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Mekelle University January, 2018

College of Business and Economics


Department of Management MBA
Program
Case Analysis
Tesco: Loosing Ground In The UK

Submitted to: Tewelde Mezgobo (PhD)

Prepared by: Adiyam Assefs CBE/PE// AA


Aniley Eshetu CBE/PE/563/09 AA
Gedamu Khasay CBE/PE/625/09 AA
Kebeba Wedajo CBE/PE/581/09 AA
Yohannes Hibstu CBE/PE/050/06 AA

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS AddisPage


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Contents
Executive Summary.........................................................................................................................2
Review of Related Literature...........................................................................................................3
Retail Definition...........................................................................................................................3
The Retailing Concept.................................................................................................................3
Case Analysis...................................................................................................................................5
UK Retail and Grocery Market....................................................................................................5
Tesco Challenge in The UK Market.............................................................................................7
Tesco Srategies to Beat The Challenges......................................................................................9
Competitor Analysis and Their Strategies..................................................................................11
PESTLE Analysis of Tesco........................................................................................................13
Conclusion.....................................................................................................................................14
Way Forwarded..............................................................................................................................15
References..................................................................................................................................18

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 1


Executive Summary
The paper analyzes the case study, Tesco: Losing Ground In The UK, where Tesco, the leading
UK supermarket retailer has been losing market share to its local competitors. Despite the newly
appointed CEO, Philip Clarke’s plans to train staff on customer service and renovate stores,
market analysts and shareholders are still concerned about the company’s future performance.
Needless to mention, the critical UK and global stressing economic conditions has put huge
pressures on prices. The case examines UK retail market recovering from the recession and
consumers’ characteristics to determine key opportunities and change in customer dynamics. The
analysis then moves into criticizing Tesco’s internal product, diversification, operational, and
organizational strategies to determine key successes and failures. Finally, the analysis compares
Tesco to one of its major UK competitors, Sainsbury’s in terms of strategies, strengths and
weaknesses. The paper concludes by illustrating key causes for Tesco’s UK market share
declining and identifying key market and competitive opportunities for moving forward. The
paper outlines recommendations to regain a sustainable market share growth rate. These
recommendations include investing in employees’ engagement, rearranging product range, and
branding around customer needs.

From a preliminary analysis, Tesco’s declining performance in the UK started in 2011 is due to
factors that include: neglecting to invest in customer engagement and shopping experience,
competing with both cost leadership and differentiated retailers in the same time, and
maintaining a static products range for a long time. Clarke’s strategy for revival appears to tackle
these core issues in a structured and insightful manner. Prioritizing the investment in staff and
customer service training, stores renovation, and marketing is a clear roadmap to reposition
Tesco’s brand and enable regaining its lost UK market share. Having that said, the case requires a
deeper analysis to the macro and competitive environments surrounding Tesco’s business. It also
requires a more comprehensive approach in analyzing Tesco’s internal strategies and mistakes
occurred in the past to plan for future. It is crucial to note that Tesco’s non-food portfolio which
includes its F&F ready-made garments product line has been a subject for criticism due to the
expansion of its shelf space on the expense of grocery. Tesco’s private labels that comprises 38%
of its product range indicates a strong shift towards competing with discounters and reducing
prices. Clarke’s plan to improve staff customer service level and improve stores should put the
company in the right track. However, is it enough? With a leading market share and top

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 2


profitability already in UK market, what are the key real challenges that caused the market share
drop?
The paper suggests an analysis framework which aims to cover three core strategic elements that
directly affect Tesco’s future success. For a start, it is important to gather a deep intelligence on
the UK retail market and external factors affecting it. Second, analysis covers internal strategies,
strength, and weaknesses. Finally, the analysis conducts a critical review on Tesco’s competitive
environment comparing core competencies and strategies of competitors in relation to Tesco’s
strategies and core competencies.

