Tesco is a multinational retailer company which was established in 1919 by Jack Cohen with its headquarters in the United Kingdom, being one of its ‘Big Four’ retailers. Tesco is known for implementing strategies that are effective in developing competitive advantages to acquire customer satisfaction. Tesco faced a major downfall in the year 2014 when it’s market share fell from 28.6% to 28.4% due to the growth of discounters and online retailers.
In the year 2014, Tesco’s chief Philip Clarke quit his job due to profit warning with r-£10m package after failing to halt slumping sales. After which Dave Lewis who led Unilever’s personal care business became the chief executive of Tesco in 2014. Tesco which was in dire need for a change expected Lewis whom they described as “responsible for a number of business turnarounds” to make their company’s strategies effective.
Tesco’s strategy analysis:
Lewis followed what Leahy, the former CEO of Tesco promoted profoundly, which was to put the customer first. This is very much evident in the 2015 strategic report of Tesco which quotes ” The champion of customers”. Lewis believed that small actions sum up to big differences with “every little helps”.
Lewis set top three priorities to get Tesco back on track. Firstly they set a goal to regain their customers focusing on four things – service, range, availability and price.There are three reasons companies should work on regaining it’s customers. Firstly because customers seek their services and have helped them have a stand in the market and not just any name on a cold call list. Secondly because they know the company better and treating them well decreases the marketing cost. Thirdly , with the improvement In technology and customer databases, it is easier to collect information on customer behaviour to the company’s services to build better successful offers and identify the profitable defectors. Tesco with the aim of regaining their customers invested in 4,652 new colleagues to improve services for them, reviewed their ranges across categories, increased the availability of products and made their prices stable, low and affordable by which they were able to attain the response of their consumers.
Secondly the company sort to protect and strengthen its financial stand as since they had a debt with with total leverage of £22bn .A difficult financial position of a company can be threatening to the existence of a company for which few measures have to be taken to recover from the crisis and obtain a state of balance for which the financial position has to evaluated which involves restructuring or making a change in its of its financial strategies. In order to revive from its crisis Tesco strengthened it’s capital spending by reducing their capital expenditure to £1bn, replaced their pension schemes and reviewed their profit portfolio by completing an asset swap with 21 British superstores to gain ownership and to increase the promotion of the stores they own.
Thirdly, Tesco strived to rebuild and improve their trust and transparency for which they set up a new management system to create long term, mutually beneficial partnerships with their consumers and suppliers in order to focus on cost prices. Suppliers help turn the ship around during tough times and companies need the help of their suppliers to have a turnaround in business for which they need to treat their suppliers fairly since the happiness of the supplier is vital to the success of the buyer. Tesco also created a new code of business conduct and to shift their focus on a more ethical and speak up culture .A study by Label Insight found that 94 percent of consumers were likely to be loyal to a brand if it is transparent and about 73 percent said that they would even pay more for a completely transparent product.
In the following year after Tesco had worked on regaining their customers the year seemed to be a transformational year for Tesco with their business on a road to recovery said Alan Stewart, the chief financial officer of Tesco. Tesco went on to adopt strategies for which it advanced it’s turnaround priorities. Tesco chose to regain their competitiveness in the market for which it improved the shopping experience by making easier shopping trips, better availability of goods and stable prices for the consumers which led them to regain their competitiveness with positive volume growths up-to 3.3% and transactions up-to 2.8% in the fourth quarter.
Stabilizing and driving Tesco forward:
Tesco encountered progress in its three priorities which Lewis put forth initially when he became the CEO. To ensure a stable long term horizon, Tesco enhanced six strategic drivers to enhance their competitiveness in the market.
Tesco’s six strategic drivers :
A differentiated brand:
2017-“Food love stories brought to you by Tesco” campaign
2018-Swaps with products that are lower in saturated fat, salt and sugar
2019-One hundred years of great value campaign
Reduce operating costs by £1.5bn:
2017-Generated £455m of cost savings, of which £226m contributes to the £1.5bn target.
2018-Delivered £541m of savings; logistics and distribution, with £104m of savings; and goods not for resale, making savings of £174m.
2019-Delivered in-year cost savings of £532m, with £1.4bn of savings.
Generate £9bn cash from operations:
2017-Generated £495m of retail operating cash
2018-Generated £2,773m of retail operating cash
2019-Generated £2.5bn of retail operating cash.
Maximise the mix to achieve a 3.5% – 4.0% margin
2017-driving growth in areas which deliver sustainable profits – in order to achieve a 3.5% – 4.0% Group operating margin
2018-Group operating margin for this year was 2.9%.
2019-Group operating margin was 3.79%.
Maximise value from property :
2017-Optimisation of freehold and leasehold mix.
2018-£1.4bn of value from property proceeds. 52% increase in freehold property in UK and ROI
2019-£285m of value from our property portfolio across the Group.
2017-Payquik digital wallet
2018-Tesco now app
2019-New brand – Jack, Thailand convenience proposition.
From the above data it is evident that the strategic plans used by Lewis has been effective for Tesco leading to its current strategic position.
Tesco’s business strategy is proven to be fit as it justifiably fits into three of these four categories – consistency, consonance, advantage and feasiblity.
Consistency must be followed between the organizational objectives a d the values of the company. It is impossible to have a successful strategy without consistency among the departments within the company. A business will be consistent only of the internal and external goals are aligned. Under Lewis’ strategical supervision Tesco was stabilizing and driving forward with a consistent business environment. This is evident from the strategical reports of Tesco from the year 2015-2019.
According to Rumelt “The strategy must represent an adaptive response to the external environment and to the critical changes occurring within it”. Lewis also was keen on creating value for his stakeholders (consumers, colleagues, suppliers and shareholders) . With the increase in the value for their stakeholders, Tesco created a 93% customer liking products which were exclusively at Tesco’s, 80% of the employees who were motivated by their purpose, an annual quantum sales of over £1bn and Diluted EPS of 15.4p . Lewis therefore established a compatibility between opinions and actions which led to the success of his strategies.
The strategy must provide for the creation and/or maintenance of a competitive advantage in the selected area of activity. Creation and maintenance of competitive advantage was created by the strategies created by Tesco. For maintaining this advantage Tesco created six key performance measures which included growing sales, delivering profit, improving operating cash flow, satisfaction of customers, providing power to colleagues and building trusted partnerships. With this simplification in the main performance indicators Tesco achieved the ‘advantage’ with 11.3% group sales, 33.5% operating profit, 9.8% retail operating cash flow and 77.5% of group supplier satisfaction.
Supply chain management :
Dave Lewis followed the supply chain management to make Tesco stable. A shift was made from a push to a pull in the supply chain with customers gaining more power in the marketing channel. Information systems gained more power and eliminated unnecessary inventory and he focused equally on both core and non core activities and increased its outsourcing. An effective supply chain management supply chain management with flexible organisations helps respond to customers faster ensuring profitability which is what Tesco under Lewis followed.
When Lewis became the CEO “There was no credible chairman or non-executives and colleagues were about to be prosecuted” said Clive Black. Now “The retailer’s departing boss did not solve all its problems. But the stable operation he leaves behind was in turmoil in 2014”.
In the year 2014 when Lewis joined Tesco as its CEO, an article by the guardian was written titled “We know Dave Lewis can sell soaps. Can he really run Tesco? “. The answer to that is a definite yes since he stabilised the company from its series of profit warnings and 33% share price drop to the success that Tesco is facing today and has definitely been this ‘Drastic Dave’ who back in Unilever was known for his ruthless approach to job cuts and excellent marketing strategies. He has followed this legacy even in Tesco.