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(1)  The Scope of the Analysis

Tesco has been very successful.  This can be seen with its strong profitability between 2009 and 2011; see the table in appendix 1.  In 2012, its performance has deteriorated.  In the international context there has been retrenchment, such as in Japan, where it has sold off its business (Wood 2012).  In the UK, Tesco “is facing its most difficult period in its history” (Verdict 2012).

The discussion will focus mainly on the United Kingdom where Tesco’s headquarters are based.  It will also centre on Tesco’s food business.  The discussion will begin with an examination of some of the criticism that has been directed at the company.

Political Factors

Tesco has been criticised over its working relationships with suppliers (Simms 2007:137).  Also, many local community groups, in the U.K., have challenged its further development (Simms 2007:265).  Tesco has tried to reduce the criticism of its business and improve its customer perception.  It needs to make its range of foods “more interesting” to the public (Pendrous 2012)

Tesco has faced disapproval from the UK's Competition Commission through its Groceries Supply Code of Practice.  This stated that retailers “must pay a supplier for products delivered within (a) reasonable time" (Just Food 2009). The consequence of this is that Tesco has had to be fairer to suppliers.  Tesco could turn this criticism into an opportunity.  The National Farmers Union hopes that Tesco can “develop long-term and sustainable relationships with farming suppliers” (National Farmers Union 2012).  This should help Tesco’s business.  Farmers will be able to remain in business and offer the customer a wide variety of fresh produce.

Economic factors

Tesco’s size could be seen as a weakness as it has led to criticism.  However, in economic terms, Tesco has enjoyed economies of scale.  It can buy in quantity from suppliers, such as farmers or food manufacturers.  This should mean that the supplier offers Tesco a low price.  Tesco can then sell at a low price to the customer.  It can use low consumer prices as a way of increasing sales and consolidating its market share.  In the current harsh economic environment Tesco may be able to negotiate lower prices from suppliers. 

Interest rates remain at 0.5% (Moulds 2012).  Therefore, there is little opportunity for further cuts in interest rates to boost consumer spending.  Inflation has fallen recently to 2.8% (Aldrick 2012).  However, it has affected consumers as their expenditure has risen, for the same amount of purchases.  The 2010 increase in VAT, to 20%, could affect consumer spending too (Siburn 2010).  As a consequence, of these negative economic factors, the public have “traded down in foods” (Mintel 2009).  This suggests that Tesco’s shoppers could also be ‘trading-down’ to discount supermarkets.  To respond to the threat of cheap food shops, Tesco has increased its promotional activity.  It has introduced more discount coupons.  However, Tesco’s communication regarding “quality and service” has been overlooked (Marketing Week 2012).  Consumers have become more interested in the price of the product.

In May 2012, unemployment increased.  The claimant count rose by 8,100.  Also, the number of part-time workers increased to 1.41 million (Groom 2012).  Worryingly, there has been a movement towards a lower wage economy (Groom 2012). 

Social Factors

The poor economic climate could lead to a social change with fewer people eating out (Horizons.com 2012).  This could be a marketing opportunity for Tesco.  Customers could switch to Tesco’s products enabling it to sell more food.  In particular, alternatives to takeaway food which are consumed at home.

Another social factor is the movement towards healthier and more environmentally acceptable food.  The American operation has attempted to capitalise on this interest.  It attempts to sell high quality and healthy food at a low price in shops similar to the U.K.’s Tesco Express (Piercey 2009:520-523). 

An increase in immigration, into the United Kingdom, has led to Tesco having to adapt its food ranges to meet the needs of say Polish communities who are now living in the UK.

A longer-running trend, in the UK, is that increased car ownership has changed shopping habits.  Consumers are able to buy in bulk and only make one major shopping journey a week (Bevan 2006: 47).  This development led to the expansion of large supermarkets and out-of town shopping.  In recent years, oil prices have increased.  Petrol has become more expensive to Tesco’s shoppers.  Therefore, out-of-town shopping could be less popular now.

Technological Factors

The investment in electronic scanners has improved Tesco’s efficiency.  It is able to buy appropriate quantities of food from suppliers.  It is possible to re-order more quickly too.  Self-scanning has helped to reduce the cost of labour as fewer till operators are needed.  However, this innovation could lead to unemployment and further criticism of Tesco (Ryan 2009).

One of the main technological innovations is the internet.  In particular, home broadband has made it possible for consumers to order food online.  Tesco has invested well to maintain its market share.  This technological innovation has led to some intelligent management thinking.  Tesco’s superstores can be used for both shopping and as an internet warehouse depot. 

Ethical (and environmental) Factors

Ethical and environmental factors can be linked.  This is because Tesco has an ethical responsibility to reduce waste.  Tesco state that their “store ordering systems help us to minimise food waste by more accurately predicting what each store will sell” (Tesco 2012).