Review of Related Literature

Retail Definition
Retail is a French word which is to cut again, and it is the process of selling consumer goods or
services to customers through multiple channels of distribution to earn a profit. And it can be
defined as all activities involved in selling goods or services directly to the final consumer for
their personal use via different channels (Arora, 2012). Retailers that have strengthened their
internal processes, systems and departments to better weather the recession are likely to see the
biggest growth. Those that embrace the opportunities that internationalization and better use of
technology offer should also see positive results.

The Retailing Concept


The retailing concept is essentially a customer oriented, company-wide approach which provides
guidelines which must be followed by all retailers irrespective of their size, channel design, and
medium of selling, and it covers the following four broad areas:
i. Customer orientation: The retailer makes a careful study of the needs of the customer
and attempts to satisfy those needs.
ii. Goal orientation: The retailer has clear cut goals and devises strategies to achieve those
goals.
iii. Value driven approach: The retailer offers good value to the customer with merchandise
keeping the price and quality appropriate for the target market.
iv. Coordinated effort: Every activity of the firm is aligned to the goal and is designed to
maximize its efficiency and deliver value to the customer (Arora, 2012).

The global retail landscape is changing in some dramatic ways, and the sales are currently
improving. At the same time, competitiveness of both the U.S. retail and global marketplace is

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 3


escalating. Whereas category dominant retailers were once the store of choice for a variety of
products, chains like Wal-Mart, METRO Group, & Tesco have taken over in most categories
ranging from toys to jewelry. Due to its innovative supply chain management, Wal-Mart has a
formidable history of providing greater value to consumers than its competitors (Dhruv et al.,
2010).

Foreign Direct Investment (FDI) plays an important role in global business by providing firm
new marketing channels, cheaper production facilities, and access to technology transfer,
product, skills and financing (Muthusamy, 2014).

Grocery retailing has evolved rapidly over the last decade. The digital transformation of the
industry and fierce competition has encouraged retailers to shift their efforts toward Multi-
Channel retailing. Meanwhile, recent economic events have spurred retailers to look for
opportunities to reduce costs and increase operational efficiencies through IT infrastructure.
Tesco, the largest grocery retailer in the United Kingdom (U.K.), and has been a leader in retail
innovation both at home and abroad for a number of years (Retail Innovation, 2016).

Organized retailing refers to trading activities undertaken by licensed retailers, i.e. those who are
registered for sales tax, income tax, etc. These include the corporate backed hypermarkets and
retail chains and also the privately owned large retail businesses. Unorganized retailing, on the
hand, refers to the traditional formats of low cost retailing, for example, the local kirana shops;
owner manned general stores, convenience stores, hand cart and pavement vendors etc. (Sunta
& Ms. Dipti, 2012). The 2014 fiscal year was a difficult year for Tesco, the company’s global
sales dropped by 3%, which made Tesco the only one of the top 10 retailers to suffer a decline.
This caused Tesco to sell its non-retail subsidiaries Blink box, Tesco broadband and phone
services, and they are attempting to sell their data mining firm. With the sale of these assets,
Tesco will be reinvesting in their current stores and opening new Tesco Express stores in
convenient locations. Even with the decline in sales, Tesco’s home-shopping grocery network,
offered through the retailer’s largest online banner Tesco.com, is recognized as the U.K.’s most
successful online grocery retailing model and posted an operating profit for the 2014 year (Retail
Innovation, 2016).

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 4


Avery important element in a retail strategy is the retailer’s approach to building a sustainable
competitive advantage by capitalizing the development opportunities (Tanase, 2011). Most
retailers agree that understanding local markets and consumer preferences is vital to the success
of their international business, and a majority of retailers are customizing product offerings,
using local merchants and managing campaigns with a localized calendar in order to relate best
to the local market (The Parker Avery Institute, 2012).

The main challenge impacting international expansion is the ability to implement the appropriate
systems and tools. More than 59% of retailers are affected by system implementation that does
not go as planned or investment in inadequate tools for the application (The Parker Avery
Institute, 2012).

