This assignment focuses on Tesco within UK and Internationally. First task focuses on Tesco UK and its origin. It also focuses on its success in the UK retail and non retail market and its strategies implemented to succeed. Following this, Task two focuses on SWOT analysis and details the market strength that it needs to apply to succeed in the financial sector with also providing details on the competitive level existing in the financial market within the UK. Finally, Task 3 details Globalisation and Internationalisation for Tesco, which provides the market trends and position Tesco holds in Ireland, its strategies to succeed.
Food Retail Business of Tesco
Tesco is the UK based Supermarket chain and one of the largest food retailers in the world and is operating around 3,728 stores and employing over 440,000 (+) people. As well as operating in the UK, it has stores in the rest of Europe, Asia & the recent entry into U. S market with stores in 13 International Market. It is graded as the Third Largest grocery retailer in the world and have a Group sale of 51. 8bn. It also provides online services through its website, Tesco. om. It sells over 40,000 food products around supermarkets; it also sells clothing and other non-food products. The UK businesses remain their core market. Tesco’s focused strategy of proving exceptional value and choice for customer, ensure that they continue to grow market share. (Corporatewatch. org. uk, Tesco Plc Overview, 2009) Tesco was initially started in London’s East End around 1919 and was founded by Jack Cohen, son of a polish Jewish Tailor. He sold groceries in the markets of East End. Tesco’s brand first appeared in 1924.
The name derived after Jack Cohen bought a large shipment of tea of T. E. Stockwell , formerly known as Messrs Torring and Stockwell of Mincing Lane, he made new labels by using the first 3 letters of a supplier’s name and the first 2 letters of his surname forming the word ‘TESCO’. ” (Tescocorporate. com, Tesco Plc Overview, 2009) Tesco’s growth in Food Products is phenomenal as described by Management Today Magazine “Opponents want to know who pays the price for Tesco’s relentless profit growth – the bigger it gets, the more power it has to squeeze competitors and suppliers. And furthermore it also stated that, Tesco’s success mainly rely on ‘Quality of Management’, ‘Quality of Goods & Services’, ‘Ability to Attract, Develop & Maintain Top Talent’, ‘Value as a Long-Term Investment’, ‘Quality of Marketing’ and ‘Use of Corporate Assets’.
Tesco’s stores are categorized into five formats, depending on the size and the range of services offered and products sold. It offers various products and have hands various fields such as mobile phone services, home phone, internet services and VoIP businesses.
The first Tesco Extra was opened in 1997, which are larger and out of town supermarkets, Stocking groceries and stock valuables for everyday essentials for the customers. (tescocorporate. com. Tesco plc, 2009)
Tesco’s Store Offerings
Tesco’s UK food stores are divided into following categories:
- Food & Non-food Retail. There in variety of product sold in Tesco’s. Tesco’s don’t only sell food they also sell many other non-food products ranging from Electronics & Electricals to Clothing & Lifestyle.
- Retailing services: Tesco has changed and respond by proving new products and services.
The E-commerce business has grown rapidly and they are the world’s larger grocery e-trailer, they operate system in the international market like in United States, Ireland, Thailand, Poland, Hungry, Malaysia, Korea and Thailand. Tesco has now have moved their services into Telecom, Launching a fixed line phone service, Director Enquiry services. The market share of Tesco’s is 5% and their aims and goals are to be equally strong in food and non-food sector. The company’s own-label products are at three levels, Value, Normal and Finest. Own brand accounts for approximately 50% of sales.
As well as convenience produce, many stores have gas stations. The company has become one of Britain’s largest petrol independent retailers. Other retailing services offered in the UK include Tesco. com and Tesco Personal Finance which primarily offers Insurance, Savings Accounts, Personal Loans, Investment bonds, online Mortgage finder.
Strategy of Tesco to enter the Personal Finance market
According to Martinelli & Sparks (2003), when food retailers in Britain entered the financial services market in the mid-1990s, the high street anks and other traditional services providers regarded the move as a short-term gimmick. However supermarkets are now investing heavily in this market, exploiting the value-added potential for their brands and achieving considerable success, keeping costs very low and providing convenience to consumers. Tesco Personal Finance was formed following the success of its main UK competitor Sainsbury, which had a joint venture with Bank of Scotland. Tesco adopted similar strategy to Sainsbury to enter the Personal Finance market.