Ethical concerns can affect Tesco’s corporate image.  It is important that Tesco has a strong reputation with consumers.  Tesco is trying to reduce its carbon footprint (Tesco 2012).  Customers are encouraged to re-use plastic bags as they are given ‘green’ club-card points.  However, Tesco is failing to label products according to their carbon footprint (Lucas and Clark 2012).

Legal Factors

Tesco has to comply with legal planning restrictions.   Tesco has proactively responded to such constraints.  It has achieved this, with the development of Tesco Metro and a partial return to high-street shops.

Tesco has to comply with statutory regulations such as the minimum wage.  The implication is that Tesco’s costs will rise with increases in the minimum wage.  These costs could be passed onto consumers in higher prices.  Alternatively, Tesco may have to absorb the rise in labour costs so its profit margins will decline.

The divorce of ownership from control is discussed in appendix 2.

References

Aldrick, P. (2012), Household respite as inflation falls to 2.8pc 

Bevan, J. (2006), Trolley Wars: The Battle of the Supermarkets, London: Profile Books

Butler, S. (2012), Tesco's new leader Phil Clarke asserts his dominance as Richard Brasher leaves

Economist, (2012), Tesco's travails: Supermarket sweep

Groom, B. (2012), Unemployment falls to 2.61m, Financial Times, 22/06/12

Horizons.com, (2012), Eating out reserved for special occasions as cautious consumers make spending cutbacks

Just Food, (2009), UK: Commission to introduce Grocery Code of Practice

LSE, (2012), Divorce of Ownership and Control Definition

Lucas and Clark, (2012), Tesco steps back on carbon footprint labelling, Financial Times

Marketing Week, (2012), Tesco CEO slams ‘unhelpful’ level of couponing, 

Mintel, (2009), Consumer Choices in a Fear-led Economy 

Moulds, J. (2012), Bank of England holds out against QE and rates change

National Farming Union, (2012), Tesco sets new plans for UK business

Pendrous, R. (2012), Tesco needs to make business more fun

Piercey, N. (2009), Market-Led Strategic Change, Fourth Edition, Oxford: Elsevier

Redmayne-Bentley, (2012), Tesco profit and loss

Ryan, C. (2009), Northampton Tesco Express with no cashiers is 'the future'

Siburn, J. (2010), Budget VAT increase: retailers warn of effect of 20pc rise

Simms, A. (2007), Tescopoly: How one shop came out on top and why it matters, London: Constable and Robinson

Tesco, (2012), Waste and Packaging, Tesco PLC 

Verdict, (2012), Verdict Comment

Wood, Z. (2012), Tesco offloads Japanese operation 

Appendix 1

Table to show: Tesco Profit and Loss 2009-2011 (Redmayne Bentley 2012).

Appendix 2

“In large corporations shareholders own the firm but may not be able to exercise control” (LSE 2012).  Tesco’s executives will “often have control because of a diffuse and divided shareholder body” (LSE 2012).    Therefore, there is a divorce of (shareholder) ownership from (executive) control.  The executives are often able to control decisions; even though the owners or shareholders may disagree with those decisions.  The implications are that business executives can often make decisions on their own account. 

The discussion now examines the divorce of ownership from control and how that affected Tesco’s decision-making in 2011.  Tesco could have invested to a greater degree in price-cuts across its stores.  Apparently, Richard Brasher, the former head of Tesco in the UK, favoured such an approach (Butler 2012).  The aim would have been to increase market-share at the expense of (shareholder) profitability.  If Tesco's executives had chosen this strategy then the implications would have been lower prices for customers. 

Tesco could have chosen this strategy, but they feared that price cuts might fail “to deliver a real improvement in sales" (Butler 2012).  The chief executive “was keen to protect profits” for shareholders (Butler 2012).  However, the divorce of ownership from control meant that he could have chosen a more aggressive price-cutting approach.   

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(2)  The identification of Tesco’s main stakeholders with their interests

Tesco’s interest groups are divided into different categories.  This is to make the stakeholder analysis more manageable.  In practice, there can be an overlap between the different categories.  Consumer groups can also be seen as community activists.  This is discussed below.

The consumers’ interest will often depend upon their income.  Affluent customers want high-quality goods with less interest in the price of the products.  In contrast, lower-income consumers will be willing to sacrifice higher quality for a lower price.  Members of the community can also be Tesco’s consumers.  However, the local community will often have wider interests than consumers.  The local community could be worried about unemployment, from the closure of local shops.   It could also be concerned about the reduced availability of fresh produce.    

Tesco’s employees have an interest in secure and lucrative employment. Senior management will have a greater involvement with the company.  They are likely to have been employed for a longer period and paid a higher salary.  The shareholders interest is in long-term profitability.  They want an increase in the value of their equity, or an increase in dividends, or both.  The demands of shareholders have perhaps increased with the involvement of larger investors such as Warren Buffet (Reece 2012).  Suppliers, such as farmers or food manufactures, depend upon Tesco's purchases for their income.  They are interested in the quantity of the order and the terms of payment.