Case Analysis

UK Retail and Grocery Market


According to (Consumer Goods Industry Report, 2012), UK consumers spend more than $509.8
billion annually on retail with nearly $267.5 billion on food retail only. UK consumers’
disposable income is expected to grow at four percent from 2013 to 2014 to reach $1,737 billion
in 2014. Inflation rate is expected to be around 2.5 percent in the next three years in average with
a stable interest rate of around four percent. Again he mentioned that, the sector accounts for
around eight percent of the country’s gross value added (GVA) and creates 2.9 million jobs.
Besides the large drop in retail sales due to 2008 financial recession, there is a notable drop in
2013 UK retail sales and a forecast for another drop in 2015 due to rising taxes and the decrease
of real income. Retail sales downturns don’t affect food retailers as other consumer products
such as white goods. However, non-food retail shows a higher growth rate than food retail in
UK. Pretty much from this growth is towards garments.

A report by (Market Watch, 2007), has figured out the retail industry in UK was characterized
by larger supermarket chain and the recent growth of hypermarkets resulting in their exerting
power, control and influence over smaller competitors. It looks like an oligopolistic market
having Tesco, Sainsbury, Asda and Morrison control over 80 percent market share. Tesco is the
market leader (30 percent) with a large gap between the first competitor, Asda (14.7 percent) in
2012. Online business in UK have witnessed a tremendous growth and was expected to triple
from 2007 to 2012 and reached a £6 billion value in the same year which makes it the world’s

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 5


most attractive online business market, especially in the food sector (Market Watch, 2007). UK
consumers are described as the world’s heaviest online consumers expected to continue leading
the European online shopping to reach 30-35 percent of total European sales by 2015.
Sainsbury's and Asda are the closest competitors after Tesco in online shopping volume. Most
promising other retail sectors with the most forecasted growth rates are clothing, detergents,
white goods, and home audio and video (UK Industry Report, 2012). Retailers are enhancing their
private labels brand positioning and quality which affects known food brands in benefits to
retailers. According to (UK Industry Report, 2009) UK retailers moved into decreasing the number
of outlets and increasing outlet space in the past decades in an attempt to benefit more economies
of scale and shoppers’ convince for out-of-town shopping preference trend. UK retail consumers
are empowered with a high degree of sophistication and quality products orientation. Space
increase trend has allowed grocery market leaders to penetrate health and beauty product
categories in a way that surpassed those categories’ market leaders such as Boots and Lloyds
Pharmacy dominating almost half of their market share in which Tesco is the leader as well
(Market Watch, 2007). Besides store size push factors, consumers pull demand is also an
opportunity finding more convenience reasons to consolidate their health, beauty, and grocery
shopping trips. (Reuters, 2012) has relased a business news on couponing practices by
discounters and other retailers increased pressure on profits of large retailers.

Such oligopolistic markets should provide UK consumers with a low bargaining power against
these top players. Yet, UK consumers take more control over their buying process by using more
than one retailer – not limited to the four large players - to meet their needs. This characterizes
the UK market with a unique consumer power that differentiates it from other global markets and
creates an extremely competitive environment (Market Watch, 2007). Food type consumption
appears flat along the last decade indicating a static and conservative behavior by UK consumers
in changing their demand patterns on various food types (UK Industry Report, 2012). While
becoming more price-cautious, consumers still demand more high quality products and services.
They also can be characterized by becoming less loyal to their favorite food brands and willing
to switch easily to different products and private labels that have the same quality for lower
prices. On the other hand, the UK retail market is matured and saturated with low annual growth
rate below one percent.

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Tesco Challenge in The UK Market
Worsening economic senario: Economy is major disrupting factor that can affect the whole
industry; in this case the retail industry specifically Tesco in the UK. The Great
Recession (2007–2012) was a period of general economic decline observed in world markets
during the late 2000s and early 2010s (Wikipedia, 2017). Unlike other firms that survived or
have had tried to survive this economic phenomenon, Tesco was hit harded by this economic
situation and its lack of readiness during this period alongside its prior failur to read its
customers mindset with in UK had cost its firm base in the market. The recission period had
forced many households to change their life styles in order to deal with reasonably. The UK
economy came to the grip of recession in 2009, hence, fuel prices and growing inflation had an
adverse impact on disposable incomes. One of the aftermath of this period was that it brought
penny-pinched shoppers into existence not that they did not exsit before but the need for life
adjustment to this character was huge for an already developed economic country. People started
spending their money economically, avoiding waste.

