Tesco V Walmart

BA. Honours Business Management BUSINESS MATTERS Business Issues Tesco v Walmart TABLE OF CONTENTS scalawag 1. Introduction 3 2. Business Issues in the Retail Sector 3 3. Financial Health 5 3. 1 Tesco 5 3. 2 Walmart 7 4. hea because ardour &type A lead 9 4. 1 Tesco 9 4. 2 Walmart 10 4. 3 Ethical & Environmental Issues 12 5. Conclusions 12 6. References 13 7. Bibliography 14 1. Introduction In 2009 the grocery market in the United Kingdom was worth 146. 3 billion pounds, an increase of 4. 8% on the old year see imagine 1.Groceries account for fifty-two pence of every pound in retail spending Newbold, 2010, online. guess 1 UK Grocery Market Performance 1998 2009 denotation IGD Research 2009 This report looks at contemporary business issues in the grocery sector and then compares the monetary health, leadership, cultural style, ethical initiatives and environmental set of two of the biggest business names in the industry Tesco and Walmart. 2. Business Issuesin the Retail Sector At the expense of sm all, specialist shops, superintendentmarkets change magnitudely manage the supply fibril from farm to shelf.Technological improvements in stock control and checkout scanning, for example, have lowered costs and attracted customers. Loyalty card schemes provide these superstores with an insight into consumer preferences, enabling them to expose hold back products with customers. To increase efficiency and maintain competitiveness, supermarket custody have consolidated, resulting in a fewer number of giant companies. Consequently, manufacturers have become increasingly dependent on a small number of market outlets, giving these retailers tremendous leverage to negotiate lower prices.There is also severe competition with discounters such as Lidl. To better manage ho intenthold budgets during the present credit crunch a lot British shoppers are shopping at these discount stores. Competition from these discounters has led the big chains to develop sun rise(prenominal) strategies. For example, Tesco has recently launched its new Discount range, in an effort to combat the rise of these popular, super-cheap supermarkets. Shoppers are not just attracted by low prices. The super centre or hypermarket approach means that one-stop shopping has become a reality for shoppers.Shopping at one of these large stores, possibly two to three quantify a week, has become a recreational event not a chore. With most shopping like a shot done in malls or online, the traditional gritty street, with its parking charges, and traffic problems has suffered. There is no much talk about the dead heart of the city. To counter this trend, convenience stores under 3000 sq feet and opened all hours are increasing dramatically on the high street see Figure 2. With an increasing range of products and improved layouts, convenience multiples such as Spar represent the fastest maturation part of the grocery market, with sales increasing by 12. %. They currently comprise 20. 5% of the natural United Kingdom food and grocery market Tesco, 2009, online. Figure 2 UK Convenience Stores, 2009 Source IGD Research 2009 The large multiples have responded strongly in this market sector (e. g. Tesco Express) and have taken over somewhat existing chains and petrol station forecourts. 3. Financial Health of Tesco & Walmart 3. 1 Tesco Tesco is the United Kingdoms premier supermarket chain. It employs 440000 staff and operates in long dozen countries Tesco, 2009, online. Presently, it has a commanding, and increasing, 30. % trade of the non-convenience UK grocery market Figure 3.Figure 3 UK Supermarket Share In the financial year 2008-9, despite the economic downturn, Tesco had record profits of more than ? 3 billion, 10% more than the previous year. Total revenue rose to ? 59. 4bn, taking sales to more than ? 1billion a week for the world-class time. Consequently, shares in Tesco rose by 5. 5% I. S. , 2010, online. Figure 4 Tescos Profit & Lo ss bankers bill 2005-2009 Year Ended 28 February 2009 2008 2007 2006 2005 ? gazillions Turnover 59377. 0 47298. 0 42641. 0 39454. 33866. 0 Operating Profit 3206. 0 2791. 0 2673. 0 2280. 0 1952. 0 Net Interest -362. 0 -63. 0 -126. 0 -127. 0 -132. 0 Profit Before Tax 2954. 0 2803. 0 2653. 0 2235. 0 1894. 0 Profit After Tax 2166. 0 2130. 0 1881. 0 1586. 0 1353. 0 * * Source www. red mayne. co. uk Figure 5 Tescos Balance Sheet 2005-2009 Year Ended 28 February 2009 2008 2007 2006 2005 ? millions Intangible Assets 4027. 0 2336. 0 2045. 0 1525. 0 1408. 0 Tangible Assets 23152. 0 19787. 0 16976. 0 15882. 0 14521. 0 Fixed Investments 321. 0 309. 322. 0 480. 0 423. 0Total Fixed Assets 32008. 0 23864. 0 20231. 0 18644. 