tesco ananlysis[1].docx by suman.docx 2

8/3/2019 Tesco Ananlysis[1].Docx by Suman.docx 2

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REPORT ON TESCO PLC

Submitted By: Submitted To:

Suman Baldua Global Research


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INDEX

1. Introduction and background of the company2. Vision and mission3. External and internal analysis4. Financial analysis of the past five years5. Balance scorecard6. Mapping of strategies7. Current strategies followed by the company8. Future strategies for the company for next 2 years.9. Conclusions


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INTRODUCTION OF THE COMPANY:Tesco started as a one-man business in Londons East End. It was founded by Jack Cohen, son of

a Polish Jewish Tailor. He sold groceries in the markets of the East End from 1919. The first

Tesco store was opened in 1929 in Burnt Oak, Edgware, and London.

The first Tesco self-service store opened in 1948 in St Albans and still trading in 2006 as a Tesco

Metro Store.

The main product of the company is Groceries, Financial services, Telecom, Life insurance.

The revenue of the company according the latest data till February 2010 is 62.54 billion.

Tesco have two values that force the way they do business, which are

No one tries harder for the customers

Understand customers better than anyone

Be energetic, be innovative and be first for customers

Look after companys employee so that they can look after customers

MISSION STATEMENT OF THE TESCO PLC:

To Maximize the Shareholders values

Creating values for customer & earn their lifetime loyalty


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SWOT ANANLYSIS OF TESCO PLC

Strengths:

1. Increasing market share2. Brand value of the company3. Customer loyalty4. Tesco online5. Insurance6. U.K. market leadership

Weaknesses:

1. Debt reduction2. Believe upon the U.K. market

Opportunities:

1. Further international growth of the company2. Diversification of the business3. Non-food retail4. Health & Beauty5. Revenue generation due to diversification

Threats:

1. International expansion2. Language problem may be occurred3. Strong competition with Wal-mart4. Challenge from Wal- Mart


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PESTEL ANALYSIS OF TESCO PLC:

Political factors:

As the company is operating more than six countries so there can be the problem for the

company is to take the major decision for the particular location or country, there can be

governments ban for the company.

For employment legislation, the government encourages retailers to provide the mix of job

opportunities from flexible, lower paid, locally based jobs to highly skilled, highly paid & locally

based jobs.

Economic factors:

Its the highly concern factor for Tesco plc because the company is highly influence demand.

Cost, profit, and price.

One of the most influential factors on the economy is high unemployment levels, which

decreases the effective demand for many goods.

Social factors:

Tesco have increased the amount of non-food items available for sale because the current trends

indicate that British customer have moved towards one-stop & bulk shopping, which is due

to a variety of social changes.

Technological factors:

Tesco is using following technological device, to increase benefits for the customers as well as

company also. Technology is the major macro-environmental variable which has influenced

development of many of Tesco products

Wireless device Self check-out machine Intelligent scale Radio frequency identification


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Legislative factors:

The governments policies for monopoly controls & reduction of buyers power can limit entry

to this sector with such controls like license requirement & limits on access to raw materials.

PORTERS FIVE FORCE MODEL:

Threats of the new entrants:

The U.K. grocery market is primary dominated by few competitors, including four major brands

of Tesco, Asda, Sainsburys & Safeway that possess a market share of 70%. The grocery market

has been transformed into the supermarket- dominated business.

Bargaining power of the suppliers:

UKbased suppliers are also threatened by the growing ability of larger retailers to source their

products from abroad at cheaper deals. The relationship with sellers can have similar effects

constraining the strategic freedom of the company & in influencing margin. The forces of

competitive rivalry have reduced the profit margins for supermarket chains & suppliers.

Bargaining power of customer:Tescos famous loyalty card- Club card remains the most successful customer retention strategy

that significantly increases the profitability of Tescos business.

In meeting customer needs, customizing service ensure low prices, better choices, constant flow

of in-store promotions enables brand like Tesco to control & retain their customer base.

Threats of substitutes:

General substitution is able to reduce demand for a particular product, as there is a threat of

customers switching to the alternative

In the grocery industry this can be seen in the form of product-for-product or the substitute of

need & is further weakened by new trends, such as the way small chains of convenience stores

are emerging in the industry.


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Bargaining power of the competitors:

Tesco are accruing large amounts of consumer information that can be used to communicate with

the consumer Ritz.

This highly competitive market has fostered an accelerated level of development, resulting in a

situation in which UK grocery retailers have had to be innovative to maintain & build market

share.

Such innovation can be seen in the development of a range of trading formats, in response to

changes in consumer behavior.