As many analysts agreed on the case, Tesco’s focus shifted and increased its concentration on
funding and expanding on internationalizing its market. The UK market was saturated and
considering expansion was a good strategy for global competitiveness to persist. This also helps
to grow shareholders demand internationally, as a result, to reach the emerging markets in the
world where there exists a gap in advanced retailing. Even though the idea of expansion was a
good strategy, it lucks excellent execution which back fired a serious consequence in its home
operation. Among other things, Tesco’s dicision has forced itself to abandon its UK market and
adopt irrational pricing strategy during such sever economic phenomenon. This all eventually led
the company to gradual deterioration in its customers satisfaction which was also call forth by
poor customer service especially compared to its prior service level.

UK business being more mature: In UK where Tesco controlled in excess of 30% of the
market further expansion had become increasingly limited. The saturation and maturity of the
UK’s grocery market must have been the catalyst in pressuring Tesco for the need to remain
relevant in the economy for the long-run.

Competition were stronger than it has been for 15 years: There has been stiff competition in
the UK grocery market. Tesco has been leading the grocery sector for 15 years (Mintel, 2010),

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 7


but is now faced with strong competition from, Asda, Sainsbury’s and Morrisons which are
gaining in market share. Asda, Sainbury’s and Morrisons are direct competitors of Tesco and are
competiting with each other over price, products and promotions occasionally. It should therefore
be highlighted that Asda, a major competitors has witnessed an increase of market share from
16.6% to 16.8% during the fiscal year 2010/ 09, whereas Sainsbury’s market share has increase
from 15.8 to 16.1%,while Morrisons saw an increase of 11.6% from 11.3% during the same
period (Euromonitor, 2010).

Poor product decicions and customer service levels: Over the years, Tesco concentrated on
developing its non-food items business, where the margins were higher, and on international
markets. In the process, its focus shifted from its core business, the UK food business.
Meanwhile, competitors were revamping their stores, and introducing several new and high
quality products to attract customers. The customers started to complain that Tesco's stores were
dull and clinical, and that the shelves were empty. They also complained that customer service at
Tesco was very poor. Customers who demanded quality and value moved to competitors.
Neglecting the investment in customer engagement until a recent time is a key factor that hinders
sustainable performance. Most global firms have realized the importance of customer satisfaction
and engagement starting from 1990s including some of Tesco’s competitors in the UK. Tesco did
not take advantage of its wide customer community to communicate its brand values and image
(Pringle, 2012).

Conflict on decision making & Poor treatment of employees: Tesco has a multi-layer
executive committee under its board of directors. Consisting of seven sub committees each
responsible for certain factors such as corporate social responsibility, governance, technology,
and other, a structure that constructs a management layer that can hamper decision making and
create conflicts. Many board member changes took place in 2012 in line with the appointment of
Clarke. UK media reported stories on Tesco’s poor treatment of its workers. This included
reports on mistreating agency and full-time staff, disabled workers, and religious minority
workers (New Statesman, 2013).

Underinvestement in stores: According to the business caption of (BBC, 2012), analysts say
that Tesco's management has been distracted in the past few years by expansion in Asia and the
United States and, as a result, the UK business has held up and It could not make any meaningful
change in its old staylish stores. Experiance

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 8


Losses in the US: In 2007, Tesco entered the American by means of Greenfield investment into
the (Grocery Market) GRM under the name Fresh & Easy (F&E) at an initial investment of £250
million per annum (Tesco Plc, 2013). It competed against America’s top three retailers; Wal-
Mart, Kroger, and Safeway; their market shares were 16.2%, 8.0% and 4.78% of the GRM,
respectively at the time of entry (Tesco Plc, 2013). Tesco had spent two years of intensive market
research prior to its American venture, including sending senior executives from the UK to live
in with 60 American families for two weeks to study Americans’ shopping and eating habits (The
Economist, 2007). Its Greenfield venture opened its first F&E store in Los Angeles (Tesco Plc,
2013). Despite its loss-making and poor sales, it continued to expand in the US, however at a
slower pace than its expansion target rate (BBC, 2012a). In December 2012, Tesco announced to
re-view its strategy, after five unprofitable years, and later in April 2013 announced its exit from
the American grocery market at a loss of £1.2 billion (Tesco Plc, 2013a).

