supervision is also to be provided to these employees in all areas of food handling. Those that are responsible for the HACCP procedure must have received adequate training to carry out this task (Food Safety Authority of Ireland 2013). Environmental Environmental issues have become very important for managers within the retail industry to deal with in recent years as there is more concern about a company’s contribution to climate change and how this can be reduced to a satisfactory level. The retail industry in Ireland is governed by many laws and regulations in the area of environmental protection and waste reduction, an example being the Waste Management (Amendment) Act 2001 (Enviro Centre 2013). Value Chain Inbound Logistics Tesco concentrates on creating long-term relationships with its suppliers and continuously ensures that it meets high quality standards and gives customers value for money. Recently, Tesco has invested in 25 new 51-foot Gray and Adams refrigerated units. These trailers will be used to deliver store inventory from regional distribution centres. According to Cliff Smith, Tesco’s fleet engineering manager, there has been a 13% increase in productivity, and Inbound Logistics •Relationship with Supplier Operations •Auomated Data Collection •Waste Management Outbound Logistics •Strategically placed Supermarkets •Online Experience Sales & Marketing •Clubcard •Scan As You Shop •Hudl After Sales Services •Wide range of customer services •Facebook
  • 12. Page 12 of 22 at the same time lower emissions. These new trailers are all part of Tesco’s F-Plan: fuller cages, fuller trucks, fewer miles, and fuel economy (O’Reilly 2013). Operations Tesco is using the automated data collection to predict patterns in order to properly stock store shelves. By looking at historical data, Tesco can accurately what products the customers want at the right time at the right area and then supply those stores accordingly (Master 2013). Tesco Ireland must rethink its operations after the food wastage reported from UK stores. It was reported that 68% of salad bags are thrown out while 40% of apples, a quarter of grapes and a fifth of bananas are unused (Griffin 2013). Furthermore, almost half of bakery items go to waste. Taking all this into consideration, Tesco can rethink what type of products and how many of each product can be stocked into the shelves of each store (Breaking News 2013). Outbound Logistics Tesco has the largest number of supermarkets across Ireland. There are 142 stores consisting of 13 Extra, 93 Supermarkets, 6 Metro and, 30 Express. These stores are strategically placed in different locations in small towns and cities in order to achieve a large customer base and hence, increasing profits (Tesco 2013). Tesco also has an easy online shopping process which entices customers to use this method of shopping. In 5 easy steps: Registry; Booking a delivery slot; Order groceries; Review and Checkout; and Delivery, the customer will be able to receive the groceries they have ordered right at their doorstep. Tesco currently is the leader in online shopping in both Ireland and the UK. Marketing and Sales Using the Clubcard, Tesco is able to target customers according to their spending capabilities through a customised web page online and to “offer everyday value range to price sensitive customers” and deliver its finest range to more affluent customers (Steiner 2012). Scan as You Shop accounts for 20% of Tesco’s sales in the UK and 300,000 customers use this medium each week. Although it is not widely used yet, this new technology helps customers keep track of what they buy and how much they are spending. It is also more efficient as customers can pay at a console and leave straight away (Quinn 2012).
  • 13. Page 13 of 22 Tesco is also currently developing a multi-channel strategy. They have recently launched a new tablet called Huld which is tailored to customers’ needs. This portable device is not only priced fairly but will also make it easier for customers to access services such as “Blinkbox movies and music, Clubcard TV, banking” and grocery shopping. This device is family- friendly and is up-to-date with the current advancements in technology (Dennys 2013). After Sales Services Tesco offers a wide range of customer services. They have various contact numbers for each sector, i.e. one for grocery, clubcard, car insurance and mobile (Tesco Ireland 2013). This makes it easier for customers to directly contact the area in which they have a problem. Furthermore, they have a strong online presence. They have a Facebook page readily available to customers to ask queries. An online administrator actively responds to these queries within hours. Customers can also provide feedback, which Tesco can take into account in order to improve their customer services. Financial Analysis Sales in Tesco Ireland increased by 1.9% in February 2013, compared to the same period in 2012. However, when looking at like to like sales (excluding any new store openings) the sales have fallen by 0.3% when compared with the same time last year (Tesco Ireland 2013). The pre-tax profit has fallen by 1.96bn or 51.6% when compared to last year. However, if we look at full-year profit it has has fallen by just 14.5%, largely due to the cost of a turnaround plan for its home market (RTÉ 2013). Strategic Issues Facing Tesco Ireland Online Security Recently, it has been found that Tesco Clubcard vouchers had been spend by fraudsters. In November 2013, a Tesco shopper found his Clubcard voucher already been spend before even using it. After investigation, it had been found that this theft related to an incident happened in January, when Tesco's security people identified some "irregular activity" connected to "a small proportion" of Clubcard accounts (Papworth 2013). Although the police investigation is undertaking, many questions arises in dealing with Tesco’s online security. On the other hand, it is not a requirement for Tesco staff to see customer’s Clubcard
