Konczal 1 Tesco PLC Company Analysis Introduction 2 Abstract 2 SWOT 3 Porter s Five Forces Analysis 4 Recommendations 5 References 6 Konczal 2 Introduction At the stock market close on July 5 2013 TECO PLC was tied with National Grid for the 20th largest capitalization companies in the FTSE 100 index Tesco is the largest food and non food retailer in the UK and operates as one of the largest retailers in the world It operates globally as the Fresh Easy brand In addition to food retailing it competes in other markets as Tesco Mobile and Tesco Bank Merrill Lynch It is based in Hertfordshire UK and has 519 671 employees Financial Summary Kasoulis et al Projected financial performance compared to period 2009 2013 CAGR Revenue EBITA Projected 3 5 2009 2013 4 72 Projected 5 9 2009 2013 10 15 Revenue growth continues to be an issue However EBITA improves Credit Suisse maintains an Outperform rating while Schwab is Neutral This indicates that analysts are not convinced that Tesco has made sufficient progress in improving performance The ability to grow revenue must be a key measure for Tesco Abstract This report is an analysis of Tesco PLC based in the UK It will include a SWOT Porter s Five Forces financial and strategic analyses These will then be used to develop recommendations for recommendations for Tesco s leadership Tesco has a record of seeking initiatives that go beyond its core food retailing business Its ability to leverage this capability will be key to future financial performance Konczal 3 SWOT The company has built an effective business model via diversification into non food markets such as mobile communications banking and global markets Globalization added sales channels and helped to reduce business risk However there have been some setbacks for example Tesco is selling its Fresh Easy unit in the US Tesco was not able to transfer its food retailing business model to the US It cannot be faulted for the launch of the US unit in one issue it was launched before the Economic Crisis of 2008 2009 Yet it misjudged the buying habits of the target market Tesco increased diversification by acquiring restaurant chain Giraffe The company also made investments in Harris Hoole coffee shops and in Euphorium Bakery This is a further indication of the company s strategic intent to look for opportunities beyond its core business In addition Tesco recently invested in Dunnhumby a leading customer science company Tesco has a record of using technology to improve productivity reduce costs and improve customer satisfaction Tesco faces intense competition in its core business and faces legislative constraints at home and select country markets Strengths Sustainable business model through diversification and value oriented retailing Focus on developing non food categories Complementing retailing services Effective technology applications Strong private label portfolio enables company to effectively differentiate Tesco is in a strong position to negotiate competitive buying terms gain access to capital resources and achieve competitive advantage through economies of scale Weaknesses Product recalls could hamper the brand image of the company Failure to implement business model Fresh and Easy in US In spite of much recent international expansion Tesco remains reliant on the UK for the bulk of its revenue and profits As the largest player in UK grocery retailing Tesco is an obvious target for interest groups criticizing both its scale and the wider grocery sector Opportunities Strong growth in Chinese Indian and Thailand markets provides long term growth prospects Growing use of online channel for making Strong private label portfolio enables the company to effectively differentiate Launched a strategic review of the business at the end of 2012 Tesco Bank and Tesco Mobile can provide additional opportunities Adapted from Kasoulis Datamonitor Merrill Lynch Threats Intense competition affects customer retention adversely Demographic factors and change in customer shopping preferences leads to decline in traffic at hypermarkets More legislation and regulation Porter s Five Forces Analysis Tesco operates in a market core market that in the UK is stable with significant entry barriers Competition is fierce and buyer loyalty is a key differentiator Tesco has developed strategic plans that included entry into related and non core industry segments These will become key components of its future growth potential SUPPLIER POWER Threat low many suppliers rely on the large supermarket contracts for all of their trade The supermarkets can choose between suppliers and drive prices down BARRIERS TO ENTRY Low Medium Top 4 supermarket chains Tesco is one account for 80 of the market Large economies of scale are deterrent to new competitors Threat of down to basic stores is a threat There is more outside UK for the core business BUYER POWER This threat is high The majority of buyers can easily change supermarkets Price information is very available and online comparison sites have made this even easier In some cases location of a supermarket can make switching harder however this is not a concern for online shoppers Loyalty programs such as Tesco s Clubcard provide a competitive advantage Konczal 4 THREAT OF SUBSTITUTES Low The local and independent shops are more expensive and Tesco also operates its own Tesco Local stores Tesco s integration of in store Opticians pharmacy and other services help differentiate their brand DEGREE OF RIVALRY High The big four supermarkets compete for market share and even though the rate of growth of new stores is currently very high it cannot continue at the same pace as the UK market will become saturated The saturation of the market could cause margins to fall but planning restrictions should prevent the competition going to the extreme A large factor in sales is the location and size of stores Tesco has the largest amount of selling space providing an advantage that would be hard to replicate There is also a threat from the so called down to basics supermarkets which have managed to build up to around 6 of market share Adapted from IGD Services Limited Yusuf Merrill Lynch Konczal 5 Recommendations Since new technologies transcend industries Tesco should increase its emphasis on technologies in its strategic planning Implement a comprehensive innovation process with active involvement of the Board of Directors and senior management Banking and Mobile markets are potential