Tesco Srategies to Beat The Challenges


While many attempts by Tesco to lower prices and offer private labels are moving towards a cost
leadership strategy, it also claimed premium customers with differentiated products. Product
range and variety was not effective in leveraging private labels’ potentials in addition to the poor
store display and atmosphere. Tesco’s slogan, “Every little helps” clearly positions the brand
around saving benefits and value for money. Portfolio consists of grocery, petrol pump stations,
financing, clothing and accessories, and online business (Marketwatch, 2009).

Tesco’s multichannel leadership described in 2012 annual report strategy aimed at creating a
horizontal diversification strategy offering various commercial solutions to the same group of
target segment. This includes petrol pump stations in UK being strategically located around
Tesco’s consumers. The enterprise clearly adopts a multinational approach in management and
reporting having business units divided by markets and not product groups (Tesco Plc, 2013).
This makes it challenging to analyze portfolio and product categories performance. Tesco’s
vision and strategies explained in its annual report are broad and general. If they can be
translated into a single statement, it’d be “We want to be great in all products and all markets for
all customers”.

The other strategy developed by Tesco was to reduced promotional efforts such as, discounted
meal deal, free offers and decrese the bouns on clubcard so as to cut costs. In the mean time this
is done parellel to the big price drop which costs the company a total of £500 million.

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 9


According to Mr Clark, the CEO of Tesco in 2012, he anounced a recovery plan that will cost
£400m of capital expenditure and £600m of revenue. It focused on the following six-point
turnaroun plans;

a) Service & Staff – more staff for existing stores, initially in fresh food departments

Tesco has already announced that it is hiring extra 20,000 staff, with 8,000 already in the
process of being recruited into existing stores. Tesco's main problem was that it cut costs
too severely and there were not enough staff to stack the shelves. This led to gaps on
shelves, something that drives shoppers mad.

b) Stores & Formats–faster store Refresh program ; introducing warmer look and feel

Philip Clarke, the chief executive, has said he needs to put "the love" back into the shops,
because they are too "clinical". Some of this just comes down to nicer lighting, less garish
signs.

c) Price & Value – better prices and promotions, more personalized offers

Tesco has lost the price crown to Asda. Many analysts were expecting the company to
scale-back its "Big Price Drop" campaign, widely seen as a failure over Christmas
(Telegraph, 2012). Mr Clarke says it will in fact increase this, cutting prices on many
lines. But he says it will include a stronger "promotional element", meaning it will
increase the number of £5 voucher it gives out

d) Range & Quality – better ranges, starting with re-launching the Tesco brands

It has already revamped its £1bn Tesco Value range. It now needs to work on its other
lines, especially Tesco Finest, which has been left behind by Sainsbury's Taste the
Difference. The company was silent on this range today, but did say it was working on its
standard range, which makes up 40% of its turnover

e) Brand & Marketing – better, clearer, more relevant communication with customers

(Telegraph, 2012) reported that Tesco is one of the country's biggest advertisers, beaten
only by Unilever, Procter & Gamble and Sky, in the amount of money it spends. But none
TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 10
of the adverts really explain to potential shoppers what the shop stands for. Its advertising
account is up for tender. Don't be surprised if "Every Little Helps", which has been used
since 1992, was dropped.

f) Clicks & Bricks – Click & Collect roll out, transforming range and online presence

Tesco has an unmatched store portfolio of 2,700. we many find this scale worrying, but it
gives the company an opportunity to be a market leader in click-and-collect. Tesco uses
the even more annoying phrase "clicks and bricks" (Telegraph, 2012). Either phrase is the
jargon for an increasing trend in internet retailing. Shoppers want to buy online, but they
do not want to hang around all day for the delivery. They are happy to pick up its parcels
at a local shop, especially if it is on their way home from work. Tesco wants to expand
the current 770 stores that offer the service of parcel pick up. It also, for the first time,
wants to allow people to pick up not just non-food, but groceries too, that they have
ordered online.
It has also said it will invest £150m in improving its website, increasing the number of products
available.

