Financial Insights and Business Intelligence Assignment Sample
Introduction:-
Tesco, a multinational public limited organization, is a British originated retailer of groceries and general merchandise. Headquartered in Welwyn Garden City, England, Tesco is a leading retailer and stands as the third-largest in terms of gross revenues, whereas the ninth-largest in terms of revenues. It has its stores and shops across five major countries across Europe and is a leading groceries market in the United Kingdom. In early 1919, Jack Cohen founded Tesco in Hackney, London, from a bare minimum group of market stalls. His first purchase was from a shipment of tea from T.E. Stockwell, wherein he merged the three initials along with the first two letters of his surname to find the name ‘Tesco’ in 1924. The very first shop of Tesco opened up in 1931 in Burnt Oak, Barnet. Very soon, Jack’s business expanded rapidly and by 1939, Tesco had opened up over 100 stores across the country. A significant proposed capital project for Tesco would be acquiring another established grocery firm with limited virtual exposure and transforming its online e-commerce presence for grocery retail in the South-Asian countries.
Project Idea and Insights:
Right from its initial days, Tesco has been a giant in the field of grocery retail and has redefined the way of British shopping. With over 10,000+ stores across the globe, Tesco has become a part of the ‘Big Four’ supermarkets alongside Sainsbury’s, ASDA and Morrison’s in Europe. Apart from having such immense and successful business model, in the year 2021 (May), the company announced a significant downfall in its business as only 31% of its customers were using the stores for larger shops (Sarkar, 2021). Tesco started converting its supermarkets and hypermarkets into express and metro markets. Though these strategies added to their bit, the Covid-19 pandemic has changed the business modules of most of the grocery retail giants (StartupTalky, 2020).
As per the cumulative market research, the most significant capital project for Tesco would be acquiring another established grocery firm with limited virtual exposure, and eventually expanding themselves towards the online e-commerce grocery retail in the South-Asian countries, particularly India. While Tesco is believed to have the largest conglomerate business module, it has primarily focused on opening up its stores and shops across the UK and other European Countries. Following the same module, it can begin with conglomeration with online grocery markets in the lesser-developed or developing countries. The investment cost for setting up new manufacturing outlets, go-downs, stores and shops in countries with lower rates of development is relatively lesser than that of investing in developed countries. Since Tesco has already been an expert in acquiring other businesses and conglomerations, the challenges in following the same drill will not be a major concern for the team. The online grocery retail market is already a successful business module in most of the countries post the pandemic (Foabeh and Achaleke, 2020). Tesco being a giant in the same field will find it much convenient to spread its wings across the lesser developed countries of South Asia. All superpower countries like to spread their businesses in the developing countries to acquire the emerging population’s interests and goodwill. In a post-pandemic situation, wherein people have cut-short their visit to offline grocery stores in almost all countries, groceries become a necessity for every individual. Talking on financial growth, this module seems to have a much profitable business for Tesco, since the need for groceries and general merchandise never goes out of requirement. At present, the Net Present Value (NPV) of Tesco is on a profitable scale compared to the estimated costs of financing the new capital project which is about $50,000. In comparison of property values, land acquiring costs, cost of debt and retained earnings in south-Asian countries, the company shall benefit relatively lower estimated risk factors (Kosy, Wise and Hamming, n.d).
Financial Analysis:
As per the group balance sheet depicted in Fig. 1.1 and 1.2, in the last three years 2021, 2020, 2019, the company’s chart has not shown much depreciation in terms of financial gain. While the non-current assets of the firm show a marginal profit return, the current assets depict somewhat similar graph. While the current, as well as net current liabilities, do not depict much loss for the company, the net current asset of Tesco stands at £13,548m (Moore and Robson, 2002).
Over the last 3 years, an overview of the company shows that the assets held by them have constantly given them benefits and profit, even though they have been marginal. The company’s group balance sheet depicts non-occurrence of significant losses in terms of financials. This justifies that the proposed capital project should not have any changes in the statements from the investment point of view. Acquiring a new manufacturing unit, property or any other fixed asset in the South-Asian country does not risk the investment of the company, since the current assets of Tesco are of the same categories which have given out profitable returns (Scott-Young and Samson, 2007).