While Sainsbury and Tesco decided to base their operations fundamentally on telephone contact (although Web presence is important), this strategy is known to be a Joint-Venture, which was a establishment of a subsidiary, that is an independent business entity, whose share equity is owned by both companies in order to provide banking services via telephone banking or in-store financial desks and centres in practice. It is formed keeping in mind the strategic purposes so as to preserve the identity and autonomy of the organisations which are involved (Martinelli & Sparks, 2003).
Comparative Study on Tesco’s Personal Finance & Sainsbury’s
The most recent Tesco Annual Report states that they have over two million TPF customers with 400,000 savings accounts and 900,000 credit cards. They claim that 50 per cent of all TPF transactions are made at times when the banks are shut and that some 80 per cent are store based, while Sainsbury’s Bank has over one million customers. Whilst the exact meaning of such figures is unclear, the financial outcome of these initiatives for Sainsbury and Tesco (and their partners) is now beginning to show a return on the investment (Tesco. co. uk Tesco Plc. , 2009)
The strategy of developing market share for goods outside the usual supermarket arena led to Tesco surpassing its once-rival Sainsbury’s to become the biggest supermarket in the UK,recently garnering over a quarter of market. Famously, $ 1 in every $ 8 spent by the British public on groceries is now spent at Tesco, with the company garnering revenues of 51. 8bn in its financial year to 2009. (Palmer, 2005),
Tesco Personal Finance
Personal finance is to analyse and obtain financial planning and calculating the risk involved. It helps in monitoring current stock and various investment values. The analyses can be clarified by many experts. Bankers assist in providing various financial services and trusts. It helps identify Inflation Risk, Interest Rate of Risk, Income Risk, Personal Risk and Liquidity Risk. (Kapoor et. al. , 2004) Tesco Personal Finance was formed in 1997, this retail bank was launched as a joint venture in collaboration with the Royal Bank of Scotland, which will processes all its financial transactions and With Subsidiary companies such as Direct Line and Lombard Direct will process all its Insurance related products. These companies are the subsidiary companies of RBS.
Tesco initially had a banking venture with Natwest, which was ended in 1997. Tesco’s aggressive move into retail have affected its growth in food sales, which led to fewer openings for its general merchandise stores. “Tesco Personal Finance has proved a big success as one of Europe’s fastest growing financial service providers, with over 4 million customer accounts by August 2003, and 50,000 new accounts opening each week. ” (Corporatewatch. org. uk Tesco Plc. , 2009). Tesco has also expanded into selling over the Internet and is by a long stretch the world’s largest e-grocer. In 2001 Tesco. om broke even in its Internet sales for the first time. 36 By April 2004 it had become a fast growing and profitable business, with sales of $ 577m and reported pre-tax profits of $ 206m last year, and are expected to come in over $ 240m in the current financial year. (Corporatewatch. org. uk Tesco Plc. , 2009)
Services offered by Tesco Personal Finance
Tesco is able to utilize its large consumer base (5. 5 million customers) to sell its products related to financial services, such as
- Credit Cards
- Travel It also has Tesco compare and operates various networks of cash machines such as ATMs.
It sells products through multiple channels including in-store, by telephone and online. (corporatewatch. org. uk, 2009) Tesco has maintained its competitive edge over its competitors by the innovative idea of Tesco Club card points. “This strategy is highly effective because it can be combined with in store offers which results in customers spending higher amounts of money, often on non-food items in order to increase sales across all product lines thus causing sustainable yet competitive growth which allows them to deal with control for market control with ASDA. ” (Sparks, 2002)
The company has operations in the UK & Europe, Ireland, Hungary, Poland, Czech Republic and Slovakia. However, Tesco Personal Finance is completely-owned entity of Tesco plc. (Corporatewatch. org. uk. Tesco Plc. 2009) For thorough understanding of Tesco Personal Finance Success key facts are highlighted in Appendix A. Johnson et. al. , (2008) mentions that “Tesco, Sainsbury’s and Asda all compete in the same environment, yet Tesco is a superior performer. It is not the environment that distinguishes between them but their internal Strategic capabilities.
Tesco Personal Finance – Market Strategy
Connection with RBS: Tesco and Royal bank of Scotland have shared a great success, with returning profits of $ 65 million, this collaboration has been also successful for the Royal Bank of Scotland during economic downturn. This collaboration was a joint venture (50:50) until 2008, this venture has been a successful platform for Tesco Personal Finance to launch other financial products, as Bank of Scotland is termed as a one of the UK’s largest banks. (corporatewatch. org. uk, 2009) After the purchase of RBS Stake, Tesco is planning to expand the Edinburgh-based business by changing the overhaul business structure.