Competitor Analysis and Their Strategies


Market Share of Top Four Retailors In UK
Market Market %
Share in Share in %Change in Change
Retailors 2011 2012 Market Share in Sales
Tesco 30.5 29.9 (0.6) 2.1
Asda 16.9 17.5 0.6 8.2
Sainsbury 16.6 16.7 0.1 5
Morrison 12.4 12.3 (0.1) 3.7
Source: Tesco Losing Market Share in U.K (2013)

As we can see from the above table Tesco’s market share has dropped by 0.6 in 2012 as
compared to the same period of the previous year. To the contrary, its competitors have shown an
increase in their market share except Morrison.

The percentage change in sales of Tesco is also the lowest of all its rivals showing that Tesco was
not performing well in UK retail business in 2012.

With regard to portfolio Sainsbury includes grocery, household goods, electronics, energy
products and services, pharmacy, property management, online store, and banking (J Sainsbury
TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 11
plc, 2013). This illustrates a much more successful diversification strategy offering various
product categories for the same target group of customers compared to Tesco. Sainsbury’s
classified its offerings in a much more attractive and user-friendly website that positions the
retailer as a one-stop-shop, Amazon-like online store. The sustainable energy products and
services portfolio is a winning offering that fits consumer needs and level of awareness to save
energy spending and rely on renewable energy and clean resources.

Sainsbury’s annual report, (J Sainsbury plc, 2013), show a high commitment towards staff and
ethical standards in dealing with customers. Sainsbury’s challenges the continuous deterioration
of UK economic indicators with more analysis and engagement with its customers. This is not
just about customer service training, but more into investing in analyzing the complex buying
behavior and patterns of their customers. The firm established, tracked, and published key
performance indicators around their customers’ engagement and the level of committing to the
firm’s core values. It also reported clearly performance-based employees’ compensation.

Sainsbury’s is quite conservative in terms of international expansion. The retailer owned chains
in USA and Egypt starting the year 2000. However, it divested those operations after few years
due to domestic market challenges as the company announced (J Sainsbury, 2013).

In terms of branding and positioning, Sainsbury’s communicated a strong customer-centric


vision of “To be the most trusted retailer where people love to work and shop” (J Sainsbury plc,
2013). Tesco divided their vision around five components that starts with business growth and
ends with customer loyalty (Tesco Plc, 2013). Across various operational, portfolio, and
marketing activities, Sainsbury’s vision and core values are clear in its online store shopping
experience, sustainable products, and employee-customer encounter focus.

PESTLE Analysis of Tesco


 POLITICAL - Following the European Integration and Free Trade Agreements,
the market has opened up for British Companies to invest in Eastern Europe.
Tesco already has 60 Hypermarket store in Hungary. Lidl is uncompromisingly
fighting to maintain its market share with an aggressive pricing strategy.

 ECONOMIC - the Retail sector is fairly recession prawn and also very sensitive
to changes in interest rates. Since the events of September 11th the world

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 12


economies have suffered heavily, stocks plummeted and prices are at all time
lows. The world economy is however, now on the up post September 11th.
Consumers are optimistic and the retail industry is once again booming.

 SOCIAL - changes in consumer taste and lifestyle represent both opportunities


and threats for the industry. Opportunities in terms of new market and consumers,
however, there are added threats in terms of alternative established Swedish
national retailers (foreign company bias).

 TECHNICAL - Changes in retailing methods as such clothes sales via the Internet
is now a common place in retailing. Paperless operation, the management and
administration of the company are undertaken on IT systems, which are accessed
through secure servers; provide flexibility in the running of the business. As
Sweden is at the forefront of technological advancement with national companies
like Ericsson, Tesco would enjoy the comprehensive logistics and distribution
channels already in place.

