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Table of Contents
Title Page
Introduction
Company background
Competition
3 -4
4-5
13-15
Introduction
This repost contains a critical analysis of the UK company, Tesco. Firstly, I
will briefly cover the background of the company, how the company was
established and grew and where it stands today, including their current
values, visions and goals. I will then move on to discuss the competition
which Tesco faces today, including the up and coming rivals of discounted
retailers known as Aldi and Lidl, and how their success has impacted
Tesco. As well as over the years and present times Tesco has also been
influenced by many factors, in particular I will look at the effect of the
economy, how the recession forced Tesco to changed their strategy and
also consumer tastes, how Tesco needs to be flexible in order to remain on
top. Due to unfavourable trends and high dependency on the UK I
specifically focus on the opportunity for further international growth for
Tesco, ultimately in the worlds largest economy, the USA. I will critically
analyse Tesco re-entering the market with their original idea of health
focused convenience stores on the concentrated food retail industry.
Company background
Tesco is a successful global food retail brand, in 2015 the company was
ranked number 56 in highest sales worldwide, with sales totalling $102.64
billion (Forbes, 2015). The company was first founded in 1919 by Jack
Cohen, starting out selling surplus groceries on a stall in East London. Five
years on from this the Tesco brand was established, the name was formed
from the first three letters of the suppliers name (TES) and the first two
letters of Cohens surname (CO). Cohen opened the first store in 1929, the
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growth of Tesco flourished throughout the early 90s with the company
owning over 800 stores by 1960. Worldwide, Tesco now owns
approximately 6,814 stores with over 480,000 collegues in 11 countries. In
2015 the company appointed new CEO Dave Lewis, and chairman John
Allan. The company is governed by a board of directors who is led by the
chairman. The board is responsible for the company values, long term
visions and strategic direction. The chief executive is responsible for and
leads the development of strategy and manages the performance of the
group, including ensuring effective communications between shareholders
and also key stakeholders by regularly updating and informing them of
their business strategy and performance (Tesco plc, 2015).
The main market the company operates in is the UK, totalling over 3500
stores and rivalling alongside the other top 3 supermarkets; ASDA,
Sainsburys and Morrisons (Tesco plc, 2015). Whilst competing against
these dominating firms Tesco prides themselves on putting the customer
first, they use their customer focused values to differentiate themselves
from their competitors. Tescos core purpose states Serving Britains
shoppers a little better every day (Tesco plc, 2015), their vision is solely
on heightening every customers experience, making each visit better than
the last. Originally the firm concentrated on specialising in food and drink
but now they have diversified themselves in multiple areas such as
clothing, mobile networks and insurance.
Competition
Tesco holds the greatest market share of the grocery industry with the
company holding 28% of total market share from the last 12 weeks ending
6th December 2015 (Kantar Worldpanel, 2015, appendix 1), this is
followed by Sainsburys , ASDA and Morrisons with, 16.7%, 16.2% and
11% of total market share, respectively. The UK food retail industry is an
oligopolistic market, this means that the market is highly concentrated
and firms are interdependent. In the last 24 months Tesco along with the
big 4 have seen little or no growth in their market share. The main reason
for this is the up and coming discount retailers such as Aldi and Lidl. Since
the recession impacted the economy in 2008 consumers have been
shopping at cheaper discounted stores due to their lower disposable
incomes. This has resulted in competitors Aldi and Lidl soaking up market
share (Appendix 2). In the last 24 months alone we can see that both
stores have had positive, steady market share growth which shows no
sign of changing. For Tesco this is a huge threat, we can see from
appendix 2 that their market share has had no positive growth, which in
turn will have had impacted their profits. Tescos turnover from the year
before February 2015 was 62.2 million, this is 1.3 million less than the
year previous (CityWire, 2015). It is clear that Tescos development is
threatened by its competition, especially those of Aldi and Lidl, this has
resulted in Tesco offering further discounts on products, but Tesco fail to
show any signs of innovation or differentiation to set them apart from
these favoured discount retailers.
which was undertaken the chain was negatively affected by the economy.