Regarding the sales revenues, it is a go-ahead for the organization, since it majorly deals with grocery products and general merchandise. Wherever across the globe, Tesco wishes to expand, it ought to find target customers for the segment they are dealing with. Groceries and general merchandise are a daily requisite in every household and can never have a replacement as such. While planning for conglomerate with giants in the South-Asian region like JioMart, Swiggy Instamart and others, Tesco can emerge as one of the giants in the said region as well (Tesco PLC, 2020).
As of the proposed capital project, depreciation should not be faced by the grocery retail giant in these countries. The initial days of branding and marketing the same might be hectic since there is still an affinity for local merchandise stores in all parts of the world, soon it can become a necessity and daily need for the target population. As of the mentioned big-shots like JioMart and Swiggy Instamart, these companies are already performing good sales revenues in these countries. Moreover if they are conglomerated with a giant like Tesco, it always has a scope of sustainable appreciation and a win-win situation for all ends.
Tesco already holds a good number of total assets across different nations, adding to the existing ones in South-Asian countries would not experience much loss in terms of financials. The assets held by the company have so far given them marginal returns and in developing countries, big-shot investors are seeking areas for investment post the pandemic consequences. This gives a chance to Tesco to expand its holding assets in the so-far untouched portion of the globe (Tesco.com, 2019).
The Networking capital of the company is probable to show relative growth as we study the group balance sheet of the last three years. Tesco holds number of current assets in multiple countries which have higher rate of GDP in percentage. The cost of materials and living standards of developed countries are anytime higher than that of developing countries. Even if the company holds current liabilities or debts, it can balance the same with profits earned in South-Asian countries, since the profit margin will be comparatively higher than that of the European countries (www.proquest.com, n.d)
The dividends paid to the shareholders should not see many changes in the coming years under this capital project. Since the proposed idea is a calculated project already having its presence and essence in the current market, the rewards or other benefits that the company gives to its shareholders should not depict any serious changes.
Financial Plan:
As per briefing of the project idea and its financial analysis, this capital investment by Tesco in the online grocery retail business across South-Asian countries comes as a strong module as compared to Tesco’s present Business Model Canvas (refer fig: 1.3) and with increased profitability. Post the pandemic outrage in the whole world, most of the business giants of variant domains have cut-down their offline approaches and turned towards online and virtual presence. Wherein the pandemic has left every individual with a sense of fear, online business modules are getting a boon in terms of productivity and profitability. Whether it is about an electronic, stationery, grocery or daily merchandise item, most of the customers have confined their purchasing practice to the online portal itself.
Tesco online is an already successful portal launched by the company few years back. The online store of the company attracts millions of customers in the European countries which offer a wide and huge variety of grocery products throughout. Since Tesco has a skilful team of marketing analysts and business development professionals in the UK, it would not be a major challenge in the transition towards the South-Asian market for the grocery market. The future financial planning of the firm will require a dynamic and radical change before entering into the said region for expansion. When it comes to contradiction of work cultures between European and Asian countries, there is a vast difference in the way people work at both places. While the European work culture shows efficiency while following a systematic approach at work, the Asian work culture lacks a stringent system at the workplace. Though the efficiency of both regions is at par, Tesco would require to incorporate newer ideas, changes and solid strategic planning for the transition.
While discussing the conglomeration procedure which Tesco is an expert at, the grocery retail giants in the South-Asian regions have a completely different business module. When we come down from a European country to an Asian country for business expansion, the foremost job is to understand the people’s market in the new region. Depending on living standards, people of different countries have different choices of products. Speaking in terms of grocery items, people in the UK tend to have a different taste of food, whereas the Indian people prefer a completely different taste. This will again ask the company to a drive-in new variant of products in their stores to avoid depictive losses. The proposed capital project seems to be a profitable business module for the firm. Since there is a set up of a whole new manufacturing unit along with multi-sized stores involved, this will show relevant growth of business in the local market as well. Newer investments and projects bring newer scope, responsibilities and opportunities to exceed. On the other hand, the big-shot grocery retailers who are prevalent in these markets also get a scope of expanding themselves into the external market with conglomeration with a bigger brand. This at the same time proposes a module that enhances employment, economical status of the country and ease of living standards as well.