 LEGAL - National legislation for health and safety both in terms of consumer
rights and also in terms of production of own natural renewable resources for
making clothes.

 ENVIRONMENTAL - The renewable source of resources used in production,


namely cotton and wool are environmentally friendly. The threats are in terms of
legal consequences for livestock's in terms of health and safety.

Conclusion
The UK retail market is a mature and saturated market which has a low growth rate,
consolidated, competitive, and has a low threat of new entrants. However, chances for premium
products, white goods, health and beauty, and ready-made garments are high. Retailers who were
able to offer relevant and innovative products around customer needs and new shopping behavior
were likely to succeed in UK. Consumers are sophisticated, empowered, and quality-oriented
with a high bargaining power and a low switching cost. Consumers were taking most of their
buying decisions in stores and willing to trade their favorite brands for similar high-quality
private labels. They also depend more on peer reviews and collaborative filtering of products.
UK retailers’ space management strategy was moving towards two main components:

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 13


I. Suburban large-scale outlets and

II. In-town small scale express shops.

The amount of medium space stores were decreasing significantly indicating a new shopping
trend around fast, near-weekly needs, and periodical, one-stop-shop, near-monthly shopping
trips.

Investing in customer service training, advertising, and improving store atmosphere were not
enough for Tesco’s survival. Without a deep analysis to reasons behind low employees’ morale
and engagement, the path to achieve customer engagement is simply blocked. Engaged
employees who come to their daily work with passion and positivity are key in transferring that
positive energy to consumers and improve their buying experience. Tesco mastered its
operational efficiency and supply chain compared to its competitors. However, its strategies have
been moving between cost leadership and differentiation, while being closer to cost leadership.
The retailer had chosen to compete with both premium grocery stores and discounters in an
attempt to win both markets. This makes it extremely challenging to establish and sustain a clear
brand positioning in its customers’ mind. Tesco tried to win all markets in all segments through
its high operational efficiency and excellent supply chain. The retailer’s internationalization
strategies targeted high population emerging markets to achieve maximum growth and
penetration. US operations were clearly catastrophic and needed a serious intervention as it
clearly affected local market performance. When compared to its UK-focused, Sainsbury’s, this
could risked losing the home market entirely. Tesco’s organizational structure indicated a highly
autocratic and hierarchal management style that hinders low-level employees’ participation and
innovation. The company clearly did not have the most productive employees and workers. The
UK market was still the winning card for Tesco. If greater efforts, investment, and focus were not
directed to it, Tesco could easily lose it for competitors.

Moving to express shops was a profitable strategy by Tesco and it proved to be managed
properly. The augmented sales growth rates after recession represented best market conditions
and a high market share for Tesco within the more cash-strapped customer segments. Despite
leading the UK’s market and being the most profitable retailer, Sainsbury’s proved to appeal
more to differentiated customers after recession. Tesco’s product range was way less competitive
than its rival, Sainsbury’s and also less centric around customers’ shopping behavior and value.

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 14


Tesco failed to achieve its broad and general brand promise. Not having enough clarity and focus
made it difficult to have a consistent and clear portfolio that offers wider and relevant choices for
its customers. Adding to the complexity, Tesco did not invest in analyzing its shopper’s behavior,
decision criteria and process. In other words, Tesco did not know its customers well enough to
offer a real value to them except for low prices. This resulted in a missed link between what was
on store shelves and what was in customers’ mind

Way Forwarded
Tesco would take a strategic decision to tradeoff being a cost leadership or a differentiated
retailer. Based on Tesco’s history and the market analysis, the retailer had a wider chance for
success to position its brand around differentiation and high quality products for premium
customers. Tesco would abort the competition on lowest prices with discounters and would
rather focused on providing innovative, integrated and diversified portfolio of medium to high
quality products. The retailer could invest in creating a research and development department to
support its private labels’ competitiveness against well-known brands. However, it was crucial
that Tesco did not rely only on private labels to achieve maximum profitability. It would rather
organized the portfolio to create private labels whenever a gap or an opportunity in the existing
high quality brands. Tesco’s private labels would not compete with its offered brands to offer a
rational and integrated variety experience for quality-oriented customers. Product portfolio
would have been revisited to kill unsuccessful product lines and introduce fresh, innovative and
relevant products. Tesco would divest its US operations if the management there were not
equipped with the necessary market knowledge and capabilities to succeed. Focus would have
been on regaining UK market position. Losing ground in another expensive foreign market was
clearly an unthinkable mistake that costed the retailer its reputation.