Tesco has appointed two former RBS executive, which will in turn report to Tesco’s finance directors, to manage the business so as to have an independent management structure to satisfy the regulatory requirements. The main objective of this strategy is to maximise the amount of profits generated from financial services and other related products such as Telecoms and non-store sales to $ 1bn in the next few years. It also clarified that under this agreement between the two firms, RBS will continue to cater banking services and other back-office functions.
With this venture RBS expects to eventual gain $ 00m profit on the deal, if approved by the Financial Services Association. RBS chief Sir Fred Goodwin stated that business was much strong and successful. Furthermore at this stage it is appropriate for Tesco Personal Finance to have a single ownership for the next stage of growth. (bbc. co. uk, 2009)
Tesco’s buyout of the RBS Stake and the situation surrounding this: Being successful in the financial sector and its current strategy Tesco announced that they were buying out the half of Royal Bank of Scotland’s stakes which amounted to 50% in the company for the investment of $ 50 million, and the transaction was completed at the end of 2008. (skynews. co. uk, 2008)
Products Introduced after buyout of RBS Stake -2008 During this year (2009)
Tesco plans to operate about 30 branches in store which would be termed as Tesco Banks. With the in-store marketing strategy such as posters / leaflets in place, Tesco will have no difficulty in promoting this new venture. Moreover, this will further bring down cost of advertisement whereby existing premises and stores will be utilized to have direct contact with customers.
This will help bring Tesco Financial Services in touch with customers by post, phone or via the internet. (Bradshaw, 2009) The main primary objective of Tesco banks will be to provide mortgages and current accounts to its customer and various other ranges of products, but this will not be done before the end of 2010. (Bradshaw, 2009) “Arguably this is what new players in the insurance market such as Tesco have done. They have not tried to change basic principles of Insurance provision; they have significantly changed the way in which insurance is sold and distributed”. (Johnson et. al. , 2008)
Consumer Basic Bank Accounts
A Strategic Decision
In order to diversify its current financial business status, Tesco is planning to launch its own retail banking; it is also considering offering basic bank accounts, to go head to head with UK’s high street money lenders. Tesco’s Finance has a combined stake with RBS and with this advantage its strategy to launch Current Accounts might prove profitable and furthermore Sir Terry Leahy Tesco’s, chief executive, said that “We are going to do this gradually, we are not going to explode new products overnight, but clearly the transition will be into a full service bank.
Some changes will just be an extension of what we are already doing. ” (telegraph. co. uk, 2009) With the above statements we can conclude that Tesco’s expansion into providing basic bank accounts is not an opportunity but a strategic move as it is aiming to get long term sustainable competitive advantage; whereby an opportunity, can only fetch short term profits. What strategy would Tesco employ to perform this new venture. When you find a suitable strategy [Chapter 5] discuss this strategy and link it to Tesco.
With Tesco living up to their advertising strap line of “Every little helps”, consumers have not only rely on them for cheap provisions but for increasing number of goods and services – from TVs to Insurance, deckchairs to mobile phones and now with the inclusion of basic bank accounts this will not only enhance its market growth but will also have an impact on consumer position.
Though it has 2000 stores, and its current coverage in UK gives it an enviable consumer position. Which it believes can fetch $ 1bn i. e. double the profits in comparision to the current years profits of $ 400m. Sir Terry Leahy Tesco’s, chief executive, also said that this move designed will grab a bigger slice of the $ 20bn financial services sector in the UK, but have no immediate plans to open branches of its own bank, and would continue to offer its services in-store, over the telephone and online. (telegraph. co. uk, 2009). With current market scenario and with large consumer base Tesco will look forward to offer banking with a new paradigm, which is a non branch-based banking.
As stated by the chief executive of TPF “supermarket banking is an extension of the new paradigm – non branch-based banking” (Brown-Humes, 1998). “The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today. (Hamel & Prahalad, 2008)
Strategy for Tesco’s success & Conclusion
The importance of strategic capability is the focus of this chapter. There are three key concepts that underpin the discussion. The first is that organisations are not identical, but have different capabilities; they are ‘incongruous. in this respect. The second is that it can be difficult for one organisation to obtain or copy the capabilities of another. For example, Sainsbury’s cannot readily obtain the whole of Tesco’s retail sites, its management or its experience. The third arises from these; if an organisation is to achieve competitive advantage, it will do so on the basis of capabilities that its rivals do not have or have difficulty in obtaining. In turn this helps explain how some organisations are able to achieve superior performance compared with others.