45%

30%

25%

Market Share

A1 A2 Tesco Plc


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0

1000

2000

3000

4000

5000

6000

7000

80009000

2005 20062007

20082009

50006250

4000

8000 8500

Profit in Cror

Profit in Cror


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0

200

400

600

800

1000

1200

2005 2006 2007 2008 2009

500

600 300 950 1050

advertisment expenses in cror

advertisment expenses in cror

01000

20003000

4000

2005

2006

2007

2008

2009

expenses of the year


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Year 2005

1. Current Ratio = 1.529 (Current Assets =13000 Cr. And Current Liabilities = 8500 Cr.)2. Quick Ratio = 0.588 (Quick Assets=5000Cr. And Current Liabilities =8500 Cr.)3. Debt to Equity Ratio=0.384(Total Debt =3000Cr. And Owners Equity [Net

Worth]=7800Cr.)

4. Regular DSO =200 Days(Total Accounts Receivables = 5000Cr. Total Credit Sales =9000Cr. Number of days in the period = 360 days)

5. Inventory Turnover Ratio = 1.875 (Net Sales= 15000 Cr. And Total Inventory = 8000Cr.)

6. A/P to Sales = 33.33% (Total Accounts Payables = 5000 Cr. And Net Sales = 15000 Cr.)7.

Return on Sales or Profit Margin =16.66% (Net Profit=2500Cr. And NetSales=15000Cr.)

8. Return on Equity=32.051% (Net Profit=2500 Cr. and Owners Equity or Net Worth=7800Cr.)

9. Return on Assets =16.66% (Net Profit=2500Cr. And Net Sales=15000Cr.)10.Gross Profit Margin = 0.33:1 (sales=15000Cr. And Cost of Goods Sold = 10000Cr.)


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Year 2006


Worth]=7800Cr.)


5. Inventory Turnover Ratio = 2.4 (Net Sales= 18000 Cr. And Total Inventory = 7500 Cr.)6. A/P to Sales = 38.88% (Total Accounts Payables = 7000 Cr. And Net Sales = 18000 Cr.)7. Return on Sales or Profit Margin =19.72% (Net Profit=3550Cr. And Net

Sales=18000Cr.)8. Return on Equity=45.51% (Net Profit=3550 Cr. and Owners Equity or Net Worth=

7800Cr.)



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Year 2007


Worth]=7800Cr.)


5. Inventory Turnover Ratio = 2 (Net Sales= 9000 Cr. And Total Inventory = 4500 Cr.)6. A/P to Sales = 39.44% (Total Accounts Payables = 6000 Cr. And Net Sales = 9000 Cr.)7. Return on Sales or Profit Margin =22.22% (Net Profit=2000Cr. And Net Sales=9000Cr.)8.

Return on Equity=25.64% (Net Profit=2000 Cr. and Owners Equity or Net Worth=7800Cr.)



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Year 2008


Worth]=7800Cr.)


5. Inventory Turnover Ratio = 2.11 (Net Sales= 18000 Cr. And Total Inventory = 8500 Cr.)6. A/P to Sales = 41.66% (Total Accounts Payables = 7500 Cr. And Net Sales = 18000 Cr.)7. Return on Sales or Profit Margin =25% (Net Profit=4500Cr. And Net Sales=18000Cr.)8.

Return on Equity=57.69% (Net Profit=4500 Cr. and Owners Equity or Net Worth=7800Cr.)

9. Return on Assets =25% (Net Profit=4500Cr. And Net Sales=18000Cr.)10.Gross Profit Margin = 0.64:1 (sales=18000Cr. And Cost of Goods Sold = 6500Cr.)


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Year 2009


Worth]=7800Cr.)


5. Inventory Turnover Ratio = 2.35 (Net Sales= 20000 Cr. And Total Inventory = 8500 Cr.)6. A/P to Sales = 35% (Total Accounts Payables = 7000 Cr. And Net Sales = 20000 Cr.)7. Return on Sales or Profit Margin =24.5% (Net Profit=4900Cr. And Net Sales=20000Cr.)8. Return on Equity=62.82% (Net Profit=4900 Cr. and Owners Equity or Net Worth=

7800Cr.)



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THE CURRENT STRATEGY OF TESCO:

Tesco have evolved a strategy based on six elements to maintain the profitability of the company

as follow:

1. Develop capability2. Proper training for the employees to provide customers3. Act local4. They are using multi formats cause of international expansion5. Build brand by creating an image on consumers mind6. Maintain focusThese are the main strategies followed by the company at present.

THE FUTURE STRATEGY OF THE COMPANY:

In future company can be following the strategy as:

1. Market development2. More product development3. More expenses for the advertisement as we can see from the graph as the company starts

more expense for the advertisement the company started getting more profit so the

company main future strategy should be more expense on advertisement for the

companys product.

4. Company can be go for joint venture & strategic alliance to become more profitablecompany in the world.


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CONCLUSION:

As per the above study we can conclude the report that the company is going well. It is third

largest retailer of the world after wal-mart. If the company is planning to expand the business

than it should be make proper strategy for the future expansion through proper budget for

expenses on the advertisement. We can see from the graphs that as the company started expense

for the advertisement the company is getting more profit as per the data. The company has

already diversified from the business & ready to expansion.

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