Grocery Retail Industry Essay

The first Tesco shop opened in Edgware, North London in 1929; although the creator of Tesco was a man called Jack Cohen who sold the first own-brand product in 1924, this product was ‘Tesco Tea’. Now 82 years on Tesco currently operates in 14 countries across the globe. The name Tesco comes from TE Stockwell who was a shared partner of the tea firm which created the tea Jack Cohen sold. Therefore taking the initials ‘TES’ from Stockwell’s name and the first 2 initials of Cohen’s surname ‘CO’ this then creates ‘Tesco’. By using marketing theories and strategies I am going to analyse Tesco as an organisation. Tesco’s current market The retail industry is a very competitive industry due to customers not always being loyal but being persuaded by price, quality and range of products. In order to gain customer loyalty Tesco’s must ensure they keep costs down and offer a wide range of products. As previously mentioned Tesco’s have stores in 14 countries, the shops are built where there are high demands and where communities allow buildings to be constructed. Location of Tesco shops Figure 1 – World map of where. Analysis Pest Analysis Using the PEST analysis (Political, Economic, Social and Technological) this will show how Tesco works within the grocery retail industry. P – Tesco works close within the local communities of their stores. A quote taken from the corporate responsibility section of the website states; â€Å"We want to be a good neighbour in all the communities in which we operate† This means that within local communities they make a long term difference and showing interest in activities around the community. By doing so this gains customer loyalty. A national political issue is the increasing rates of unemployment, due to Tesco still growing more jobs become available as a result reducing the rate of unemployment. Expand on more issues. E – Due to Tesco being a large retailer selling named branded products as well as home branded products there are able to appeal to all types of markets. As Tesco is just one of the major retailers with competition such as Asda and Morrisons, as well as the current recession, Tesco are required to be very competitive with their prices. Socially there has been an increase in fitness and healthy eating therefore products such as fruit/vegetables/smoothies etc should be on the increase but due to the financial issue at the moment customers buy pre-prepared products or frozen meals for convenience and cost. T – Tesco offers an online service in order for customers to purchase grocery shopping online via the internet which they can then get delivered. An example of a technological factor in store would be the introduction of self service checkouts which entitles a customer to scan and pay for their own shopping. Internal SWOT Analysis Strengths Weaknesses Home branded products Capacity of staff Online services Worldwide company Opportunities Threats Play area Other supermarket chains Hair and beauty salons in store Tesco food platters Figure 2 – SWOT Analysis table Strengths Home brand products – By Tesco selling home branded products they are able to make a bigger profit on products. Branded products are purchased from the producer and it is then up to Tesco to sell these on for a profit as well as keeping costs down. Any amount of profit made on a home branded product is completely profited by Tesco. Online Services – Tesco operates online and due to the internet being a massive part of economy today this is a massive strength. Tesco also offers other services such as ‘Tesco direct’ which is a catalogue shop where products can be ordered online and either collected in store or can be delivered. Worldwide Company – Tesco is known all over the world which increases acknowledgement of the store. Customers tend to trust shops with they are familiar with. Opportunities Tesco food platters – Tesco’s could offer a service of creating food platters to be delivered. This would be very successful within businesses who order buffets regularly. This could include creating different ranges of buffet which vary in price and then delivering. Sainsbury’s offer a similar service called ‘Instore party platter service’ although their buffets are to be collected in store whereas if Tesco deliver the buffets then this is an advantage above the competition. Weaknesses Capacity of Staff – Within the UK stores there are 293,676 members of staff working in Tesco Stores (figure correct as of 10/1/12 according to Tesco Plc. com). Due to the mass amount of staff employed by Tesco as an organisation the personal relationships which can be found in a small organisation aren’t likely to be present. Employees may feel like ‘just a number’ within the organisation therefore rubbing off a negative attitude onto customers. Threats Other supermarket chains – Retail is a competitive business and there are several popular supermarket chains. One of Tesco’s biggest competitors is Asda, Asda has the guarantee of ‘If we’re not 10% cheaper on your comparable grocery shopping we’ll give you the difference. Guaranteed. ’ This puts the pressure on Tesco to offer deals to keep their current customers and to gain potential new ones. Tesco also have smaller stores called ‘Tesco Extra’ which are more for convenience shopping and in smaller areas of town. Asda have now started building convenience stores named ‘Asda Supermarket’ therefore not only are Asda a competitor with the larger stores but also with the smaller stores too. Micro-environment Analysis Porters Five Forces Figure 3 – Porter’s five forces 1. Existing competitors – Tesco’s main competitors are Sainsbury, Asda and Morrisons as they are all large supermarkets. Tesco offer an online service in order for customers to order their shopping online and for it to be delivered. This is a service that Asda also offers although Morrisons hasn’t yet developed online. If these organisations have the same strategic ideas then this increases the level of competition. â€Å"Operating in a mature, flat market where growth is difficult and consumers are increasingly demanding and sophisticated, large chains such as Tesco are accruing large amounts of consumer information that can be used to communicate with the consumer† Ritz (2005) Relating to exit barrier it is difficult for an organisation such as Tesco known as a grocery retailer to move into non-food areas although they offer a range of different services within retail. In order to respond to customer behaviour Tesco is left as having to reduce its prices to the lowest possible amount. 