They have capabilities that permit them to produce at lower cost or generate a superior products or service at standard cost in relation to other organisations with inferior capabilities. ‘These concepts underlie what has become known as the resource-based view of strategy (though it might more appropriately be labelled’ the ‘capabilities view of strategy’): that the competitive advantage and superior performance of an organisation is detailed by its capability in offering distinctive services. ( Johnson et. al. , 2008).
Tesco’s strategic decision to offer basic accounts is an extensive continuation of financial services already offered by Tesco. With large customer base and low cost of advertising which comes through in-store promotions, it has the competitive advantage over its competitors. Tesco has been successful in UK and international market to great extent and to maintain this position, it needs to frame proper strategies from time to time and analyse the market situation and adapt and respond with proper implementation of these strategies.
They are other strategies which also have impact on success, place of business, loyal and committed employees, good rapport with Irish Consumers, and committed to providing better services so as to meet demands of the customer.
SWOT Analysis – Tesco Plc
SWOT analysis, is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a Business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieving that objective.
The following explanation signifies the factors which act as a tool to evaluate the strategic planning to achieve those objectives:
- Strong U. K. Market
- Strong Retail and Non-Retail Business
- Strong International Market
- Committed & Loyal Staff
- Limited Global scale
- Products Safety & Environmental Risk
- Financial services
- Globalisation/expansion of business
- Tesco Direct
- Reputation Risk
- Threats from other competitors
Strong U. K. Core Business
Tesco maintains a strong core U. K. business and can be termed as a capital market for Tesco.
It holds the upright strong position within the U. K. market and it continues to grow stronger with new ventures. It coped well with the economic downturn and deteriorating retail sector. Its success can be analysed with new business plans to offer current accounts and mortgages with currently offering a complete range of foods and non food products, which includes food items with their own brand and labels. It also provides financial services and products such as Credit Cards, Loans, Savings, Motoring, Travel. Tesco is able to use its large customer base (5. million customers) to sell these financial services & products.
It also has Tesco Compare and a network of cash machines (ATMs). It sells products through multiple channels including in-store, by telephone and online. (corporatewatch. org. uk, 2009). Sales which grew by 6. 7% in the year to $ 37. 9bn. It currently has 2,115 stores in U. K. alone and have 280,373 staff employed. It firmly believes in offering better value for money and providing cheaper and quality products. Food retailers constitute the largest annual sales in the retail industry in U. K. This fact clearly outline that U. K. will continue to be the most important market for Tesco. (Tescoreports. com, 2009)
Strong retail and non-retail business
Tesco offer various store formats which provides both food and non- food products. With hands around different sectors Tesco managed to create market to as many customers as possible. Tesco’s success can be identified with the strong sales which has rise 8. 7 percent in comparison to last year, reaching 8. 3 billion. Though, comparatively the food business has higher income when compared to non-food retail business. The total group sales estimated for 2008 was $ 51. bn, these results signifies that Tesco has gain strong progress and this has also had an impact on Sales, profits and returns which has grown well, the growth has been possible with Tesco’s delivering better and quality services to consumers with the changing market conditions. (tescoreports. com, 2009)
Strong international market
Tesco have a strong growth in the international market, its overseas business delivered very strong increased in sales and profit of 25. 3% and 24. 3% respectively. Tesco’s Expansion and progress across the international business grew well with most striking improvements. Tesco’s sales and profits in the international market signify the strong position it currently holds internationally. It now makes more than 700 million profits, which is similar to the total profits which the whole of Tesco made about a decade ago. Tesco started their international expansion initially in central Europe in mid 90’s. Its main agenda is to acquire the already existing business. (tescoreports. com, 2009). The company has operations in the UK, rest of Europe, including the Republic of Ireland, Hungary, Poland, Czech Republic and Slovakia. Tesco Personal Finance is fully-owned by Tesco plc. Corporatewatch. org. uk. Tesco Plc. 2009)
Committed and loyal staff
Tesco offer outstanding customer service, it does have a philosophy behind its ‘Every Little Helps’ policy. They make sure that every customer is treated equally ensuring they spend less and don’t queue at the checkouts, this policy can become a great deal when everyone pulls in the same direction. It currently employs 440000 staff worldwide. (Tescocorporate. com, 2009)
Limited global scale
Tesco’s dependency on U. K. grocery market has been vast whereby it has 1800 Stores approx. ut of 2300 total stores in U. K. alone. Though its recent expansion has opened a new road ahead but its limited, it only have stores in Europe, Asia and recently US whereby its sales is higher but profits are lesser. This has been one of the major drawbacks. for example profits from international sales for the year 2007 was 9. 0%, whereby its 6. 7% for the current year -2009. (Tescoreports. com, 2009)
Environmental risk & product safety
Tesco poses environmental risk with its Hugh production, energy usage & waste management. It has a mixed approach towards hygiene, this can only be analysed with the recent strategy to implement community plan-2006, to only protect the monopoly reputation it holds in the market. It suffers from the paradigm of having cheap & nasty images on its own brand. It also offers products from various other suppliers under a mutual partnership, most of the products are not labelled in English and have a foreign language, which can sometimes prove risky if a customer purchases allergic products without being able to read the instructions.