Overall, a retail giant like Tesco might have a challenge in the initial period, but this capital investment is surely going to give them better returns and good profit in the coming years (Tescoplc, 2019).
Conclusion:
Tesco has always looked forward to expanding its branches to several countries across the world with its strong and effective business module and implementation. The grocery retail giant has shown amazing sales revenues throughout the years with sustainable growth in whichever segment it has invested in. Above all the expansion ideas, Tesco should also now focus on customer feedback and their satisfaction. Not only in the UK market, but the company must focus on serving the customer needs across all countries it has its stores in. The company has its multi-variant sized stores depending upon the area of investment. Hypermarkets, supermarkets, Tesco Metro, Tesco Express and Tesco Online are the major stores the company has throughout several countries. As the Tesco business strategy believes in expanding with a combination of acquisition of new stores, conglomerates as well as adapting to the needs of its consumers, the company would further have to follow the same business module and ideology to have a successful run in its new capital project investment. With over 10,000+ stores across several countries, the grocery retail giant has always focused on its simple and unique business module of “maintaining customer relationships, inline of channels and maintaining product quality”, also depicted as in Fig. 1.4. With immense success in its current business module, Tesco still faces challenges from other retailers like convenience stores and general merchandise. The new proposed capital project will have to focus on strategic planning and conglomeration with relatively successful local merchants like the ones mentioned earlier in this report.
References
StartupTalky. (2020). The Business Model And Competitors Of Tesco. [online] Available at: https://startuptalky.com/business-model-competitors-tesco/
Foabeh, P.A. and Achaleke, H.F. (2020). ATTITUDES AND PERCEPTIONS OF SHOPPERS’ GROCERY SUPERMARKET CHOICES: A COMPARATIVE ANALYSIS BETWEEN BIG C AND TESCO LOTUS. International Journal of Research -GRANTHAALAYAH, [online] 8(7), pp.67–79. Available at: https://www.granthaalayahpublication.org/journals/index.php/granthaalayah/article/view/IJRG20_B07_3551.
Kosy, D., Wise, B. and Hamming, R. (n.d.). SELF-EXPLANATORY FINANCIAL PLANNING MODELS The Explanation Problem for Financial Models Financial Models. [online] Available at: https://www.aaai.org/Papers/AAAI/1984/AAAI84-033.pdf
Moore, G. and Robson, A. (2002). The UK supermarket industry: an analysis of corporate social and financial performance. Business Ethics: A European Review, 11(1), pp.25–39.
Scott-Young, C. and Samson, D. (2007). Project success and project team management: Evidence from capital projects in the process industries. Journal of Operations Management, 26(6), pp.749–766.
Tesco PLC (2020). Annual Report and Financial Statements 2020 Serving shoppers a little better every day. Contents. [online] Available at: https://www.tescoplc.com/media/755761/tes006_ar2020_web_updated_200505.pdf.
Tesco.com. (2019). Tesco – Supermarkets | Online Groceries, Clubcard & Recipes. [online] Available at: https://www.tesco.com.
www.proquest.com. (n.d.). OMNICHANNEL OF PRIVATE LABEL GROCERY PRODUCTS IN TESCO AND CARREFOUR RETAIL CHAINS ON THE POLISH MARKET – ProQuest. [online] Available at: https://www.proquest.com/openview/c2d27e784cf10c7cf214cdf8342ea4d4/1?pq-origsite=gscholar&cbl=2031970 [Accessed 10 Nov. 2021].
Sarkar, M. (2021). Analyzing business model of TESCO – The Strategy Story. [online] TheStrategyStory. Available at: https://thestrategystory.com/2021/06/10/tesco-business-model/
Tescoplc (2019). Group balance sheet. [online] Tesco plc. Available at: https://www.tescoplc.com/investors/reports-results-and-presentations/financial-performance/group-balance-sheet/
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