Question
Status (ECD: 2.30 pm) How should Tesco sustain the advantage of being the first global multi1 brand retailer to be allowed to invest in India?
Factors (Ext and Int) SWOT Strategic Options (TOWS, SAFe, rank)
In-text
Off-text
Rezuan and all - Done Rezuan - almost Rezuan
Suit local taste: Tesco Express Focus more on online: Expand radius Danny Jack Jamie
How should it fine-tune its tried and tested global business model to suit 2 the Indian retail market?
Market Entry Strategies Bowman Strategy Compass Marketing: STP (Vegetarian, Weekly Purchase, Higher income) Marketing mix: 4P
YS
The fact India as IT centre, use big data to target the market
How could the company avoid the kind of failure it had recently 3 experienced in its U.S. business?
Generic Porter's Competitve Strategies Supply Chain Management (remove redundancy)
Jack Danny
threat of online shopping similar to Korea don't rigid within india
Evaluate the market for Tesco in India; assessing how attractive the India market is and how this market might develop. Draw upon both 4 quantitative and qualitvative evidence in developing your answer N/A - 1st question What are the critical success factors and potentital sources of competitive advantage in the India market? How well positioned is Tesco 5 against these factors? Question 1 & 2 What options does Tesco have and what would you recommend to 6 CEO? Justify your suggestions
Question 1 & 2
What was Tesco's value proposition and how did it differ from other industry players, more specifically what did the eliminate, raise, create or 7 reduce? ERRC
Jack
What resource, activities, channels and key partnerships did Tesco need as part of their business model to successfully deliver value to its 8 customers? Question 1 What problems do you see within the broader economic environment for 9 Tesco in the future within India? How well, in your view, would this business model fit into the India 10 Market?
N/A - no business model defined
11 Global?
Revenue Market type. South Korean Hybrid
YS YS YS
EXHIBIT 6; TESCO PLC - GROUP INCOME STATEMENT 2013
2012
2011
2010
Revenue
2014 Year ending February (in £ millions) 63,557
64,826
64,539
60,931
56,910
Cost of Sales
2014
2013
2012
2011
2010
59,547
60,737
59,278
55,871
52,303
Operating Profit
2,631
2,188
3,985
3,811
3,457
4.10%
3.40%
6.20%
6.30%
6.10% - Product margin
Profit before Tax
2,259
1,960
3,835
3,535
3,176
3.60%
3.00%
5.90%
5.80%
5.60% - Profitability
970
120
2.814
2,671
2,336
1.50%
0.20%
0.00%
4.40%
4.10%
Net Profit
Business Segments (Revenue) United Kingdom
43,057
42,386
42,248
40,117
38,558
1.60%
0.30%
5.30%
4.00%
11.70%
Asia
10,276
11,462
10,793
9,159
8,439
-10.30%
6.20%
17.80%
8.50%
21.80%
9,221
9,957
8,826
10,241
8,704
-7.40%
12.80%
-13.80%
17.70%
5.90%
628
495
349
-100.00%
26.90%
41.80%
0
-2.20%
13.60%
6.90%
16.60%
Europe US Tesco Bank Total
1,003
1,021
1,044
919
860
-1.80%
63,557
64,826
64,539
60,931
56,910
1,007
2,704
2,360
2,458
2.40%
6.40%
5.90%
6.40% -Profitablity by UK
661
737
570
474
5.80%
6.80%
6.20%
5.60% -Profitablity by Asia
329
529
527
440
3.30%
6.00%
5.10%
-186
-165
Business Segments (OperatinglTradingProfit) United Kingdom Asia
I
Europe
I
US
(1 53)
Tesco Bank Total
1
191
168
264
250
2,188
3,985
3,535
3,457
-37.60% 18.70%
16.10%
28.70%
5.10% -Profitablity by Europe -47.30% -Profitablity by US 29.10% -Profitablity by Tesco Bank
Retail Indices Number of stores
7,305
6,784
6,234
5,380
4,811
8.7
9.56
10.35
11.33
11.83 - Sales/Store
109,572
116,236
112,433
103,616
93,985
0.58
0.558
0.574
0.588
0.606 - Sales/Sq ft
Average employees (including contract)
537,784
519,671
492,714
472,094
0.121
0.124
0.124
0.121 - Sales/employee
Average FTEs (full time)
416,441
406,088
384,389
372,338
0.156
0.159
0.159
0.153 - Sales/employee
Sales area 0000 sq. ft.)