For instance, the product has been supplied into the U. K. by Hurtownia Mikolaj, Poland and distributed throughout Tesco Stores Ltd. Due to an error at the manufacturers, this product also does not carry any English labelling. Tesco Stores Ltd has to withdraw all date codes of this product and a point of sale notice was displayed around the stores to inform customers. (AllergyU. K.. org, 2009). This not only risks the health & safety of the customers but also effects the reputation of the company & size of customer base. (food. gov. UK. 2009)
Tesco have been quiet successful with the retail services, it celebrates its tenth anniversary for Tesco Personal Finance this year. Tesco has a strong customer base with 5. 5 million customers to offer financial services products ranging from Credits Cards, Loans, Savings, Motoring, and Travel. Currently it has 50-50 joint venture with royal bank of Scotland, though this venture has yield 65 million for Tesco for the financial year to February 2007. They are planning to offer Current bank accounts to customers and mortgage by the year 2010.
Globalization/expansion of business
Globalisation is a process by which a firm not only trade internationally, but also has its operations based internationally. Being a U. K. based retailer, Tesco’s Expansions and progress across the international business grew well with most striking improvements. It strategy is to acquire already existing successful companies abroad, but not those which needs turning around and ensuring that its competitors were targeted so as to dominate market. Tesco’s sales and profits in the international market signify the strong position it currently holds internationally.
It has 1613 stores world wide with expansions in most of the Europe, Asia and US. With every expansion follows the opportunities.
Tesco Direct is the online shopping store usually design for home shopping and started in 1996. Tesco being the first retailer to offer a variety of home shopping services ranging from grocery sales to electronics and software to hardware equipments. This convenience store has been a remarkable success platform for tesco. com which not only has online operation within U. K. but its availability in Ireland and South Korea has enhance the sales and success.
It has utilized technology to the best of its business.
Tesco being the largest retailer within the U. K. , carries a high profile in delivering quality and better services. Its Goodwill is at stake when it fails to appeal to all consumers in different markets, which might result in loss of trust and confidence. The strategy ‘consumer wants better’ has to be applied so as to avoid potential threats to its reputation. For instance the launch of Community plan-2006 which help cope the wide range of environmental and societal issues.
Tesco continuously monitors economic and climatic changes so as to minimise the impact on its reputation.
Competitive takeover threat
Being the largest food retailer in the U. K. , there are several other companies that compete for the very same position. The other next three large food retailers are J. Sainsbury, ASDA Group and Wm Morrison Supermarkets. Competition comes with different sizes and faces. With cut throat competition in the retail sector, Tesco not only competes within U. K. but also in the international market due to its diversification.
This increased competition includes quality & Variety of products, price range and quality of services offered. Failure to analyse and compete with competitors can adversely affect the financial results. For instance Tesco have invested one billion pounds in its loyalty programme which has been successful and still running strong. This strategy gives Tesco’s a distinctive advantage over its competitors. This signifies the strategy which constantly monitors’ customers expectations and measures the perception of shopping. This reduces the respond time and helps them deliver quicker and better services.
