Authors:
Colin Ruttle
Daire Bucke
Gordon Ryan
Tesco Ireland is the Irish arm of supermarket group Tesco and controls 21.8% of
consumer spend in the grocery market as of Sept 11th, 2016 (fig. 1 below).
Tesco Ireland was formed by the Tesco Plc 1997 takeover of the Irish retailing
operations of Associated British Foods, namely Powers' Supermarkets Ltd and
its subsidiaries, trading as ‘Quinnsworth’ and ‘Crazy Prices’.
Aldi; 12.70%
Lidl; 13.15%
SuperValu; 25.17%
Tesco ; 24.49%
Figure 1 shows the percentage share of take home grocery consumer spend between Irish supermarkets. 12
weeks to September 11, 2016 [CITATION Kan16 \l 2057 ]
3. Value Chain Analysis:
Tesco also increase logistics efficiencies in the way that they interact with their
suppliers through the use of their own fleet.
The contract for distribution to all 149 stores is currently held by Eddie Stobart
Logistics. Tesco put this contract up for tender every 3 years to ensure they
were getting the best possible deal to remain competitive. DHL has recently
won this contract worth around €45m[ CITATION Ind16 \l 2057 ]
Tesco's chilled and frozen foods distribution has been awarded to Irish owned
Keelings for the next year through a separate tender process.
3.2 Operations
Tesco Ireland uses technology widely and this is visible in many different
sectors of their business. These include Self-service checkouts, full barcode
systems, Clubcard Loyalty and the recently launched ‘Scan as you Shop’ service.
Tesco offers online shopping through its web and app technology platforms
supported by a home delivery service utilising GPS enabled Tesco delivery vans.
Tesco are very aware of the environment and invest heavily in reducing their
carbon footprint through Carbon Neutral (Dublin) and Eco stores (Tramore).
3.5 Service
Tesco’s business strategy focuses on cost reduction as demonstrated by its
distribution contracts outlined above. Best price wins. When utilising this
model it is difficult to offer the lowest prices and provide an exceptional
customer service experience e.g. Ryanair. For Tesco, customer service
continues to play a major role within their overall strategy.
Through Tesco’s Community Fund they have supported 3,500 local community
groups. Working with ‘Foodcloud’ [ CITATION Tes161 \l 2057 ], Tesco donates
surplus food (two million meals to date) across the country.
4. SWOT Analysis:
This is used to identify Tesco’s internal strengths and weaknesses, as well as its
external opportunities and threats.
4.1 Strengths:
Tesco ‘Clubcard’ is a key Customer retention strategy, which is supported by
strong analytics leading to targeted marketing for better consumer service and
increased spend.
By working with over 480 Irish Food and Drink Suppliers, Tesco is keeping
transport costs down while sourcing and strongly supporting the ‘local’ Irish
Economy to the tune of €3.2 billion each year [ CITATION Tes164 \l 2057 ]
leading to long term sustainable and productive relationships.
4.2 Weaknesses:
Tesco’s competitive challenges come from low cost retailers i.e. Lidl and Aldi
(11.7% & 11.3%, respectively as per Fig.1)
There has been significant damage to its brand image with the ‘horsemeat’
scandal from 2013 which has affected consumer confidence. [ CITATION
Tes162 \l 2057 ]
4.3 Opportunities:
Look to maximise online potential while understanding consumer requirements
through analytics to continue to achieve growth (Fig 2)
Continue to up skill Tesco’s internal digital strategy team to ensure best in class
customer online interfacing, while enhancing online marketing and IT supports
to meet future competitor challenges.
Diversifying its business model by developing the ‘F&F’ clothing brand and non-
retail elements (home & living, mobile), to continue to grow market share.
