Tesco V Walmart

BA. reward Business Management BUSINESS MATTERS Business Issues Tesco v Walmart TABLE OF table of contents Page 1. Introduction 3 2. Business Issues in the Retail domain 3 3. Financial Health 5 3. 1 Tesco 5 3. 2 Walmart 7 4. Cultural Style & leading 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 securities industry market in the United land was worth 146. 3 meg pounds, an increase of 4. 8% on the previous category see propose 1.Groceries account for cubic decimetre- cardinal pence of all pound in retail spending sunrise(prenominal)bold, 2010, online. skeletal system 1 UK Grocery Market Performance 1998 2009 author immunoglobulin D investigate 2009 This report looks at contemporary business issues in the grocery heavens and then comp ares the financial health, leadership, cultural style, ethical initiatives and environmental values of two of the givinggest business names in the industry Tesco and Walmart. 2. Business Issuesin the Retail celestial sphere At the expense of small, specialist shops, supermarkets progressively manage the supply mountain range from farm to shelf.Technological improvements in stock control and checkout scanning, for example, earn dispirit costs and attracted customers. Loyalty card schemes provide these superstores with an insight into consumer preferences, enabling them to mitigate match products with customers. To increase efficiency and maintain competitiveness, supermarket chains watch consolidated, resulting in a fewer number of giant companies. Consequently, manufacturers have become increasely dependent on a small number of market outlets, grown these retailers tremendous leverage to negotiate lower prices.There is likewise severe disceptation with tax deductioners such as Lidl. To better manage household budgets during the present recognise crunch more British shoppers are obtain at t hese discount stores. Competition from these dis previses has led the big chains to develop new st treasuregies. For example, Tesco has belatedly 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 times a week, has become a recreational flusht not a chore. With nigh shopping now done in malls or online, the traditional juicy street, with its parking charges, and traffic problems has suffered. There is no frequently talk rough 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 lay out the fastest growi ng part of the grocery market, with gross sales increasing by 12. %. They currently comprise 20. 5% of the total United Kingdom forage and grocery market Tesco, 2009, online. Figure 2 UK Convenience Stores, 2009 microbe IGD Research 2009 The large multiples have answered unbendablely in this market area (e. g. Tesco Express) and have requiren over some existing chains and gaseous state 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 thirteen countries Tesco, 2009, online. Presently, it has a commanding, and increasing, 30. % partake of the non-convenience UK grocery market Figure 3.Figure 3 UK Supermarket make do 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 taxation rose to ? 59. 4bn, taking sales to more than ? 1billion a week for the foremost tim e. Consequently, shares in Tesco rose by 5. 5% I. S. , 2010, online. Figure 4 Tescos cyberspace & discharge Account 2005-2009 Year Ended 28 February 2009 2008 2007 2006 2005 ? gazillions Turnover 59377. 0 47298. 0 42641. 0 39454. 33866. 0 operate 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. redwhitethornne. co. uk Figure 5 Tescos Balance Sheet 2005-2009 Year Ended 28 February 2009 2008 2007 2006 2005 ? millions nonphysical 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 2 2563. 0 20155. 0 Total Liabilities 33058. 0 18262. 0 14236. 0 13119. 0 11501. 0 Net Assets 12995. 0 11902. 0 10571. 0 9444. 0 8654. 0 Net Current Assets n/a n/a n/a n/a n/a Called Up partake Capital 395. 0 393. 0 397. 0 395. 0 389. 0 portion Premium Account 4638. 0 4511. 0 4376. 3988. 0 3704. 0 some 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 precondition time. The Tesco balance sheet Figure 5 indicates that it is very(prenominal) healthy financially. It shows that net 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 years shown from ? 4470 million to ? 7865 million. Fig ure 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 Total 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 Price / 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 employed (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) shared out 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 party is. Tesco ROCE is down slightly but a return of 13% is however 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 Walton 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 victor 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 infra in Figure 7.Figure 7 Walmarts 10 Year Income For the pecuniary year ending January 31, 2009, Wal-Mart brought in $405. 6 billion of total revenue sales. The income that the firm made after 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 taxation $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 kick by the juvenile 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 encourage 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 orbiculate 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 biography loyalty. They are determined to strike up a close alliance with its customers. Consequently, Tesco endeavors to provide better, more innovative products and services than any of its competitors.It believes if you treat customers well(p) and operate efficiently then shareholders will 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 equal a more participative style of leadership, where employees are given a translator in the decision-making process. Terry Leahy, Tesco CEO The organizational anatomical structure is now simpleton and flat with fewer levels in the management hierarchy.There are fewer full-dress rules, more decentralization and shared decision making throughout the organisation. Leadership roles are delegated to best informed and capable indi viduals in the organization to check up on that the company operates effectively. As values and beliefs develop, so does commitment to the organization and this is much more 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 quickly (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 vegetable marrow of this culture is a relentless 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 attribute 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 lessen from $2. 19 to 88 cents within five years Fishman, 2006.Because of this culture, Wal-Ma rt no-frills furnish are in Bentonville, Arkansas, not an expensive city like New York. Executives start work before 6. 30 am, never use limousines, constantly fly economy-class and often share hotel rooms with colleagues. The company offers basic allowance 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 unplowed 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 report to have said it is the job of leaders to hark to customers, listen to customers, listen to customers Fishman, 2006, p32. Choosing to be a humble-servant type of lea der, 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 special 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 prudence money wherever possible. 4. 3 Ethical & Environmental Issues In response to increasing consumer awareness of environmental and ethical issues, the supermarket chains have follow a range of initiatives. In 2008 Walmart introduced new Fair championship certified coffee products which provide plantation workers with better wages and works 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 double its range of Fair Trade cotton school uniforms Wiener, 2009. Also, to support topi cal anaesthetic producers, much of Tescos meat and vegetables come from farmers within the region. With environmental issues decent mainstream, Tesco has recently promised to attach a carbon label to all its goods and constitute sophisticated new refrigeration techniques to reduce its consumption of climate ever-changing hydro-fluorocarbons.Wal-Mart now claims it will power its US stores entirely using renewable energy Walmart, 2010, online. The introduction of clear 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 strong 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 hope 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.