With increase in stores expansion, profit drop 2012 no money after paid tax UK is matured market. Throughout the year, 11.7, unlike Asia 21.8%. Asia 2014 drop should be economy crisis. Market penetration in UK market and expansion in Asia market US already exited market Tesco Bank opportunity to increase Profitability is best with high potentials in Asia. Market penetration in UK. Encourage expansion in Asia. Sales/store decreasing also encourage online business
Profitability is best with high potentials in Asia compared to UK, thus encourage to invest more in Asia
PESTEL Analysis
Factors
Effect
Political
Unpredictable nature of Indian politics and policy
1. Possible change in FDI policy as a resultof change of new government
Economic
1. Revenues expectedto reach US$1.3 trillion by 2020 2. Rising personal incomes, evolving consumption trends, increasing level of urbanization India retailing industry growth compound rate of 15% per 3. Create annumnew job opportunities
Social
Technological
Legal
PORTER 5 FORCES
India has highest number of retail outlets per capita in the world
1. Fragmented retail industry in India
Growth of personal income
1. Growth of modern retail formats, changing lifestyle
1.Less than 10% of population owned a vehicle
1. Higher demand for fresh foods as frequency of shopping is weekly and small quantityinstead of monthly and large quantity 2. Customer service suchas home delivery and deferred payments is key factor to attract customer
1.Majorityyoung population – 70% less than age 35
1. Changinglifestyle is requires modern retail format
3.Wide variation in taste, eating habits and cooking ingredients
1. Complex taste satisfaction where most food brands were regional rather than national
4.Majority vegetarian
1. Freshly productsare highly in demand
5. Increasing exposure to foreign food
Higher growth in food retail
Centralizedglobal IT support center
1. Efficiencyin managing back-end operations pertaining to finance, supply chain, merchandising and check-outs (makethe Tesco experience better)
FIBP clearance for multi brand retailing
1.Tesco being first global retailer toinvest in multi-brand retailing – 51% FDI in multi-brand retail 2.Entrance of other FDI such as IKEA and Carrefour
30% of product sourcing must be from local smallmidsizedenterprises
1.Protectingand supporting local products and businesses
Forces
Threat of entry
Supplier bargainingpower
Customer bargaining power
Level
Effect
Medium
1. FIBP clearanceof multi-brand would invite more FDI into the Indian market (IKEA, Carrefour starting talks with ministries to enter India) however they need to partner with local retailers 2. Entrants of local retailers are easy (12 million retailers currently in the market)
Medium
1. Bulk purchasesfrom Tesco (from global and local suppliers) gives a higher bargaining power (low supplier bargaining power) 2. To maintain the local supplier contact in order to comply to the 30% local product regulation (supplier high bargaining power)
High
1. Fragmentedcustomer demographic with diverse profile and preferences (29 states with their own cuisine, variation of taste, eating habitsetc) 2. Fragmented industry (12 million retailers) gives more options to customer to choose from 1. Fragmented industry with 12 million retailers (majority locals) 2. Consumer can always purchase their groceries from the local retailers
Competitive rivalry
High
Threatof substitutes
Low
1. Plant, grow or manufacture their own products
Tesco
Trent Hypermarkets (Tata)
110mil Investment
Operating with 4 major concepts stores (e.g. 15 Star Bazaar stores)
RBV
Tangible Resource
Centralized IT, SCM infrastructure in India Strong Financial (Glboal revenue of 63.6bil) Intangible Resources
Human Resource
Brand name of Teso (3rd in the world)
Direct relationship with Farmers (fresh food)
Approved JV into India (first)
customer royalty program
Relationship with Suppliers
Part of Tata Group (leveraging on parent company advantages)
Large poool of skill and experience management and exployee (500k employee) 6500 IT professional
>540k employees worldwide
Capability
Experience in operating retails (7305 stores)
Experience in operating in 4 retails format : Books and music (Landmark); Lifestyle (Westside) ; Fashion products (Fashion Yatra); Food products (Star Bazaar)
Capability in setting modern retail formats
Strong in Western, Southern urban
Know how in enhancing customer shopping experience
marketing : launching store brands ; 25% cheaper in fresh food Queue management system
RBV - VRIN Valueable
Value for money across demographic and income segments for India market Benchmark of customer satisfaction
Rarity
India-based global IT support Shop whenever, wherever, however
Inimitability
International brand, multi-brand retailer