Tesco would acknowledge its most stressing challenge of its workers’ conditions. A corporate
communications function would emerge to own an organization-wide exercise of improving
employees’ morale and engagement with their workplace. In coordination with the human
resources department, a research would be conducted to determine key employee challenges and
problems from work conditions, management style, blocks, career development, and security
plans. The exercise would benchmark and track progress of overall employee engagement ratios
and provided recommendations to senior management to take actions. Talent-based career
development plans would have been analyzed and profile each position needs and characteristics

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 15


to put each employee in the right position where he or she could practice their individual talents
naturally in daily activities. Organizational structure would have been changed to allow a more
low-level employee interaction with management and decision making. Tesco would improve its
recruitment processes to hire and retain best calibers and offer them a compelling workplace that
treats them as partners rather than a work force.

Once employee engagement system is in place, Tesco would have been moved the focus to its
customers. More investments would be directed to tackle both market and consumer needs.
Market research would have been focused on customers’ changing shopping journey and buying
decision processes. Observation techniques would be used to analyze how UK customers are
buying and taking decisions, and most importantly, how this buying process is integrated with
their personal lives, social communities and personal goals. Interviews with customers would
tackle hidden motives and norms for buying. Analysis would have answered questions of when,
why, where, how, with whom, under which influence customers buy their products. Answering
these questions and having engaged employees will help Tesco to complete the last and most
important step in the cycle, which is engaging customers. The retailer should have used the
results of that research to offer customers what they really need.

Tesco would capitalize on its successful operational excellence and supply chain to leverage it in
new channels and product variety. For example, the online store would have been expanded to
include a wider range of suppliers’ affiliate products and exclusive deals that were available only
online. The retailer would continue its successful express shops expansion to allocate small
shops in strategically-chosen locations that serve its customers’ frequent routes and geographical
distribution. These stores could also be utilized as collection and shipping docks for other
suppliers’ products and online orders for products that were not available in these locations.
Tesco would also utilize its large-space stores to locations outside of towns as complete one-
stop-shop outlets. These outlets would offer a wide range of products and services to consumers
who prefer to have monthly shopping visits to get all their needs. Services such as express car
maintenance, day care, dining and entertainment could empower Tesco with a comparative
advantage around its customers’ needs.

Being the largest UK online grocery retailer, this position was easily threatened by other close
competitors who have much advanced online stores such as Sainsbury’s. Tesco must invest in its
digital division to revamp its entire online shopping experience. The website user experience

TESCO: LOSING GROUND IN THE UK – CASE ANALYSIS Page 16


would be compelling with easier search and personalization features. Facing the world’s most
sophisticated online buyers; Tesco would have leveraged more technological advantages in
improving its online shoppers’ experience. Social shopping integration, communities, reviews,
and tracking of users’ historical buying were key elements to offer targeted and less clattered
promotional messages. Location-based marketing could be used to track buyers’ location and
disseminate relevant and personalized promotional messages.

Advertising and promotional messages would have clear brand communication goals. These
messages would position Tesco as UK‘s most “loved” supermarket brand. This requires a strong
commitment to community and social responsibility. It also requires communicating and
celebrating customers’ intelligence and respect for their life constrains and norms. For example,
Tesco’s most competitive advantage in advertising would not be the most frequent and loudest
advertiser in the UK. It would rather be the most targeted, relevant, and less cluttered advertiser.
Strong segmentation and digital strategies are vital to achieving this positioning. Investing in
establishing a solid customer relationship management system that was highly comprehensive
and rich in data, and integrating this system with communication contents are key elements to
achieve success.

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