  • 14. Page 14 of 22 as a proof when using vouchers. If Tesco does not take the necessary action, this may lead into many bigger problems in the future. Level of Competition (Market Share) The greatest issue faced by Tesco in 2013, was the stiff competition level, which the retailer had to put up with. Its sales have decreased by 8.1% in Ireland, counting for the greatest fall out, compared to all the other European branches. Tesco has been losing ground to Lidl and Aldi, with a €400m loss in sales for the third quarter of this year. This decline in sales represents Tesco’s poor risk management and its lack of preparation in responding to the competition faced. The success of the competition found Tesco off guard, without any immediate differentiating actions to save its market share (Mulligan 2013). Recommendation to Resolve Level of Competition Tesco has a lot of advantages compared to its competitors. It avails of a large amount of modern technology and great expertise in delivering high quality services. It is very clear that where it finds itself at the moment is because of unpredicted events. Tesco had no strategy in place to confront the unexpected performance of its competition and needs a stronger approach in keeping its customers close. In order to combat this, Tesco should identify, assess and manage its risk of losing customers. It should invest in risk management to accept possible opportunities, while controlling unwanted results. Besides the “Price Promise” guarantee, Tesco should focus more on customer relations. It should take action on the feedback received from customers and always respond promptly to their needs. Customer satisfaction will bring about loyalty. Conclusion In summary, Tesco Ireland’s business strategy in dealing with the retail industry and their company is developed through the Porter’s five forces, Key Success Factors, SWOT analysis, PESTLE analysis, Value Chain and the financial analysis. Through these analyses, we could see how Tesco deals with the current strategic issues while staying on top as the biggest market share holder in Irish market.
  • 15. Page 15 of 22 Learning Process For our first group meeting, we booked a room in the library and discussed about which company to choose. One of the suggestions was to do Ryanair as our company since our main aim is to pick a company that has a lot of weaknesses. Another member suggested picking GlaxoSmithKline. However, since GSK has only limited information available in their website, we rejected the option. Finally, we decided to choose Tesco Ireland as there is a lot of information available on their website. Our task was to find as much information about Tesco’s Mission, Vision and Values for the next meeting. Therefore, everyone brought the information they gathered and we decided to divide the work. For this, we created a Google Drive and typed in everyone’s work on the drive. Although our work went over the limit of one page, we tried to cut down our work to fit everything into one page. At the end, each member rechecked their work and a person sent the document to the lecturer. Our next meeting’s agenda was about the presentation. We decided to divide up the work, so two members would do PESTLE Analysis and two others would do Company Analysis while the other two work on Corporate Governance and CSR. Even though we decided on a deadline within two weeks, everyone got busy with other assignments and class tests and so the deadline had to be postponed. When we had our presentation date due near, we met up and considered how much work everyone had done. One member volunteered to work on PowerPoint slides and animations. Therefore, everyone put up their work on Google Drive and the slides were done three days prior to the due date. Our next meeting was in the actual room of the presentation for rehearsal. We decided to wear business attire and tried to keep within the time limit. However, in the actual presentation we went over the time. This was mainly because we were careless about the time. If we had a timer on in front of us, we might have been able to speed up our talks. Similarly, we were not prepared for the questions after the presentations. We had struggled a lot as a team to find answers to the questions that were asked. We believe we could have done better if we had some questions and answers prepared. On our next meeting we had a discussion about the report. At first we read out the requirements and thought we had to do all of the ten topics and themes given in the course outline. Therefore, we divided up the work and were half way through. We were stressing over so much on our work. However, one of the members coincidentally talked to the lecture on a doubt that had arisen and discovered that we did not have to do all of the ten topics. We
  • 16. Page 16 of 22 then had to call up an emergency meeting and re-divide the work. Finally, we put our work together and rechecked everything. From this we learned that we should read the requirements very carefully before starting the work. Overall, we have learned to co-operate with fellow team members and have gained valuable presentations skills. Even though there had been confusions and difficulties in completing the work, we learned to manage our time and meet the deadlines.
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