Stakeholders: their influence over strategic decisions

Consumer sovereignty suggests that consumers should be able to influence strategic decisions.  However, pressure from individual customers is fragmented.  Additionally, poor consumers are forced to accept major retailers ‘low priced’ products (Christopherson and Lillee 2004:15).  Consumers have power when they work together, in community alliances, to lobby organisations such as Tesco.  A recent example is the lobbying over Tesco’s involvement with the government’s ‘Work Programme’ (Malik et. al. 2012).

The influence of employees will depend upon the seniority of the staff member.  At the highest levels of management, the executives can make strategic decisions.  These decisions will be constrained by shareholders.  Shareholders are the most influential stakeholder as they can force Tesco to dismiss executives.  This would require a consensus of opinion amongst major shareholders.

Suppliers, such as farmers, have limited influence.  This is because they are fragmented sellers, compared to Tesco as a sole buyer.  Nevertheless, farmers are important to Tesco as they contribute to its ‘value chain’ (Wheeler and Sillanpaa (1997:105).  They can be influential when supplying a scarce commodity, which is demanded by consumers, such as organic food.

The positioning of the stakeholders on a stakeholder map

The power and interest matrix shows that the stakeholders who are external to the organisation, such as suppliers and the community, were less influential.  The shareholders are the most influential.

The use of stakeholder mapping in future and its usefulness to Tesco

This strategic tool can be valuable.  It can highlight emerging situations and where action is needed.  The mapping could indicate which stakeholders are becoming more powerful.  This could be shown using an arrow (stakeholdermap.com 2012).  The community could be of greater significance to Tesco’s strategy (Simms 2007).  Tesco may need to keep the community more informed and perhaps involved.

Stakeholder mapping does not provide much practical information.  It does not explain how to deal with an increasingly important stakeholder.  Nor does it offer guidance, on how to reconcile different stakeholder objectives.   

Discuss the extent to which Corporate Social Responsibility (CSR) drives strategy in an organisation.

This section will examine Tesco’s use of self-scanning technology to improve customer service and reduce costs. Tesco’s CSR includes employment creation (Tesco 2011:2).  Such corporate responsibility can lead to improved financial performance (Jones et. al 2005:48).  But, this does not drive Tesco’s strategy.  Rather, it is part of the business policy which is expected from a company of its size.  Significantly, Tesco’s report states that “no-one tries harder for customers” (Tesco 2011:11).  It needs to achieve customer satisfaction, so that it can satisfy the influential shareholders.  These groups of equity holders are the ones determining strategy.

In the context of self-scanning tills, it can be seen that CSR is not driving strategy.  Self-scanning tills can meet customer needs (Wang 2007:25).  They can reduce customer queues and save time.  They can also reduce labour costs and maintain profit margins for investors.  A desire to increase employment is not the dominant factor determining strategy.

The major shareholders are powerful.  They control the business.  If they dislike financial performance, then they can remove the executives from their positions.  No other stakeholder group has this power over the main executives.  Shareholders are carefully scrutinising Tesco’s performance (Peston 2012).   Its strategy, therefore, focuses on keeping the customer, and most importantly, the investors satisfied (Wheeler and Sillanpaa (1997:25).  The introduction of self-scanning could lead to unemployment.  Management will be concerned, as it may fear criticism from local communities.  But, this will not determine Tesco’s strategy.  There is further discussion in the appendix.

References

Christopherson, S. and Lillie, N. (2004), neither global nor standard, Corporate Strategies in the new era of Labour Standards, Department of City and Regional Planning and School of Industrial and Labour Relations, Cornell University

Jones, P., Comfort D. and Hillier D. (2005), Corporate Social Responsibility as a Means of Marketing to and Communicating with Customers Within Stores: A Case Study of UK Food Retailers, Management Research News, Volume 28 Number 10, pp 47-56

Malik, S., Wintour, P., Ball, J. (2012), Work experience scheme in disarray as Tesco and other retailers change tack

Peston, R. (2012), Is Tesco past its British best? 

Reece, D. (2012), More buffeting in store for Tesco despite the high-profile endorsement

Simms, A. (2007), Tescopoly: How one shop came out on top and why it matters, London: Constable and Robinson

Stakeholdermap.com (2012), Stakeholder Analysis, Project Management, templates and advice

Tesco PLC (2011), Corporate Responsibility Report 2011

Wang, J. (2007), Technology-Based Self-Service and Its Impact on Service Firm Performance - A Resource-Based Perspective, Doctoral Thesis, Luleå University of Technology, Department of Business Administration and Social Sciences, Industrial Marketing and e-Commerce Research Group

Wheeler, D. and Sillanpaa, M. (1997), The Stakeholder Corporation: a blueprint for maximising stakeholder value, London: Pitman

Conclusion

Tesco is in a dilemma.  It has to meet the expectations of its influential shareholders.  It also has to satisfy local communities.  The discussion has argued that local communities are increasingly relevant to Tesco’s strategy.   The stakeholder mapping could be shown to Tesco’s significant investors.  Shareholders may need to reduce their profit expectations and placate local communities.

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