Non-substitutable
Geographical diversified market with various formats
SWOT analysis - Tesco
Strength
Weakness
1. Global presents – lower risk of excessive dependencies on selected market
1. Not able to recover cost of capital outside UK
2. Wide range of format (hypermarket, supermarket convenient store etc) and brands (TescoExtra, Tesco metro etc)
2. Slow in expanding their stores will lead to slow recovery of investment and losing out to other established players
3. High bargaining power – bulk purchases
3. CAPEX capped at E2.5 billion for 3 financial years
4. Loyalty program – Clubcard 5. First-mover advantage multi-brand retailer 6. Financial competitiveness 7. Strong relationship with local suppliers 8. Value for money in India
Opportunity
Threat
1. India retailing industry growth compound rate of 15% per annum
1. Fragmented retail industry in India – highest number of retail outlets per capita in the world
2. Growth in Indian’s economy - Rising personal income, evolving consumption trends, changing lifestyle and increasing level of urbanization
2. Large local retailers strong presents in the market (eg. Reliance Fresh – 705 stores, More – 528 stores)
3. Increasing exposure to foreign food expected to lead to higher growth in food retail
3. Unpredictable nature of Indian politics and public policy
4. Utilise low cost supplies advantage through economies of scale 5. Cooking competition shows increase awareness (AIDA) 6. Refocus on the known targeted vegetarian / homebased segment to tap online-fresh market since 90% of population vehicle-less 7. Globalisation through TATA brand (KIV) TOWS Strength
Weakness
SO1: Agressive marketing awareness on Tesco's present WO1: Agressive expansion of stores in order to (S5O1) recover investment cost (W3O4) SO2: Introduce online shopping and delivery to expand Opportunity market penetration (S3O6)
WO2: Refocus resources to online sales (W2O6)
SO3: Double Clubcard rewards for online-vegetarian purchases (S5O6)
Threat ST1: Aquisition of smaller retailers (S6T2) ST2: Contract farming with local suppliers (S7T3) - like KFC
WT1: Exit India market (W1T1) WT2: Continue sell franchise to local retailers (W3T2)
SAFe
Suitability
Acceptability
Feasibility
evaluation
SO3: Double Clubcard rewards for online-vegetarian purchases (S5O6)
5
5
5
15
SO2: Introduce online shopping and delivery to expand market penetration (S3O6)
5
5
5
15
WO2: Refocus resources to online sales (W2O6)
5
5
5
15
SO1: Agressive marketing awareness on Tesco's present (S5O1)
5
5
3
13
ST2: Contract farming with local suppliers (S7T3)
3
5
3
11
WT2: Continue sell franchise to local retailers (W3T2)
5
1
5
11
WT1: Exit India market (W1T1)
4
1
5
10
ST1: Aquisition of smaller retailers (S6T2)
3
5
1
9
WO1: Agressive expansion of stores in order to recover investment cost (W3O4)
3
4
1
8
Ranking SO3 (Maintain 25% lower prices sales) Combine SO2 + WO2
ERRC (W. Chan Kim and Renée Mauborgne): A comprehensive set of analytic tools and frameworks any organization can apply to create new market spaces and make the competition irrelevant.
Eliminate
Store expansion. Breakeven strategy using conventional stores is insignificant due to red ocean
Reduce
Lavish spending on advertising and other marketing strategies to increase brand awareness
Raise
Promotions on online-vegetarian double rewards
Create
Global IT in India as advantage, data segmentation and targeting to reposition the sales
Ansoff Matrix New
Market development
Diversification
Existing
Market Penetration
Product development
Market
Existing
New Products
Market development is one of the four alternative growth strategies in the Ansoff Matrix. A market development strategy involves selling your existing products into new markets. There are a variety of ways that this strategy can be achieved. http://www.free-management-ebooks.com/faqst/ansoff-03.htm New geographical markets Online as another geographical concept This could involve expanding outside of your region or selling to a new country or a new continent. The element of risk in adopting this strategy will depend on whether or not you can use your established sales channels in the new market. New product dimensions or packaging Your organization may simply want to repackage your product so that it can open up a whole new market. For example, a company that sold industrial cleaning products in 20-liter containers could break into the domestic market by repackaging in smaller quantities and developing a suitable brand image. If you are responsible for packaging or production of the product you will be required to look at the new costs involved with these changes and new markets requirements and alter the marketing messages so that they are appropriate to that country's culture.
