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¶ … Tesco's Marketing Environment and Performance

Today, there are a number of retail grocery and general merchandise corporations competing at the global level, including Walmart, Carrefour and Tesco. Although Walmart remains the largest retailer in the world today, Tesco in particular is fast acquiring its market share in several regions, especially China. Moreover, the company's innovation in providing efficient products and services to its customers has provided it with a distinct competitive advantage in its core United Kingdom domestic market, where it remains the largest grocery retailer in the country today. In fact, one of the main themes to quickly emerge from the research that follows is just how important Tesco is to its customers, with most simply taking the company's presence for granted. To determine how Tesco achieved this impressive level of performance, this study examines the company's proven track record of superior performance in a highly competitive industry to identify best practices as well as recent and current trends. To this end, the study provides a review of the relevant literature to identify the company's competitive position, its financial performance, and its current brand strength and potential weaknesses. In addition, a summary of the company's micro and macro marketing environments including marketing intermediaries, customers and suppliers is followed by an application of a SWOT and PESTLE analysis to Tesco's current situation. Finally, a summary of the research and important findings concerning Tesco's marketing practices and likely future trends are provided in the conclusion.

Review and Analysis

The Marketing Environment: Micro and Macro Environment

Today, the retail chain Tesco PLC (hereinafter alternatively "the company") is the largest retail chain in the United Kingdom with about 16% of the market share (Kita & Mazikova 2012). Not only is the company the leading retailer in the UK at present, it is also one of the top retailers in the world by annual sales, trailing only U.S.-based Walmart and France-based Carrefour (Kita & Mazikova 2012). The company's first store was established in 1929 in North London (Ritson 2004), the company launched its first superstore in Crawley, West Sussex in 1968 and its first petrol station in 1974 and by 1995, Tesco was the largest food retailer in the United Kingdom (Benady 2009). The company currently features four main store formats (a) Extra, (b) Superstore, (c) Express and (d) Metro (Ritson 2004). According to Ritson (2004, p. 18), "Throughout the 80s and early-90s, Sainsbury's had been the dominant supermarket chain. Tesco overtook it as the UK's biggest food retailer in 1995. The same year saw the introduction of Tesco's Clubcard, the UK's first customer loyalty card."

The company's business profile notes that Tesco and its subsidiaries currently operate more than 6,200 stores in 13 countries besides the UK including Asia, Europe, and North America; however, approximately 50% of the company's operations are located in the UK (Kita & Mazikova 2012). The company's founder, Sir Jack Cohen, established Tesco creed of "pile it high, sell it cheap," but the company's leadership has changed the business model from a discount format to a multi-format brick-and-mortar and online retailer (Kita & Mazikova 2012). The company's banners include: Tesco Extra superstores; Tesco Express, Tesco Metro, and One Stop convenience stores; Homeplus hypermarket, small express, as well as online stores in South Korea, and Dobbies gardening stores in the UK, Scotland, and northern Ireland (Tesco Business Summary 2013).

Established in 1919 by Jack Cohen from a market stall in London's East End (Tesco History 2013), Tesco is headquartered in Cheshunt, the United Kingdom today (Tesco Business Summary 2013). The company's stated vision is comprised of five elements that define what type of company Tesco wants to be:

Wanted and needed around the world

A growing business, full of opportunities

Modern, innovative and full of ideas

Winners locally whilst applying our skills globally

Inspiring, earning trust and loyalty from customers, our colleagues and communities (Tesco History 2013, p. 1).

The company's stated seven-part business strategy for growth is as follows:

To grow the UK core

To be an outstanding international retailer in stores and online

To be as strong in everything we sell as we are in food

To grow retail services in all our markets

To put our responsibilities to the communities we serve at the heart of what we do

To be a creator of highly valued brands

To build our team so that we create more value (Tesco History 2013, p. 2).

A comparison of Tesco's stock performance for the period 1990 to date compared to its major potential global competitor, Walmart, is provided in Figure 1 below.

