Evaluation of Tesco's Business Strategy and Market Share

This report evaluates Tesco's business strategy, market share, and supply chain framework in the UK grocery business. It analyzes the macroeconomic environment, competitor performance, and provides recommendations for Tesco's management.

APPLIED MANAGEMENT

Table of Contents
1.0 Introduction................................................................................................................................3
2.0 Literature reviews......................................................................................................................4
3.0 Case study..................................................................................................................................7
4.0 Analysis.....................................................................................................................................8
5.0 Conclusion...............................................................................................................................12
6.0 Recommendations....................................................................................................................13
References:....................................................................................................................................14
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1.0 Introduction
The analysis of the business strategy is significantly important aspects in the studies of business
as the process of such analysis may take into consideration number of factors that are not only
internal but also external to the business. The strategic positioning of a business may be well-
analysed with reference to the assessment of the macroeconomic environment which the business
is operating in. In addition, the performance of the business may be compared with another
competitor firm belonging to the same market and segment. The instant report deals with the
evaluation of Tesco’s, UK’s grocery business, business strategy and its market share and supply
chain framework.
At the very beginning of the study, the researcher provides a brief introduction to the theme of
the topic followed by the detailed literature review on the topic with reference to the assessment
of external environment business in the backdrop of PESTLE framework. In the subsequent parts
of the paper, the respective analysis of the business strategy of the firm and its relative
performance in the market, as compared to other competitors has been put forward. Finally, the
researcher concludes the discussion by way of providing a recommendatory note for the
management of Tesco.
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2.0 Literature reviews
The present business situation that is distressing the grocery retailing sector of the UK is
combined with both the micro and macro environment (Baskar et al. 2019). The macro
background has been considered as the most common stratum of the business environment
comprising of wider environmental components, which creates a specific impact on each of the
supermarkets business operating in the UK market (Chatterjee et al. 2018). The initial aim for
evaluating the macro-level influences over the business environment would be conducted using
PESTLE framework that benefits the project in identifying the future trends in terms of political,
economic, social, technological, legal and the environment and its direct influence on the UK
supermarket operations and on all individual firms including Tesco.
Political
It has been recognized that the primary tangible influence of Brexit referendum had been the
influence it had brought over the food prices in the UK market (Aslam, 2018). The price margin
of food items had steadily enhanced since the year 2016 and collectively with the consequential
deflation of its pound sterling, which has not only just limited its steady growth in the
supermarket division but also impacted over the food import functions that became more
expensive for the grocery or food retailers (Bahl and Chandra, 2018). The UK grocery stores just
like Tesco are being enforced to look for costly based UK suppliers other than the EU (European
Union) suppliers particularly for the keys grocery items. It can be stated that the specific event
can be considered as one of the occurrences in which the UK food prices had managed to witness
the most dramatic price rises prolonging from the pre-Brexit deflation to post-Brexit
inflation (Mintel., 2017).
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Economics
In relation to the economic consequences of the Brexit referendum, has been the downfall in the
consumer spending as a result of a combination of several components above all increasing
inflation and slow pace of wage growth post the Brexit (East et al. 2016). The outcome has been
the UK consumer price inflation (CPI) strike 5 years soaring in September 2017 by 3.0% at the
same time as wages have not kept the pace. In addition, it has also been assessed that the
spending in the consumer discretionary has been thumped too and the sudden fall in the
consumers’ spending habits have relatively hit the UK supermarkets hard especially the Big Four
supermarkets. However, barely the discounters like Lidl and Aldi had been benefited majorly
from the post-Brexit economic fallout in the UK market (Mintel 2017).
Social
As per the data published in Mintel (2017), 47% of the UK customers enhancing prefer to
purchase products from the smaller top-up kiosks by cutting back their regular big basket
shopping experiences. This inclination towards cutting expenditures effectively facilitated the
middle sized urban-based expediency formats and online business, a trend that tends to threaten
the future operations of the UK big box supermarket formats (Mintel, 2018). However, Tesco
has the largest and biggest figures of supermarket stores all over the UK. Therefore, it can be
stated the alterations in the shopping habits amongst the UK customers are quickly becoming a
burden in an environment that are gradually favouring the agile shopping formats of Lidl and
Aldi (Gupta and Singh, 2019).