Repackage vegetables segment
New distribution channels Many companies have transformed themselves from high street retailers into Internet Online-vegetable channel retailers. As a manager you could be expected to outline the internal and financial implications of such a change. Senior management would be looking for you to provide the details of how to make this approach a success. This could include the training needs of employees so that they have the skills to fulfill Internet orders, whether they are taking incoming calls or processing online orders. You would need to demonstrate an understanding of the operational changes your Shift resources to train staff on supporting online business and organization would face, such as a centralized warehouse rather than local depots. maintain vegetable freshness upon delivery One example of this type of market development is the sale of high-end sports equipment, which is now almost exclusively sold online rather than through sports equipment retailers. Another example is the sale of DVDs in retail outlets like supermarkets and gas stations rather than specialist entertainment stores selling predominantly music and video products.
Create awareness on having better benefits buying vegetables online
Different pricing policies to create a new market segment The important aspect of this approach is whether or not current users can easily alter their purchases to take advantage of the new market pricing. A good example of how to protect your existing market whilst developing a new one is Adobe Photoshop. It Sell higher price in Mumbai and city centre protected its price difference of hundreds of dollars of its original professional product by offering a reduced 'home' version that had a restricted set of functions. Whilst there are similarities between the first two strategies, market development involves a greater degree of uncertainty, risk, and financial commitment. One of the biggest dangers of this strategy is the risk of alienating your current customers. For example, the tools made by US company Snap-on are widely regarded as the best in the world and are used by almost all professional automotive racing teams. Snap-on tools are only available through a tightly controlled network of franchisees and the company has resisted the temptation to develop any markets outside of professional mechanics. This strategy has allowed Snap-on to maintain its position as the number one supplier in this highly competitive market. One way around this problem is to sell a cheaper product under a different sub-brand. This is something that has been done successfully by the US musical instrument company Fender, which created the 'Squier' sub-brand in order to market budget instruments without alienating its core market of musicians who want to own a recognizably high-end instrument.
Risk of uncertainty since new untapped market
Marketing Mix: 4Ps Products - Wide range of products - Grocery delivery services - Own branding products - Tesco bank provides financial services such as loans, saving accounts, credit cards, mortagages and insurance.
Price - Cost leadership: Reduce cost of purchase and operational costs through economical of scale - Maitaining low price - Excellent Price Promotional strategy (club card system) - Economy pricing (bundling), physchological pricing (sell at 4.99 rather than 5) and geograhic pricing strategy (mumbai more expensive) - Continous work with suppliers to improve supply chain efficient to reduce prices
Place Six difference kind of stores: Tesco Extra, Tesco Express, Tesco Metro, Tesco Compact, Tesco Homeplus and Tesco Superstore - Smaller stores for easier accessibility - Tesco Direct: Online forum
Promotion: - Strong brand images with low price - Viral marketing mode include hoardings, television and charitable events as promotional channels - Larger extend of promotional discounts and offers buy one and get one free. - Loyalty Tesco card to segment and target customers. Clubcard owners get points to redeem discount vouchers or free gifts. Get personnalised discounts and offers. Online vegetarian, double reward. - Free music download Marketing Mix: Consumer Segmentation BEHAVIOURAL
PSYCHOGRAPHIC
PROFILE
•Product benefits: Food retailing (fresh groceries) are value for money (quality x price)
•Lifestyle: Consumers prefer fresh home cooked food. 30% of the Indian population are vegetarian – demand for vegetables, grains, milk, cheese (milk and cheese have high growth rate of 64%, bread and cereals-21%, fruit-45%, vegetables-43%, sugar and confectionary-69%-refer to Exhibit 4).
•Demographics: Age-35% of Indians are below 15 yrs old & 70% are below 35 yrs old; high proportion of younger population in India.
•Purchase behaviour: brand loyalty, purchase groceries on a weekly basis
•Personality characteristics: Value for money goods (quality & price)-’ paisa vasoo’-highest form of praise for the company; those who watch 24 hour food network on various tv channels especially cooking competition shows.
•Socio-economic variable: less than 10% of the population owned a vehicle-few drove for shopping-middle income group-mostly young adults and housewives. •Geographic: 95% of customers visited Tesco PLC within 3-5km radius; maximum distance for walking.
