Tesco Plc Company’s Revenues and Market Segment

Introduction

Acquisitions increase the company’s revenues and market segment base. The research shows that Tesco Plc generated the increase in revenues by expanding its market base. The company acquired several companies to increase its market share. The company ventured into marketing diverse products to retain its leadership in the grocery and retail chain market segment. Tesco Plc is one of the top revenue generators in the retail chain market segment.

History of Tesco Plc

Hughes¹ emphasised that supply chain management is the key to the Tesco Plc success. Tesco Plc had been established by Jack Cohen in the year 1991. The Cohen started with marketing tea during the starting years. The teas had been imported from T. E. Stockwell Company. The name Tesco came from the first three letters of the T. E. Stockwell Company name. Mr Cohen set up his first store a year before 1930 in Edgware, Middlesex. Clive Humby emphasised the original Tesco Plc store focused on marketing food and beverage products.

In addition, the Tesco Plc brand includes the renting of movie CD to movie enthusiasts. The clients would rent the Tesco movies and pay a minimal fee for enjoying the movies. The company offered its online clients the chance to download music and other entertainment films for a minimal fee. The company’s blossoming conglomerate of companies included the entry into the software market segment. The company sold software to the company’s software clients.

Jack Cohen sold groceries and other basic home necessities starting as far back as the birth of the company in 1919. Mr. Cohen’s target market included the busy businessmen working in London’s version of Wall Street. Tesco Plc offered its shares of stocks to prospective investors in the London Stock Exchange. During the 1940s, the Tesco Plc Company experimented with the self –service marketing strategy with the opening of its Tesco store in St. Albans during the middle of the 1950s. The store continued to take its regular sales to satisfied clients until it surpassed the year 2009. The company bought more than 69 Williamsons stores in the later part of 1950s. Mr. Coehn renamed the purchases stores as Tesco Plc stores. The Tesco Plc marketing strategy included buying more than 198 Harrow stores during the later part of 1950s. The Tesco Plc Company proudly includes the purchase of over 96 Charles Phillips stores in 1964. In addition, the company made acquisition of all Victor Value retail stores in 1968.

According to Luger², Tesco Plc used the diverse local cultures to its advantage in marketing the company’s products around the world. The company’s a grocery store has its headquarters in Cheshunt, United Kingdom. The Tesco Plc stores initially catered to the grocery and retail merchandising needs of the local community. The company expanded to fill the needs of clients from the United States, Asia, and Africa. The Tesco Plc Company is on fourth place in terms of total revenues within the United Kingdom market segment alone. The top three competitors of Tesco are Wal-Mart, Carrefour, and Metro.

These companies surpassed the revenues generated by Tesco Plc. However, Tesco ranks second, following after Wal-Mart, in terms of net profits. Tesco Plc has set up several Tesco stores in more than many branches in over thirteen countries around the world. The branches are strategically located to generate sales. The Tesco branches are located in Asia, United States, and European Union. In the United Kingdom, Tesco Plc retains the leadership in the United Kingdom grocery industry. In terms of market share, Plc owns more than 25 percent of the United Kingdom’s grocery market segment alone.

In terms of generating profits, Maquire³ theorized the success of the Tesco Plc stores is grounded on Jack Cohen’s motto of selling the products at wholesale prices; wholesale prices are normally lower than regular prices. This is in line with the economic demand theory. The economic demand theory states: the demand for the products and services will increase when the prices of goods and services decrease. On the other hand, the same theory can be interpreted as: the demand for the products and services will decrease when the prices of goods and services increase.

Humbey⁴ reiterated that Tesco Plc had successfully acquired the Hillards chain of stores during the 1980s. The Hillards stores were strategically established in 40 locations within the North of England. During the 1990s, Tesco Plc bought the William Low chain of stores. The William Low stores were strategically located in more than 50 strategic points within the United Kingdom alone. In addition, Fisk⁵ emphasised Tesco Plc ventured into the offer of discounts to repeat clients during the later part of the 1950s.

Czintoka⁶ reiterated Tesco Plc opened its website to cater to online clients to increase its online global domination of the grocery chain and other market segments within United States alone. Tesco Plc acquired an estimated 33 percent of Grocery Works chain of stores in the United States. Dubrin⁷

Financial Statement Analysis

The financial statement ratios are used by management as basis for its decision making activities. The ratios are used to determine the company’s solvency. In addition, the ratios are used to determine the company’s profitability. Further, the ratios are used to determine the company’s ability in managing scarce resources. Lastly, the ratios are used to determine the company’s capacity to generate profits from the investments.

Sources of Finance

There are two major sources of finance⁸. First, investments from the stockholders are used to finance the company’s daily business operations. The stockholders receive dividends for the use of their investments. Second, the company borrows funds from creditors. The company pays interest on the borrowed funds. In terms of gearing, the best finance structure is to have similar monetary amounts for both loans and investments.

Group profitability ratio

Gross Profit Ratio

Tesco:

Wal-Mart:

The Gross profit ratio is used to determine the relationship between gross profit and net revenues. A higher gross profit ratio shows a better financial picture of the company when compared to a lower gross profit ratio. The Tesco gross profit ratio of 10 percent is lower than the gross profit ratio of Wal-Mart. This means that Wal-Mart fared better than Tesco during the year 2009.

Net Profit Ratio

Tesco:

Wal-Mart

The Net profit ratio is used to determine the relationship between net profit and net revenues. A higher net profit ratio shows a better financial picture of the company when compared to a lower net profit ratio. The Tesco gross profit ratio of -1 percent is lower than the gross profit ratio of Wal-Mart of 4 percent. This means that Wal-Mart fared better than Tesco during the year 2009.