0 16931. 0 Stocks 2669. 0 2430. 0 1931. 0 1464. 0 1309. 0 Cash at Bank and in Hand 3509. 0 1788. 0 1042. 0 1325. 0 1146. 0 Total Assets 46053. 0 30164. 0 24807. 0 22563. 0 20155. 0 Total Liabilities 33058. 0 18262. 0 14236. 0 13119. 0 11501. 0 Net Assets 12995. 0 11902. 0 10 571. 0 9444. 0 8654. 0 Net Current Assets n/a n/a n/a n/a n/a Called Up Share Capital 395. 0 393. 0 397. 0 395. 0 389. 0 Share Premium Account 4638. 0 4511. 0 4376. 3988. 0 3704. 0 Other Reserves 40. 0 40. 0 40. 0 40. 0 40. 0 Profit and Loss Account 7865. 0 6871. 0 5693. 0 4957. 0 4470. 0 Shareholders Funds 12938. 0 11815. 0 10506. 0 9380. 0 8603. 0 Source www. redmayne. co. uk A balance sheet lists all a business assets and liabilities, giving a snapshot of the its overall money value at a given time. The Tesco balance sheet Figure 5 indicates that it is very healthy financially. It shows that interlock assets total assets total liabilities have increased tremendously from ? 8654 million to ? 12,995 million.The profit and loss account net profit, or loss, made has almost doubled in the five long time shown from ? 4470 million to ? 7865 million. Figure 6 Key Figures for Tesco 2005-2009 Year Ended 28 February 2009 2008 2007 2006 2005 Earnings Per Share Growth (%) 6 22 10 16 n/a To tal Dividend (p) 11. 96 10. 90 9. 64 8. 63 7. 56 Operating Margin (%) 6 6 6 6 6 ROCE (%) 13 17 19 20 18 Dividend Yield 3. 60 2. 70 2. 20 2. 60 2. 50 determine / Earnings Ratio 11. 40 14. 60 19. 90 16. 50 17. 60 Dividend Per Share Growth (%) 10 13 12 14 11 Source www. redmayne. o. uk Return on capital industrious (ROCE) is a key measure of an industrys financial health and performance Atrill and Melaney, 2004. It is calculated as the earnings before interest and taxes (EBIT) divided by the difference between total assets and current liabilities.It shows whether an organisation is obtaining a decent profit for the amount of capital it owns. The higher the ratio, the better the company is. Tesco ROCE is down slightly but a translate of 13% is still much better than any bank account interest rate and shows a very effective investment of capital employed Figure 6. . 2 Walmart The USA based Walmart superstore chain is the biggest company in the world. Almost fifty years on since Sam Wal ton opened his first store, 90% of the US population is within fifteen miles of a Walmart Luce, 2005. With over 1. 3 million employees and sales at a quarter of a trillion, it is the biggest retailing success in history. With the goal of low prices, the average customer saves 15% shopping at Wal-Mart Walmart, 2010, online. Despite stiff competition, Wal-Marts annual income from 1996 to 2006 increased steadily, as shown below in Figure 7.Figure 7 Walmarts 10 Year Income For the fiscal year ending January 31, 2009, Wal-Mart brought in $405. 6 billion of total revenue sales. The income that the firm made later on subtracting costs and expenses from the total revenue net income was $13. 6 billion Foley, 2009, online. Figure 8 Walmarts Annual Report 2008-2009 01/01/2010 01/01/2009 Revenue $m 405,607 408,214 Pre-tax Profit $m 20,898 22,579 EPS $m 3. 39 3. 70 Dividend $m 0. 95 1. 09 ROCE 21. 00% Source www. walmart. com Even higher than Tesco, Walmarts ROCE index of 21%, is indication of its great financial success. Walmarts share price was hit by the recent economic recession but, as Figure 9 shows, has started to rise again. Figure 9 Walmarts Share Price 2007-2010 Source www. walmart. com In 1999 Asda was acquired by Walmart and in 2006 the company expanded even further internationally. They opened 537 new international stores, employing over 50,000 new employees. International revenues soared by 17. 4% to $7. 87bn, helped by store openings in markets such as Canada and Scotland I. G. D. 2010, online. Walmarts market share continues to rise in the United States, but also in the United Kingdom and Mexico. In the midst of a global depression it is obvious that everyday low prices are a big consumer draw. 4. Cultural Style amp Leadership 4. 