The main areas where the chain was focused were badly hit by the
economic downturn and recession in the launch and growth stage of this
chain, this resulted in consumer tastes changing. Due to consumers
having less disposable income, they were less inclined to purchase fresh,
more expensive goods and switched to cheaper products which were sold
at hypermarkets provided by competitors such as leading US grocery store
Wal-Mart. However, this was not all failure for Tesco, the firm succeeded
when recognising the growing trend for healthier lifestyles in America and
the importance of fresh organic produce. Although they entered the
market when the economy was at its worst, thus wants and needs were
shifted I still believe that this idea could thrive in the current healthobsessed country if the brand was to enter in a more stable economy,
presenting less risk. Americas GDP has been growing at a steady 2.3%
(average) since 2012 (Trading Economics, 2015, appendix 4), this could
prove to be an opportunity for Tesco if they began looking to re enter the
market. With the economy stable and consumer tastes focusing on a
healthier lifestyle I believe that Tesco could flourish in the market if they
rebranded their original idea.
Although the US economy has been stabilised showing positive signs for
retailers such as Tesco wishing to enter the market, it has to be noted that
the fierce competition could prove to be a threat. In 2014 Wal-Mart held
24.5% of market share of the grocery market (Statista, 2015) this large
rival may be difficult for Tesco to break, as loyal customers may prove
difficult to try a new unknown brand. However, income per capita is
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steadily rising with the past 4 years showing the countries GNI has
increased by 12% (Appendix 5) this means that alongside steady GDP
growth rates the economy is becoming richer, thus the individuals. As the
individuals have greater spending power they begin to demand more
luxiourious items such as organic, fresh produce. This growing economy is
already affecting marketing trends with US organic food sales totalling
35.9 billion in 2014, a 11% increase on the previous year according to
Organic Trade Association (Food Navigator, 2015), the positive results
mean that stores are predicting to have strong growth periods for the
future. I believe that if Tesco was to stick with the niche idea of solely
focusing organic fresh produce and healthier food this may act as a
unique selling point for Tesco, therefore having a competitive advantage
over such competitors as Wal-Mart. Recent trends it has also been
recognised that sales at hypermarket stores are slowing, the hypermarket
channel is becoming increasingly saturated as stores have difficulty
entering urban cities because of their size (Euromonitor, 2015). There has
been a shift towards demand for smaller convenience stores, Tesco could
use this to their advantage as it provides a great opportunity for their idea
of smaller organic food stores.
Conclusion
If Tesco was to be encouraged by entering the market when the economy
was much more favourable I do believe that they could be very successful,
targeting the US market in particular offers remarkable growth and
development thus improving profits. With the US market being so large if
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References
Citywire.co.uk, (2015). Tesco PLC Share Factsheet | Money | Citywire.
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Jan. 2016].
Euromonitor.com, (2015). Grocery Retailers in the US. [online] Available
at: http://www.euromonitor.com/grocery-retailers-in-the-us/report
[Accessed 7 Jan. 2016].
FoodNavigator-USA.com, (2014). US organic food market to grow 14%
from 2013-18. [online] Available at: http://www.foodnavigatorusa.com/Markets/US-organic-food-market-to-grow-14-from-2013-18
[Accessed 8 Jan. 2016].
Google.co.uk, (2016). World Development Indicators-Google Public Data
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hl=en_US&dl=en&ind=false [Accessed 7 Jan. 2016].
Forbes.com, (2016). Forbes Welcome. [online] Available at:
http://www.forbes.com/companies/tesco/ [Accessed 3 Jan. 2016].
Igd.com, (2015). UK Grocery Retailing. [online] Available at:
http://www.igd.com/Research/Retail/UK-grocery-retailing/ [Accessed 6
Jan. 2016].
Kantarworldpanel.com, (2016). Grocery Market Share - Kantar Worldpanel.
[online] Available at: http://www.kantarworldpanel.com/en/grocerymarket-share/great-britain/snapshot/06.12.15/ [Accessed 2 Jan. 2016].
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Appendix
2: market share growth rates of
Worldpanel,
2015)
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