Technology
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It can be stated that every major food retailer in the UK market has been locked in the most
competitive tender to witness who can provide the potential segments with the quickest delivery
(Lekhanya et al. 2019). This change has influenced the brands like Sainsbury’s, Marks &
Spencer and Tesco to launch the one-hour delivery service to its potential customers in London,
UK. As per the source, this trend would likely develop the momentum of home or customizes
delivery service as the main differentiator in this fiercely competitive environment
(McDONALD, 2016).
Legal
The information highlights the fact that Tesco's three former executives had faced legal retrials
by the Serious Fraud Office (SFO) regarding the brand’s accounting scandal appeared in the year
2014, in which the profit margin was overstated. The scandal appeared to be one of Tesco’s
worst times of its 100 years of history and affected its brand reputation (Economia, 2018).
Furthermore, the new “sugar tax” levy that has been introduced by the UK legal authorities
intends to decrease sugary contents over drinks by a margin of 20% by 2020 this would also
impact Tesco’s own brand products (Economia, 2018).
Environmental
Existing trends influencing the UK apparel sector to involve the climb of ethically and
environmentally cognizant customers that repeatedly expects brands to follow practices like
paper packaging and materials recycling (Moses and Ambrose, 2018). A fresh environmental
drift experienced by the food retail sector is consumer demand in the zero waste hazards in terms
of food waste, since, it has increasingly become the greatest environmental confront witnessed
by the sector (Mintel 2017).
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3.0 Case study
The information highlights incredible sources reflect the fact that the separate market share
figures indicate that Tesco's longstanding dominance in the UK supermarket segment has
affected with Sainsbury’s and ASDA’s merger. It has been identified that in 2018 Sainsbury’s
and ASDA’s wholesale market share of 15.9% and 15.5% respectively, which had given the
combined entity with a potential share of 31.4% (Jahshan, 2018). On the other hand, Tesco has
only managed to capture a share of 27.6% in the UK market. Hence it can be stated that in the
present time Tesco has not been able to surpass the combined effort of Sainsbury and other
Merger.
On the other side, Tesco has still managed to maintain its rank among the top most 10 valuable
retail brands in the UK grocery segment (Ryan, 2016). The popularity of the brand has been its
major strength which has facilitated it to gain maximum customer loyalties and purchasing
preferences (Jahshan, 2018). Nevertheless, the brand is still struggling to fight against the
collaboration between Sainsbury and Asda and fighting against the aggressive pricing strategies
imposed by the discounters is like Aldi and Lidl. Therefore, at the present time, Tesco has been
found struggling to retain its leading position in the particular market (Camilleri, 2018).
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4.0 Analysis
Analysis driven from the literature review section highlights the fact that Tesco has been
struggling against the macroeconomic factor in the UK market. Primarily the brand has been
fighting against the odds imposed by the devastating political scenario of UK pre and post-Brexit
referendum. The Brexit referendum has not only decreased the disposable income of the UK
consumers but has also surged the price hike of the grocery products which influenced the
majority of the potential customers of the modern trade firms including Tesco to drift their
favour towards the unorganized small-medium sized retail stores (Jena and Panda, 2018).
Therefore, it can be stated that Tesco is severely struggling to fight against the political odds of
UK system and making effort in upholding its existing position in the Big four supermarket. On
the other side, Tesco’s competitors have managed to figure out effective strategies to sustain the
struggling political scenario (McDonald and Wilson, 2016). Thus, Sainsbury has merged with
ASDA to retain its profit margin and enhance productivity margin, similarly the discounted firms
are continuously imposing aggressive pricing strategy by cutting down their intermediaries and
using the savings in increasing the discounting margins to see greater attention of the potential
consumers who are likely driven by the offerings of middle-sized domestic retail stores. In the
opinion of Mohanty (2018) Tesco’s internal strategies are not effective enough to sustain the
struggling environment of the UK. The brand invests excessively on its intermediaries and thus
fails to offer high discounted margins with its products to the customers. The present scenario
has been extremely valuable for Tesco to maintain its successful profit margin using the
traditional methods. In the opinion of Sharma and Chan (2016), the consumers of UK market
have inculcated cost-effective nature and they are ready to compromise on product quality over
prices which means the provision of greater discounted margins is acting as a driving factor to
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influence consumers purchasing intention for the current state. However, the management of
Tesco is still focusing on ensuring high product quality over discounts which are leading the
brand to experiences serious slaughter in the strong vulnerable retail market (Svensson, 2018).