Figure 1. Comparison of Tesco and Walmart Stock Performance: 1990 to Date

Source: http://finance.yahoo.com/q/bc?s=TSCO.L&t=my&l=on&z=l&q=l&c=

Key:

Tesco

TSCOL

Walmart

WMT

The U.S. retailer Walmart, for instance, launches dozens of new stores every year and the company continues to experience healthy year-to-year growth, but the market in Asia in general and China in particular is exploding, with retail sales doubling approximately every 5 years (Ward, Tripp & Maki 2013). According to Ward and his associates (2013, p. 82), "The result is unbridled competition, making it one of the world's toughest markets. Walmart, Tesco, Carrefour and Metro headline the foreign entrants. Japanese and Korean retailers are also pressing hard." Indeed, Song (2012, p. 207) emphasizes that in the burgeoning Chinese retail grocery sector, "Many Western retailers, such as Tesco, introduce high quality new products on a yearly basis, in competition with national brand manufacturers." At present, the five main retail grocery stores competing in the United Kingdom are Tesco, Sainsbury, Asda, Waitrose, and Ocado (Leong 2013).

Marketing Intermediaries

The company markets its goods and services through its intermediaries which compete primarily in the retail grocery retailer sector, but have other business units as well, including retail facilities and online services that offers an array of food items, clothing, electrical products and a line of general merchandise; the company also operates a banking, financial and insurance services unit as well as providing data analysis services, property and distribution operations (Tesco Business Summary 2013). According to the company business summary (2013, p. 2), "With more than 530,000 employees worldwide, the company operates in the United Kingdom, China, India, Malaysia, South Korea, Thailand, the Czech Republic, Hungary, the Republic of Ireland, Poland, Slovakia, and Turkey." As of April 17, 2013, the company operated approximately 6,700 stores in these 12 countries, together with its extensive Internet-based sales operations (Tesco Business Summary).

Customers

Notwithstanding the company's transition from a discount format to a multi-retailing business model, Tesco's fundamental business strategy remain offering customers the highest quality possible at the lowest cost possible. In this regard, Childs (2002, p. 136) advises that, "Underpinning Tesco's success is excellent management and an obsession with operational efficiency and productivity gains, which the company uses to keep prices low or to improve service rather than to increase its operating margins." As can be discerned from the company's stock performance depicted in Figure 1 above, although Tesco remains small compare to Walmart, it is growing more rapidly (Childs 2002). Indeed, in the UK, Tesco customers are everywhere, even if they shop on occasion at Asda or Sainsbury's. In this regard, the editors of Marketing point out that, "Most people like Tesco, as much as a vocal minority loathes it. Scoff if you like, but you scorn a nation if you do so. Who else gives Tesco pounds 1 in every pounds 7 spent? The people who know they are rarely more than an arm's reach from a Tesco."

Although Tesco is characterized as a potential competitor with Walmart, at present, its main competitor for customers in the UK is Sainsbury's (Ritson 2004). In sharp contrast to Sainsbury's dishwater-bland slogan, Tesco is described by Ritson as "the world's leading example of 21st-century branding" (2004, p. 19). According to Ritson, the Tesco brand means a commitment to delivering total customer value throughout every aspect of the company's business, including:

1. Its international expansion;

2. Its industry-leading customer relationship management strategies;

3. Its notoriously savvy negotiations with suppliers;

4. Its ability to identify and develop its portfolio of new stores;

5. Its excellence in employer branding;

6. Its triumphant private-label brand architecture;

7. Its award-winning Internet strategy;

8. Its lucrative brand extension strategies; and,

9. Its innovative and effective public relations (2004, p. 19).

In sum, Tesco has "out-branded" its main competitor through brand positioning that makes its commitment to its customers a central feature of its approach to doing business (Ritson 2004).

Suppliers

The company's supply chain partners are increasingly being called upon to follow Tesco's lead in establishing and following environmentally sound business practices (Tesco Business Strategy 2013). In addition, Tesco has established more efficient ways to share product data with its supply chain partners, and for good reason. Legner and Schemm (2008, p. 120) emphasize that, "A growing number of studies report that poor data quality, in particular outdated or wrong product information, negatively impacts the benefits that retailers and their suppliers pursue as they implement tighter forms of collaboration." In response to this constraint, companies such as Tesco have implemented the Global Data Synchronization Network (GDSN) which was introduced in 2004 as a superior approach to sharing product master data between retailers and their suppliers (Legner & Schemm 2008).

SWOT Analysis

A well-conducted SWOT analysis can help identify the key issues that can help organizational leaders formulate an informed strategic approach (Cravens 2000). The SWOT analysis is used to identify the respective internal strengths and weaknesses of an enterprise, as well as the external threats and opportunities that exist in the enterprise's operating environment (Cravens 2000). The SWOT components are applied to Tesco in Table 1 below.