%
6
M
5.1
A 5
4.5
4.2
R
4 3.8
K 3.3
2.9
E 3
T
2.3
2 1.7
1.5
1.3
1.1
S
1
P
E 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
N
Figure 2.illustrates the percentage rise year on year of the E-Commerce share of total grocery spend in Ireland
from 2003 to 2013 [ CITATION Kan161 \l 2057 ]
4.4 Threats:
Aggressive competition is an on-going threat to Tesco mainly driven by discount
stores Aldi and Lidl who entered the Irish Market in the last 16 years, and who
gained significant market share during the recent recession. As this grows,
Tesco’s previous reputation of being the leader in price competitiveness has
diminished.
Potential state legislative changes while low could also have an impact, e.g.
(Retail tax Poland).
New entrants to the grocery retail market are also a potential yet low threat.
5. PESTLE:
A management method that examines the effect that events or influences from
outside may have on the performance of a company or organization.
[ CITATION Dic16 \l 2057 ].
5.1 Political
Political Stability (Opportunity)
Despite coming through one of the worst recessions in history, the political
system in Ireland is considered stable. As of Budget 2016 its competitive tax
rates remain the same. This ensures it has minimal political threat coming from
the Irish Government at present.
The UK’s decision to leave the EU is possibly one of the most important political
issues facing Tesco both now and into the future. It is impossible to predict the
scale and size of any implications this may have on Tesco Ireland’s future
business model. Tesco should assess how the UK’s decision could impact both
potential opportunities and threats in equal measure.
This external element of our PESTLE presents opportunities to Tesco with the
major unknown of Brexit overshadowing any political opportunity. Precautions
and plans to manage Brexit must be put in place so that emerging threats can
be dealt with. Equally opportunities have to be identified and targeted.
5.2 Economic
Weaker Sterling vs. Euro (Opportunity)
5.3 Sociocultural
Eco friendly Business (Opportunity)
In today’s world, consumers are not only aware of climate change; they also
have a growing interest in what large companies are doing to play their part to
reduce their carbon footprint. The Irish Food Board [ CITATION Bor16 \l 2057 ]
predicts that pressures from the consumer in the future will increase the
priority of energy and packaging sustainability. Tesco should look to lead the
way in satisfying these priorities, continuing to open more Carbon Neutral and
Eco stores and enhancing their packaging and waste management areas
through initiatives such as Foodcloud.
5.4 Technology
Mobile Technology (Opportunity)
Tesco can continue to enhance and develop their user experience and online
interfaces. Continued investment to improve their mobile technology is
important while encouraging loyalty through consumer personalisation.
Broadband (Opportunity)
Cybercrime poses a huge threat to both Tesco and its customers. It may act as a
barrier for potential growth to online grocery shopping if future security issues
occur.
This external element of our PESTLE shows the opportunities with technology.
But it also shows a high risk to both Tesco and its consumers. It must secure in
its own and in its consumers, by adequately investing in security software and
hardware technologies.
5.5 Legal
Minimum Wage (Threat)
Budget 2016 has increased the minimum wage in Ireland for an experienced
worker by 10 cents per hour. This increase will come into effect from 1 st January
2017 and will have an impact on Tesco’s labour costs in the future.
Tesco can use this opportunity to continually strive to offer higher quality, safer,
more environmentally friendly products; to satisfy and exceed both the
consumer needs directly, and also consumer and environmental laws
applicable to the grocery sector.
This external element of our PESTLE shows a slight threat from wage increases
as a result of the minimum wage increase; however these are outweighed by
the environmental and food waste management that Tesco is already involved
in (e.g. Foodcloud).
5.6 Environment
Climate Change (Opportunity)
The need to provide environmentally friendly products to the consumer is
increasing. This can be done in a number of ways. Look at ways to reduce
packaging using environmentally friendly materials and reducing store carbon
footprint. Sourcing products and services closer to stores reduces travel
distance. By increasing online sales, Tesco can reduce the volume of consumer
vehicles travelling to their stores to help with carbon footprint.
This external element of our PESTLE presents good opportunities for Tesco.
Recommendations
Examples;
These substitutes would be seen as a low threat to retailers like Tesco; who can
offer a much wider range of high quality products at considerably lower prices.