•Usage: High consumption especially for fresh groceries eg. Vegetables, milk, cheese and eggs •Purchase perception, values and beliefs: Wide variation for tastes, eating habits and use of cooking ingredients-perhaps due to low cost of items, health conscious or religious beliefs. Marketing Mix: Target Marketing MARKET FACTORS
COMPETITIVE FACTORS
POLITICAL/SOCIAL/
CAPABILITY TO COMPETE
ENVIRONMENTAL •Refer to Porter’s 5 Forces
•Refer to Porter’s 5 Forces – competitive rivalry
•Refer to PESTEL
•First and only multi-brand retailer worldwide •Network with local SME suppliers and get low cost goods •Retained customers through free home delivery services since groceries are purchased on a weekly basis. •Deferred payments – allow customers to stagger payments to sustain demand for goods. •Key managerial capabilities – centralised IT competencies6500 IT professionals, customer services-free home deliver service and deferred payments and product managers (strong relationship with local suppliers)
Marketing Mix: Post-Market Evaluation DIFFERENTIATED
or
FOCUSSED
•Target young adults (35 years old and below)
•Target young adults and big spenders
•Fast moving consumer goods - Fresh groceries sold at low cost
•Collaborate with cooking competitions shows to use and promote Tesco products especially fresh groceries and staple food via the various TV channels across India.
•Adopt online shopping – to cover a larger radius, increase demand, decrease cost of goods, set-up distribution centres.
•To educate customers on online shopping, tie in with government to provide education to 13 yrs old and above (under CSR programme) to be mobile ready and IT educated.
•Provide discount for full repayment for deferred payments, easy loan application, credit card. •Sustain promotions and leisurely shopping experience. •Fast in addressing to changing customer expectations. Marketing Mix: Positioning CLARITY
CONSISTENCY
COMPETITIVENESS
CREDIBILITY
•Business model retain ‘A seamless blend of bricks and clicks’
•Message promoted throughout all their product labels and packaging.
Unique Selling Points:
•Value for money goods, ‘paisa vasool’ – highest form of praise for the company, benchmark for customer satisfaction
•Message to customers – “Being able to shop whenever, however and wherever they wanted at Tesco PLC”
•First and only multi-brand retailer worldwide •Strong relationship with local suppliers. •Fresh groceries sold as fast moving product – reduced storage •Free home delivery •Deferred payments •Loyalty programme - Clubcard
Perceptual Mapping:
Generally, Tesco PLC product range is low priced and has a wide range of products especially for its food retail. With the availability of deferred payments, customers are able to purchase low or high priced good. This creates a differentiated advantage to customers and can be expanded with product combination promotion. High Price oo
Wide Product Range
Narrow Product Range
ooooo Low Price
Generic Porter's Strategies Scope
How to?? Broad
Narrow
Cost Leadership
Cost Focus
Cost
Differentiation
Differentiation Focus
Differentiation
Source of Competitive Advantage Cost Focus emphasizing costminimization within a focused Focus on deliver higher value with lower market cost for online and vegetarian market. Bowman's Strategy Compass
Low price + High Value = Hybrid
Hybrid (Position 3)
Hybrids are interesting companies. They offer products at a low cost, but offer products with a higher perceived value than those of at her low cost competitors. Volume is an issue here but these companies build a reputations of offering fair prices for reasonable goods.
Low Price
Maintain 25% lower price to buy from farmer with differentiation to achieve volume with economies of scale
Differentiation
Double rewards for online-vegetarian sales
Cost leadership or cost focused at online and vegetarian segments
Differentiation with fresh food supply from farmer
Pricing strategy maintain at 25% lower than market average
•Reduce or manage supplier power.
Contract farming
•Reduce or manage buyer/customer power.
low price and high perceived value of goods thus monopolise the low cost segment
•Come out on top of the competitive rivalry.
Ensure online purchase is more convenient than local. Includes coverage for vehicle-less segment
•Reduce or eliminate the threat of substitution.
vertical integration with major local suppliers
•Reduce or eliminate the threat of new entry.
first move for online sales for fresh market segment
RBV model to decide on mode of setting up store.
Key Capabilities Tesco
Trent
Store design,
Store Location
Layout
Securing Tenancy
Customer Experience improvement
Understanding of local regulation
Inventory/Store management
Understanding of local demand Queuing System Supply Chain
Key capability (Online) Leverage Tesco Direct concept Local resources with strong IT capability Capability in Banking
Since Tesco and Trent have strong expereince in setting up retail outlet and couple with Trent years of research in the market, demographics, the JV should leverage on the capability to drive their own setup of outlets. Supply Chain Management Levergage Trent relationship with farm to maintain cost advantages (on top of ability to offer fresh food). This eliminate dependencies on wholesaler and minimize risk of 1 price fluctuation and availability of vegetabels. Farmers
-----------> Star Bazaar