Swot analysis for strengthening Tesco
Tesco’s moved into retail sector in early 1990’s and have been successful to a great extent. It has applied basic strategies and not tried to change the way the business is carried, as stated by Johnson et. al. , that, Arguably this is what new players in the insurance market such as Tesco have done. They have not tried to change the basic principles of Insurance provision; they have significantly changed the way in which insurance is sold and distributed. By the end of 2010 Tesco decided adding mortgages and current accounts to its roduct range. As stated by Sir Terry Leahy, “Services are bigger and faster-growing markets than food. As consumers look to make every pound work harder, it is a good time for Tesco to expand its presence. ” (bbc. co. uk, 2009)
Analysis strengths to be used in Tesco finance venture
This new venture for offering basic accounts will be an extensive continuation of financial services already offered by Tesco. With large customer base and low cost of advertising which comes through in-store promotions, it has the competitive advantage over its competitors.
Tesco already have hands on Insurance and investment products which provides distinctive advantage. This value added services was started in 1997, as it was a joint venture with Royal Bank of Scotland. This has been success as it provides financial transactions to the customers at the same place where they shop. This adds to the ease of the process. One of the strong strategies for Tesco is the management competence. Its management and staff is trained to takes efforts to implement conceptual thinking, taking initiative to help customers, customer focus & Commercial awareness,.
It maintains and continually improves its position as a leading European food and non food retailer. The above points signify the strengths, resources and capabilities that Tesco’s can apply to be more successful and have a competitive advantage over its competitors.
Present UK Consumer banking system & competitive market level
The banking sector in UK consists of both foreign banks and domestic banks. It has witnessed a substantial growth and has gone through lot of changes in the recent years, as it assets have rapidly expanded since 1990. These changes can be determined with a number of building societies converting into banks during 1994 to 1997. UK banking sector makes a significant contribution to the UK economy.
Most of the banks in UK have been profitable and provides similar financial services but the only difference is the rate of interest they charge for their financial products. With recently released financial reports the big five banks in UK are expected to unveil combined profits of at least $ 32 billion (bbc. co. uk, 2009). But despite current economic recession, these banks have faired good profits.
UK banks held assets totalling more than $ 6,200 billion at the end of 2006. This was a 13 per cent increase over the year and 83 per cent over the last five years. The number of banks was unchanged over the year at 335, down from 385 in 2002, due to takeover activity and retrenchment abroad. (bba. org. uk, 2009). With many organizations facing credit crunch due to recession this also had an affect on banks. As stated by Bank of England (2009), Britain’s recession will be deeper and longer than its previously analysis. (business. scotsman. com, 2009)
With the financial results stated more than $ 6. billion was written off in bad debts which accounts for approximately 0. 7 per cent of total lending and of which $ 5. 3 billion has been accounted for individual lending. (bba. org. uk, 2009) With current turmoil UK banks are committed to form a close strategy with the Government to reverse the current economy crisis and downturn so as to quickly reaffirm UK’s position to be one of the world’s leading economies. From the above findings and analyses, it can be concluded that a well capitalised bank face lower rate of bankruptcy. Tesco already offers Insurance and investment products which provides distinctive advantage.
This value added services has been quiet successful, as it was a joint venture with Royal Bank of Scotland. This has been success as it provides financial transactions to the customers at the same place where they shop. This adds to the ease of the process
Competition in the finance industry & conclusion
UK financial service sector has undergone tremendous changes, with the combination of technological developments and change in the consumer’s attitude. This has lead to demand-led retail banking with new entrants such as supermarkets (J. Sainsbury’s, Tesco’s) & insurance companies entering into banking sector providing competition to the already existing banks and have given a wider choices to the consumers. These firms now offer wide range of financial services such as Credit Cards, Insurance, and Mortgage and are planning to offer basic bank accounts. As a result, financial institutions have diversified their product ranges and channels (Gardener et al. , 1999). These multi-channel orientated systems have replaced the traditional system of banking, by diversifying the availability of financial services.
The operations, impact and strategy applied by these British food retailers in financial services have increased the competition dramatically. As stated by Martinelli and Sparks (1999), among the new entrants, large food retailers seem to possess some special ability and characteristics, enabling them to play a major role in providing financial services. As mentioned by McCauley and White (1997) and White (1998), UK experienced more merger and acquisition activity in its banking sector between 1991 and 1996 than any other European Country in terms of Value.
These changes have not only posed great challenge to the UK banks but also rapidly changed the environment in which they operated their business. Reasonably these changes had an impact on their performance and profits and with Current economic downturn, consumers are nervous with current banking systems and are reluctant to spend and its also affecting the investments from big companies. But considering the options available for customers due to availability of various financial service providers, they can make the best possible choice.