The latest figures from Kantar Worldpanel [ CITATION Kan162 \l 2057 ] show
that Aldi and Lidl hold 23% of the grocery market spend between them. To
compete with the established brands, a new entrant would have to focus on
differentiating themselves from the existing brands either by a low cost or high
quality business model. Possibly even bigger barriers would be the
considerable initial capital requirement and the extensive marketing and
promotional costs needed to establish the new entrant brand.
6.3 Bargaining power of buyers (Strong Force)
The bargaining power of the buyer in the supermarket grocery industry is high.
Where products are relatively standard with minimal differential, the switching
cost is low and buyers can easily switch from one retailer to another. Tesco
should pay attention to the fact that consumers (buyers) are attracted to low
price and this may lead to greater control on buyer spending.
The newest entrants to the grocery market have healthy market share with Aldi
claiming 11.3%, and Lidl 11.7%. The largest threat to Tesco right now is coming
from both of these. Considered discount stores, they have increased their
growth value of sales to 10.7% and 4.5% respectively for the 12 weeks up to
11th September 2016 [CITATION Kan16 \l 2057 ]
7. Strategic Issues - Among other recommendations outlined throughout
our analysis, the two key strategic issues facing Tesco Ireland are:
This is an on-going issue for Tesco Ireland. There have been ‘positive like-for-
like sales growth (in Ireland) for the half of 2016 for the first time since
2010/11, driven by sustained volume growth’ [ CITATION Tes166 \l 2057 ],
however this have been driven purely by volume with Tesco offering a much
wider range of high quality products at lower prices.
Recommendations:
Through Tesco’s online capabilities, they can also develop better data analytics
to understand existing customers and entice potential customers. With this,
they can continue to enhance customer service to maintain loyalty.
The UK’s decision to leave the EU is possibly one of the most important political
issues facing Tesco. Predicting the implications that this may have on Tesco
Ireland’s future business model is very difficult. Already we have had an initial
standoff on pricing Tesco Ireland and Unilever. While this was resolved within
24 hours of being made public, there has been speculation Unilever were
looking to increase prices by 10% [ CITATION Reu16 \l 2057 ]. This could happen
with other supplier areas for Tesco Ireland and if so, what impact will it have?
Recommendation:
Tesco Ireland must prepare and protect themselves from threats due to Brexit
and have a risk management strategy and team in place to manage issues that
arise. In addition, they need to look at potential opportunities they could gain
in market areas outside the UK, and within the EU.
8. Conclusion:
From our internal and external analysis, the major strategic issues we have
identified are competitive rivalry and Brexit. Tesco Ireland can respond to these
by investing further in their online capabilities while ensuring they have a risk
management strategy in place to review the impacts of Brexit on their future.
9. Bibliography
Bia, B. (2016). Irish Consumer. Retrieved from Bord Bia:
http://www.bordbia.ie/industry/manufacturers/insight/publications/bbreports/Documents/
Understanding%20the%20Irish%20Consumer%20June%202012.pdf
Insight, S. M. (2016). Value Chain Analysis. Retrieved from Strategic Management Insight:
https://www.strategicmanagementinsight.com/tools/value-chain-analysis.html
Reuter. (2016). Britain Economy Prices. Retrieved from Reuters UK: http://uk.reuters.com/article/uk-
britain-economy-prices-tesco-resoluti-idUKKCN12D2KS
Tesco. (2016). Tesco Ireland Corporate Environment Responsibility . Retrieved from Tesco Ireland:
http://www.tesco.ie/corporate-responsibility/environment/
Tesco.ie. (2016). Tesco.ie. Retrieved from Tesco.ie: www.Tesco.ie
Tesco-PLC. (2016). Tesco PLC Ireland Business. Retrieved from Tesco PLC:
https://www.tescoplc.com/about-us/our-businesses/tesco-ireland/tesco-in-ireland/
Worldpanel, K. (2016, September 11). Grocery Market Share. Retrieved from Kantar Worldpanel:
http://www.kantarworldpanel.com/en/grocery-market-share/ireland/snapshot