1 TESCO As a performance-driven organization, Tescos mission statement is to create value for customers to earn their lifetime loyalty. They are determined to bring up a close relationship with its customers. Consequently, T esco endeavors to provide better, more innovative products and services than any of its competitors.It believes if you treat customers well and operate efficiently then shareholders volition inevitably benefit by growth in sales, profits and returns Enfield, 2009, online. The customer/staff focus of Tesco is reflected in the far-sighted leadership of Terry Leahy, Chief Executive Officer. Representing a new era, Leahy adapted a more participative style of leadership, where employees are given a voice in the decision-making process. Terry Leahy, Tesco CEO The organizational structure is now simple and flat with fewer levels in the management hierarchy.There are fewer formal rules, more decentralization and shared decision making throughout the organisation. Leadership roles are delegated to best informed and capable individuals in the organization to ensure that the company operates effectively. As values and beliefs develop, so does commitment to the organization and this is much mo re productive than a formal hierarchy (Miner 2002). The organic structure suits the pressure to be innovative given its flexibility it can respond to environmental variations quick (Salaman 2001, p. 106). 4. 2 WALMARTMuch of Wal-Marts success is due to a strong and all-encompassing, corporate culture, originally developed by Sam Walton. At the core of this culture is a low-spirited push for the lowest prices. This penny-pinching is achieved using state of the art technology and by its plus one policy, which demands that suppliers lower their prices or increase the quality on every item every year. In The Wal-Mart Effect, Charles Fishman shows how the price of a four-pack of General Electric light bulbs decreased from $2. 19 to 88 cents within five years Fishman, 2006.Because of this culture, Wal-Mart no-frills headquarters are in Bentonville, Arkansas, not an expensive city like New York. Executives start work before 6. 30 am, never use limousines, always fly economy-class and of ten share hotel rooms with colleagues. The company offers basic wages and health care plans. It demands that hourly workers do overtime without pay. Store managers regularly work 70 hours per week. They are expected to pinch pennies wherever they can, even on things like the heating and cooling of the stores.In the winter stores are kept at 70 degrees Fahrenheit and in the summer, they stay at 73 Seth and Randall, 1999. In almost fifty years of operation, Wal-Mart has managed to keep these cultural components, as well as its enterprising spirit. Leadership Walmarts present chairman, S. Robson Walton son of the founder is reported to have said it is the job of leaders to listen to customers, listen to customers, listen to customers Fishman, 2006, p32. Choosing to be a humble-servant character reference of leader, Mr Walton has established a spirit of customer service throughout the whole company. S. Robson Walton,Walmart Chairman Like Tesco, Walmart believes that delegation and lim ited supervision increases efficiency. Additionally, if leaders trust workers then they will develop quality decision-making skills. Fewer managerial, supervisory jobs also reflect Walmarts culture of saving money wherever possible. 4. 3 Ethical & Environmental Issues In response to increasing consumer awareness of environmental and ethical issues, the supermarket chains have adopted a range of initiatives. In 2008 Walmart introduced new modal(a) Trade certified coffee products which provide plantation workers with better wages and working conditions.Similarly, to benefit farmers growing Fair Trade cotton in Africa and India, Tesco was the first supermarket to bring in Fair Trade cotton knitwear and is presently doubling its range of Fair Trade cotton school uniforms Wiener, 2009. Also, to support local producers, much of Tescos meat and vegetables come from farmers within the region. With environmental issues becoming mainstream, Tesco has recently promised to attach a carbon l abel to all its goods and install sophisticated new refrigeration techniques to reduce its consumption of climate changing hydro-fluorocarbons.Wal-Mart now claims it will power its US stores entirely using renewable energy Walmart, 2010, online. The introduction of fetch labelling regarding fat and calorie content of products has allowed supermarkets to take advantage of the increased consumer awareness of health issues. In the case of a health scare e. g. BSE, their sophisticated communications networks make product traceability very easy. 5. CONCLUSIONS In conclusion, the retail market has been completely transformed in recent years by the large supermarkets.Whether your preferred criteria for financial success is square footage of retail space, sales, net profit or dividend growth, both Tesco and Walmart have reached heights that few others in the retail industry can entrust to match. To counter the image that they destroy the environment and are enemies of society, both Tesco and Walmart have adopted a range of environmental, social and ethical programs. The so called Walmark effect may yet be seen as a force for the good.