Tesco’s presence in the Irish Market
Tesco termed as Tesco Ireland first acquired stores in the Irish Republic in 1978. It purchased a chain of discount stores and immediately branded them as Tesco and hence taking over the existing company as a discounter. However, this venture did not last longer and Tesco brand failed to create impact and was unsuccessful therefore was sold in 1986. Being successful in a competitive market, Tesco decided to expand its operation across various parts of Europe and have again moved to Ireland in May 1997.
It entered the Irish food retail business by acquiring all of Quinnsworth, Stewart’s Store and Crazy prices in Ireland. Its initial expansion lead to high costs and required greater amount of commitment and risk. With good trading links between Ireland and the UK, it ensured to carry business on large scale. It has over 106 stores supermarkets and 40 off licences around Ireland, making it one of the leading food retailers within UK and Ireland. Tesco’s sales and profits in the international market signify the strong position it currently holds internationally.
It now makes more than 700 million profits, which is similar to the total profits which the whole of Tesco made about a decade ago.
Marketing strategy & positioning
Tesco have been success in the International market only due to its adaptation policy, it takes over those firms which are successful but not those which needs turn around. It treats its customers according to their geographic, demographic, economic and cultural characteristics. Therefore, understanding and catering cultural variables.
Differences in the following factors suggest the need to adapt the firm’s product offering for international markets ( Kotler et al. , 1996). Tesco’s globalisation strategy is based on
- Cost savings in relation to product manufacture, advertising and product design.
- Extensive market research
- Proper implementation of strategy, planning and control
- Consistency to provide better and improved customer service.
- Homogeneous needs and preferences so as to create global brand.
- Providing higher quality and more reliable products at lower prices.
- Provide complete range of products.
Furthermore, in relation to the Irish market, Tesco is committed to buy products from the Irish suppliers for its supermarkets. It also provides opportunities to local Irish retailers to represent internationally for instance, the contract with Irish Company Lir, which has been belted into a contract for $ 250,000 to supply chocolates to 120 Tesco stores in UK, it also said that more than 90 Irish-made Tesco brands will be sold around Tesco’s internationally.
Threats from competitors
Large Irish stores such as Super Quinn and Dunne’s pose a competitive threat for Tesco. Being Irish Stores and locally established, they are much familiar to the consumer’s tastes and can frame strong policies which can be difficult to overcome. They are other factors which also act as a threat to Tesco Ireland as Irish government is very much against large superstores and can create short term difficulties.
Tesco being a UK retailer need to ensure that it only sell or have maximum products supplied from Irish suppliers. It also pose threats from International retailers such as Safeway and Sainsbury’s, with their continuous expansion into Ireland. Tesco’s own labelled brand products are at stake as they are forced to offer products from Irish Suppliers. With recent reports and findings it is estimated that total refit and re-branding to the Tesco label for Tesco Ireland has been $ 50 million.
Tesco is a UK retailer and to globally place it products, it needs to have a good market control, which does not apply for the Irish supermarkets which are established locally for a long time.
Tesco was accused of having taken arrogant approach to retailing in Ireland, which in-turn would benefit the local supermarkets. Most products for Tesco are manufactured in UK and many local Irish supermarkets already offering local brands have a distinct advantage over the sales and customer base, as Irish customers are sensitive and unsure about products manufactured in UK.
- Tesco being one of the leading supermarket retailers, can easily manage the business downturn.
- Smaller Irish retailers cannot compete with the price; product range and customer service which Tesco’s offer.
- Tesco’s carry business with strategy and extensive market research with most Irish has the same tastes to their UK counterparts. It aims to bring down prices so as to provide lower price products to Irish Consumers.
- Many of UK businesses operating in Irish Market, whereby it’s the best place for Tesco to exploit as the Irish market is underdeveloped and Tesco’s expansion plan can be a success.
Strategy needed to continue successfully in Irish market
Tesco Ireland is still deemed as a new comer in the Irish market though it positioned as one of the UK’s biggest retailer. Tesco have hands on both food and non-food products. With this advantage, Tesco can have a large customer base.
To survive in the Irish market, Tesco needs to create a good rapport with Irish suppliers and consumers and have to offer constant and better quality services at all times. It needs to have a strategy for Cost cutting in relation to product manufacture, advertising and product design. Tesco’s expansions have been successful only due to its extensive market research, which provides all the information about the local market internationally. It helps create a better channel between consumers and customer service. With better implementation of strategy, planning and control, it adversely increases the profits and growth of business.