Table 1

Application of SWOT Components to Tesco

SWOT Component

Application to Tesco

Strengths (internal)

1. Strong executive leadership team (Ritson 2004). The editors of Marketing also point out that, "Tesco has much in its armoury to win the long game. Its ability to segment is second to none, and it has the trust of millions. That's gold dust - others can keep their magic and sparkle" (Brand Health Check: Tesco 2008, p. 18).

2. Informed business vision and strategy are in place. For instance, Tesco stated business strategy emphasizes that, "We have a well-established and consistent seven-part strategy for growth, which reflects the way consumer needs are changing and the increasingly global nature of our business -- and of course driving it forward is critical to our success over the coming years" (Tesco Business Strategy 2013, p. 2).

3. Extensive distribution networks and retailing infrastructure for both brick-and-mortar and online offerings.

4. Proven innovator (Sayid 2013).

5. Proven track record of success mirroring industry leader Walmart.

6. Positive global brand. According to Song (2012, p. 208), "Own brands from UK retailers such as Tesco's 'Finest' not only provide excellent quality, which can be a "key differentiating agent" between retailers but also create a special symbolic value for the customers reflecting the personality of the retailer." Most UK consumers consider store brands as being comparable in quality to name brands, and more than 70% of Tesco customers regularly purchase "Finest" own brands (Song 2012).

Weaknesses (internal)

1. The company's current business model may have reached its limits (i.e., the Icarus syndrome) notwithstanding its heavy investment in social media resources (Brand Health Check: Tesco 2008). According to Benady (2009, p. 26), "Long the paragon of UK grocery marketing, Tesco risks being outflanked by its rivals. Tesco, the undisputed leader in UK grocery marketing for so long, has lost its spark. The well-oiled retail machine could be looking less untouchable after 15 years of unrivalled success."

2. The company's far-flung global operations and elaborate supply chains are subject to disruptive through manmade and natural disasters.

3. Relatively low entry cost of online providers means razor-thin profit margins.

Opportunities (external)

1. The Asian market in general and the Chinese market in particular represent significant opportunities for growing the company's global market share pursuant to its stated business strategy. According to Ward (2013, p. 97), "The UK retailer Tesco, a potential Walmart competitor, is looking to increase market share in [China] over the next six to seven years, developing as many as eighty hypermarket-anchored shopping malls, adding up to £5 billion in investment." The company has also signed joint ventures to develop three shopping malls in two eastern provinces, each of which will feature is one of Tesco's hypermarkets (Ward et al. 2013).

2. Organic foods and other "green" products. At present, Tesco lags behind Sainsbury's and is just ahead of Asda in promoting the top 10 green brands in the UK (Sainsbury's Plans Ads to Extend Milk-Bag Use 2010).

3. Increased vertical integration of the company's supply chain to include more local agricultural producers in Tesco's portfolio.

4. In 2006, Tesco announced plans for ambitious expansion plans in the United States (Benady 2010).

Threats (external)

1. Terrorist threats/attacks and natural disasters can disrupt the company's extensive supply chain and retail operations.

2. The Walmart juggernaut will be hard to stop.

3. Some marketing analysts argue that Tesco's expansive discounting strategies have diluted its core brand image (Benady 2010).

PESTLE Analysis

The most salient components of a PESTLE analysis (political, economic, social, technological, legal and environmental) are economic, social and technological, and these are applied to Tesco in Table 2 below.

Table 2

Application of Salient PESTLE Components to Tesco

PEST Component

Analysis

Economic

Relying on sales of nonfood items and on international sales -- particularly in emerging markets -- for an important part of the company's future expansion, Tesco has delivered one of the fastest organic growth rates of any major retailer in the world (Childs 2002).

Social

Many retailers have tried and failed to establish themselves outside their home markets. Likewise, some retailers have gone astray trying to exploit Internet shopping. As a result, Tesco, the United Kingdom's biggest grocer, has attracted considerable attention because of its ambitious overseas strategy and its successful online home delivery service (Child 2002).

Technological

1. Tesco assumed an early lead in online sales by launching Tesco.com in 2000 (Benady 2010).

2. Tesco remains the undisputed global leader in Internet grocery sales. The company's online home delivery service has achieved profitability, and the company has brokered a strategic alliance with U.S.-based Safeway which will use Tesco's technology for its own American online home-shopping service (Childs 2002).