Answered: re Tesco PLC's Strategic Actions enough…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Are Tesco PLC's Strategic Actions enough to halt declining revenue and profits?

Transcribed Image Text:OPENING CASE STUDY TESCO PLC: A CASE STUDY IN COMPETITIVE BEHAVIOUR Major supermarket chains are a global phenomenon. In Australia, Coles and Woolworths control around 80 per cent of the market and are among the 20 biggest retailers in the world, having thrashed the competition for over a century. However, they are dwarfed by Tesco. Tesco PLC is the world's third-largest retailer, a fact that suggests its ability to compete successfully against companies both in the UK (its home market) and throughout the world. However, the firm's recent competitive struggles, both domestically and globally, appear to highlight the fact that, as noted in Chapter 1, no company's success at a entering the US market with the Fresh & Easy concept was a strategic action (strategic and tactical actions and responses are defined later in this chapter). On the surface, entering the large US market seems to be a reasonable course of action for a successful global retailer to take. As is often the case, though, execution of that strategic action appears to be where problems were encountered. Fresh & Easy stores were sized to be handy neighbourhood stores such as those found in many European cities. This did not appeal to American consumers, as suggested by an analyst: 'My sense is that what they tried to do was make a European model. Europeans tend to make more frequent trips to grocery stores, maybe every day or every other day, where Americans are used to going for bigger trips less frequently. Additionally, products carried in stores located in different parts of the USA were not customised to any degree, meaning that the potentially unique needs of any local consumers who might choose to shop daily were not being identified and satisfied. Tesco has taken additional strategic actions as part of its current array of competitive behaviours. For example, it is taking positions in other companies for the of being able to turn their stores into compelling retail destinations for customers. 'Investments in the Harris & point in time guarantees its future success. So what are some descriptors of the situation Tesco encountered? From a financial perspective, the firm reported a decline in profits in 2012 for the first time in approximately two decades. In 2013, Tesco closed its Fresh & Easy stores in the USA and also took a writedown of £804 million to reflect the then-current value of its UK properties. In all, Tesco wrote down the value of its global operations by US$3.5 billion in 2013. (This global writedown accounts for the firm's troubled operations in countries such as Turkey, China and India as well as the closing of its US operations.) Another issue is that revenue has been declining in Tesco's home market, where the company still generates roughly two-thirds of its sales and profits. Part of the purpose Hoole coffee chain, working with the Euphorium bakery brand in London and acquiring the Giraffe restaurant chain' are examples of the competitive behaviour Tesco has displayed in recent years as its performance and trying to outcompete its rivals in the process of doing so. reason for the revenue decline is related to customer service, as suggested by the fact that the results from a foundation for improving survey of UK consumers a few years ago 'found that despite £1 billion of investment in the U.K. in FY2012/13, customer perceptions of Tesco's quality, prices, promotions and overall value for money had all deteriorated quarter Sources: Malcolm Knox, 2015, Supermarket Monsters, Melbourne: Redback; J. Davey & K. Holton, 2013, Tesco quits U.S. and takes $3.5 billion global writedown, Reuters, http://www.reuters.com, 17 April; K. Gordon, 2013, No bonus for Tesco bosses until profit improves, Wall Street Journal, http://www. on quarter and year on year'. In light of these results, the firm took a number of actions, including adding more and better-trained staff members in its stores, refurbishing those stores, and revamping its product lines and the prices it charged for them. Revamping product lines and changing the prices charged for items are tactical actions. In contrast, wsj.com, 23 May; K. Gordon, 2013, Tesco leans on outside brands, Wall Street Journal, http://www.wsj.com, 18 April; R. Head, 2013, Can Tesco outperform Wal-Mart stores?, Daily Finance, http://www.dailyfinance.com, 21 March; N. Pratley, 2013, Tesco's era of rolling out its aisles is over, for now, The Guardian, http://www.guardian.co.uk, 17 April; A. Felsted, 2012, American dream that died for Tesco, Financial Times, http://www.ft.com, 5 December.

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