One of the major advantages Tesco holds is to provide higher quality and more reliable products globally; Tesco needs to keep this strategy intact if it wants to capture Irish market. Tesco not only offers its own brands but also other branded products which give a comparative scenario for the customers to choose among the complete range of cheapest and finest products. 9. 1 Present strategy adopted by Tesco: Tesco has been quiet successful in the Irish market and with recent research revealed, Tesco is the only international retailer in Ireland which gives specific guarantee in relation to the products it purchases from Irish suppliers.
However, the marketing strategy for both, Tesco UK and Tesco Ireland are very much similar. Its extensive research has lead to following important factors or strategy they need to keep intact:
- Product or Services : Quality of products and services offered determine the success of the organization and Tesco in particular have been extremely careful in rendering high quality products, competitive prices and products that has been produced in Ireland along with international brands. As many Irish consumers are sensitive in relation to the products they use and are loyal towards local brands and manufacturers. Branded goods in Ireland are more dominant that they are elsewhere. For instance when Tesco bought Quinn worth the sales for their own products amounted 5-6 percent whereas the total own-brand products sales in Tesco UK are 50% of the total sales. Tesco Ireland also offered store card facilities such as ‘Clubcard Plus’, which can be utilized as a deposit account and can be used as a shopping card. But eventually this would lead to scenario whereby Tesco will offer the similar range of services which they offer in UK.
- Price: Pricing is the only factor, which generates revenue in comparison to other factors. Therefore it is to be used as an instrument of strategy to actively measure the areas of decision making applied in marketing sector. The prices were high when Tesco entered the Irish Market whereas there have been tremendous changes now, as Many of the local managers have freedom to bring down prices. (Irish Times, 1998).
- Promotion: Tesco now has a large consumer base, with which it has a distinctive advantage to advertise within the stores and promote various other projects. This leads to cost cut and promoting of products is risky as many Irish Consumers prefer Irish products and are loyal to local brands. But a proper strategy and market research can analyse which product can be promoted and be profited with. Promotion within stores can be more profitable and cost cutting can be ensured, in-store promotions such as display stands, posters and blackboards & hieroglyphics on receipts generated on till.
- Management: One of the strong strategies for Tesco is the management competence. Its management and staff is trained to takes efforts to implement conceptual thinking, taking initiative to help customers, customer focus & Commercial awareness,. It maintains and continually improves its position as a leading European food and non food retailer. They make sure that every customer is treated equally ensuring they spend less and don’t queue at the checkouts, this policy can become a great deal when everyone pulls in the same direction.
Alongside this, Tesco have created a numerous job opportunities for local people in the Irish market.
Analysis of Tesco’s success & conclusion
To conclude, Tesco has been successful within Irish market to great extent and to maintain this position, it needs to frame proper strategies from time to time and analyse the market situation and adapt and respond with proper implementation of these strategies. This remains the fact that Tesco has learned from its previous mistakes and have shown tremendous improvements.
There are other strategies which also have impact on success, place of business, loyal and committed employees, good rapport with Irish Consumers, and committed to providing better services so as to meet demands of the customer. With Tesco living up to their advertising strap line of “Every little helps”, consumers have not only rely on them for cheap provisions but for increasing number of goods and services – from TVs to Insurance, deckchairs to mobile phones and now with the inclusion of their own brands this will not only enhance its market growth but will also have an impact on consumer position.
With current market scenario and with large consumer base Tesco will look forward to offer products and services with a new paradigm, which will increase the competitive level in the Irish market, which is yet to be exploited. However, establishing financial market in the Ireland would not be easy and might take good number of years, but Tesco needs to first have a strong base and concentrate on the current strategy, which is Tesco Ireland. Finally, Tesco needs to adapt to the Irish market rather than assuming Ireland as an extension of business for Tesco UK.
Tesco Personal Finance key facts Over 5 million customer accounts 28 financial products and services Over 100 Tesco Travel Bureaux Over 2. 2 million credit cards in circulation Over 1. 1 million in-force Car Insurance policies Over 440,000 Home Insurance customers Over 660,000 Pet Insurance policies – 2nd largest in UK Good value, instant-access savings products, with customers’ savings protected by our banking license Over 2,500 ATMs issuing over 1. 6 billion per month 6th largest UK car insurance book 8th largest UK credit card issuer Source: tescocorporate. co. uk, 2009).
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