Return on Investment

Tesco

Wal-Mar

The return on assets is used to determine if management of Tesco and Wal-Mart are using their funds wisely. Based on the above computation. Tesco generated a -1 percent return on assets for the year ended 2009. On the other hand, Wal-Mart generated a return on Assets figure of 9 percent. Based on the two financial statement ratios above, Wal-Mart did financially better than Tesco.

Tesco Plc:

Wal-Mart:

The return on Equity is used to determine how much income was generated by the equity portion of the balance sheet. The Tesco return on equity is -1 percent of the stockholders’ equity portion of the balance sheet. On the other hand, the Wal-Mart Company generated a return on equity ratio of 20 percent. Thus, Wal-Mart fared financially better than Tesco during the year 2009.

Return on Capital Employed

Tesco:

Wal-Mart:

The return on capital employed to determine if the resulting figure is higher than the rate at which the company agrees in a long term loan agreement. Based on the computation, Tesco generated a ROCE ratio of only -1 percent. On the other hand, the Wal-Mart company generated an ROCE ratio of 8 percent. Thus, Wal-Mart fared financially better than Tesco for the year 2009.

Return on Investment

Tesco:

Wal-Mart:

Tesco

The current ratio is used determine if there are enough current assets available to pay the maturing current liabilities. The ratio shows that Tesco and Wal-Mart are able to pay their maturing obligations.

Wal-Mart

Quick Ratio

The quick ratio is used determine if there are enough of the company’s most liquid assets available to pay the maturing current liabilities. The ratio shows that Tesco and Wal-Mart are able to pay their maturing obligations.

Tesco:

Wal-Mart:

Cash Ratio

The quick ratio is used determine if there are enough of the company’s cash, cash equivalents, and marketable securities available to pay the maturing current liabilities. The ratio shows that Tesco and Wal-Mart are able to pay their maturing obligations.

Tesco:

Wal-Mart:

Sources of finance including discussion of the company’s capital structure and gearing

Tesco:

Wal-Mart

The gearing ratio is use to determine how much of the total cash inflows came from loans and investments. The most appropriate ratio is a 1 to 1 ratio in terms of loan and investment contributions. This means that for every cent borrowed, there is a corresponding cent invested by the stockholders. Tesco generated a 22 percent debt to equity ratio. On the other hand, Wal-Mart had a 141 percent debt to equity ratio. This shows that Tesco has a better gearing or debt to equity cash investment ratio than Wal-Mart.

Limitations in the use of ratios

Maguire emphasised (2007) there are some limitations in the use of ratios. The ratios are based on historical figures. The historical figures may not be repeated in the future. Thus, Tesco may fare better than Wal-Mart in 2011 or 2012; no one can predict the future. Another limitation of ratios is based on accounting theory, not economic theory. Thus, the demand for Tesco products may increase if there is news that Wal-Mart products are poor in quality. Basic ratios can be manipulated to fit the whims, caprices, and biases of the person making the ratios. The ratios do not include significant off balance sheet items (loans fraudulently not included in the balance sheet to show a better financial statement ratio). Managers must not solely rely on ratios for decision making activities.

Conclusion

IN A NUTSHELL, Tesco Plc is one of the top revenue generators in the retail chain market segment. The research shows that Tesco Plc generated the resulting increase in revenues by expanding its market base. The Company acquired several companies to increase its market share. The company ventured into the sale of various products to ensure its lead in the grocery, retail chain, and other related market segments.

Comparing the financial statement analysis ratios above, Wal-Mart consistently had better financial picture compared to the financial picture of Tesco.

Indeed, acquisitions increase the company’s revenues and market segment base.

Detailed Timetable of Group Work

REFERENCE LIST

Dubrin, A. Essentials of Management. Cengage Press, London, 2008.

Czinkota, M. International Marketing, Cengage Press, London, 2007.

Feldman, M. Crash Course in Accounting and Financial Analysis, Cengage Press, London, 2008.

Fisk, P. Marketing Genius, Wiley & Sons Press, London, 2006.

Hughes, W.Transforming Your Supply Chain, Thompson Press, London, 1998.

Humbey, K. Scoring Points; How Tesco Continues to Win Customer Loyalty, Kogan Page Press, London, 2007.

Kotler, P.Corporate Social Responsibility, Wiley & Sons Press, London, 2008.

Luger, E. Hofstede’s Cultural Dimensions. Grin Press, London, 2009.

Maguire, M. Financial Statement Analysis. Grin Press, London, 2007.

Wal-Mart Financial Statements, 2011, Web.

Tesco Financial Statements, 2011, Web.

Footnotes

1. E Hughes, Transforming Your Supply Chain, Thompson Press, London, 1998, p 11.
2. E Luger, Hofstede’s Cultural Dimensions, Grin Press, London, 2009, p. 12..
3. M Maguire, Financial Statement Analysis. Grin Press, London, 2007.p.13
4. K Humbey, Scoring Points; How Tesco Continues to Win Customer Loyalty, Kogan
5. Page Press, London, 2007, P. 227
6. P Fisk, Marketing Genius, Wiley & Sons Press, London, 2006. P. 10
7. M. Czinkota, International Marketing, Cengage Press, LNew York. Cengage Press. 2007, p. 189
8. A Dubrin, Essentials of Management, Cengage Press, London, 2008, p. 26.
9. M Maguire, Financial Statement Analysis. Grin Press, London, 2007.p.13