2. Bargaining power of customers – This is very high as it’s the customers who profit the company. If a price is too high then customers may go to another large supermarket for the same product or an alternative. This may also apply if a product is out of stock. Also within a large supermarket like Tesco there are many different bands or products which leave the customer in a lower ratio than products. Threat of new entrants – It is very difficult to enter into the large Supermarket chain as it’s a limited business. Also Tesco is already set up with it’s suppliers with lower prices making it hard for a new business to find cheaper suppliers. A new business would require starting out small in order to build customer loyalty, also they would have limited stock of brands or less products yet bought as a higher price. 4. Bargaining power of suppliers – Within a small organisation a supplier would have a lot of power and demand that there products are bought at a set  price, this leaves small retailers at a disadvantage as they need to make a profit on items. Whereas with large Supermarkets they can determine what price they will pay for a product, if a supplier disagrees they are automatically reducing the product market. 5. Substitute products – In the larger stores there are many like-for-like products including own brands within Tesco which can reduce sales of products. â€Å"General substitution is able to reduce demand for a particular product, as there is a threat of consumers switching to the alternatives† Porter M. Therefore larger supermarkets like Tesco have opened their stores but to a smaller scale which offers customers many of the same popular products but a limited range. Segmentation, Targeting, Positioning (STP) Consumer Segmentation Tesco have a great advantage of finding out customer data using the Tesco Clubcard scheme. When a customer registers for a Clubcard they must fill in their basic information in order to enter the scheme. When a customer uses their Clubcard during a transaction then Tesco is able to see what the customer has purchased. After a while when a customer has made several transactions then Tesco are able to collect data about that customer and compare to see which items are commonly purchased and what brand/type of items. By doing so Tesco is able to determine the lifestyle of that particular customer and create a profile. Once this has been done then Tesco are able to provide each individual customer with the appropriate promotions and special offers so that customers can relate good prices for the products they regularly buy to Tesco, therefore staying loyal. An example of this would be if a customer bought items such as ‘Quorn’ or ‘vegetarian sausages’ then they wouldn’t expect to receive meat discount vouchers from Tesco Clubcard. Targeting Tesco targets all types of markets. Price bands – dependant upon where the store is situated – upper class, middle class, lower class will depend upon a price band. Price band 1 being the cheapest, price band 4 being the more expensive. Eg if store located in Westcliffe, would be price band 1 to keep the lower class people shopping. If store located in an upmarket neighbourhood, would be price band 4 to take more money off the upper class people for same products. Dependant upon store size will depend upon price bands also, because a larger store will have a bigger buying in margin ( where tesco will get discount off a product for buying more in bulk) where as a smaller convenience store will have a smaller buying in margin so will not be able to give the customer a discount like the bigger stores. Positioning In 1997 Tesco were known as a large retailer within the grocery retail market. They then developed the marketing strategy of becoming â€Å"as strong in non-food as in food†. 15 years on from when this challenge was set Tesco now deal in services such as; Tesco Direct F&F – Tesco Clothing range Tesco Fuel Tesco Bank Tesco Mobile Tesco Opticians Tesco Entertainment Tesco Direct – This service provides customers with a catalogue which contains Tesco’s range of Electrical appliances, home furnishings, toys and many other products. Once selected these products can either be delivered or arrange to be collected from a local direct desk. This sort of service competes with that of Argos who is also a direct catalogue retailer. Tesco Clothing F&F range – This is a difficult market for Tesco to enter into with a high entry barrier. The clothing retailer market is a very competitive business as you have the expensive designer shops ranging right down to the basic value for money clothing. Tesco tend to focus there clothing range on school clothes for children as this is something that appeals to parents. Parents aren’t prepared to spend lots of money on clothes which have to sustain a lot of wear and tear. In august 2011 Tesco promoted a back to school offer of a ? 15 bundle which includes trousers, skirt or a pinafore, a coat and a 3 pack of shirts or polo shirts.