More information shows that Aldi has still continued to experience strong sales growth by
maintaining a margin of 7.7% increase in its market share. Although Tesco has managed to
capture market share by 27.1% in 2018 yet, the brand is struggling enormously to uphold its lead
in the existing period. Thakur and Soni (2018) stated that in case Tesco fails to find out an
effective pricing strategy that can surpass the methods and offerings of the discounters, it might
experience the threat of losing its leading position as Big four in the UK retail sector.
In a similar context, Wang et al. (2018) determined that the threat of substitute in the UK retail
supermarket segment is comparatively high for both the grocery and non-grocery items. The
scenario has occurred due to Tesco’s potential full substitutes were imported from other markets
that not only offer food and beverage items to the consumers but also deals with durable products
like clothing, furniture, electronics items, etc. Accordingly, Wood (2018) mentioned that the
number of players in the UK retail market has increased over the time that has enhanced the
degree of saturation hear in. On the other hand, the switchover cost for the grocery products are
relatively lower which has been the major driving factor for the UK consumers to shift their
brand preference from the Big Four to the discounters who are offering 40% discounts on their
products. The specific method has also forced the chosen brand to scheme a discount retail chain
over its products for attracting the majority of the customers and experiencing a steady growth in
its sales margin. However, Unlike the discounters, Tesco has effectively failed to improve the
right methods by cutting down the unnecessary expenses besides which aimed at offering greater
discounts on its products to the customers. This strategy has not been efficient for Tesco to retain
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its lucrative profit over the discounters, rather it had to struggle in maintaining its existing profit
margin which several outstanding dues.
It has been recognised that the shopping experiences of the UK consumer are constantly
changing over time. The majority of the people are engrossed with tight schedules and bearly
find spare time to visit stores physically for purchasing grocery food items. Thus, they expect
fast product delivery on the same day with a flexible product return policy. The one-stop
shopping experience is encouraging the UK, customers to shift their preferences towards online
shopping experience, which has turned up as the most successful shopping trend in today’s
period. Additionally, Turner and Endres (2017) claim that the demand for products and services
in relation to the consumer beliefs and attitude have become another issue to focus for Tesco to
survive the threat of high competition. Obesity has been another issue today's consumers are
fighting with. Despite the economic pressure in the UK market, the consumers are showing
serious concern towards their health and fitness. Therefore, the products containing high sugar
content or artificial fats are considerably overlooked avoided by a similar population. The
secondary information discussed in the literature review section also highlights the fact that the
UK government has instructed every retailer to reduce its sugar content by only 20%. It indicates
that the grocery brands including Tesco had to revise their individual products and its ingredients
to fit the regulation of the legal authorities. The brand is already struggling to fight against the
aggressive pricing strategies imposed by the discounters and e-commerce intermediaries, on the
other hand, it had to revise its existing products as per the new legal norms that include the
pressure of additional cost and expenses. Hence, Tesco’s effort in terms of offering greater
discounted margins over its products to the customers are repeatedly interrupted by external
factors.
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Conversely, Mohanty (2018) determined that the management of the brand has been effectively
smart in terms of balancing its shortcomings by introducing advanced technologies. It installed
RFID technology to enhance its experience for the customers. The technology has automatically
helped the brand to count on its stocks and remove the records of its after-sales services to help
its suppliers in having access on precise information regarding the raw materials that are required
on accurate time. Additionally, it has also imposed online mobile payment system named
PayQwid Technology, using which its customers can pay as per their individual time. Therefore,
information discussed in the above section indicates that Tesco is definitely experiencing a tough
time in the UK supermarket, however it is also experimenting with different methods to
overcome the odds.
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5.0 Conclusion
On the basis of the discussion and analysis as performed in the preceding sections of the paper,
the researcher has arrived at a concluding statement by underscoring the fact that Tesco is
relatively experiencing a type of external pressure of the UK political system that is prohibiting
the brand from generating lucrative profit margin in the present time. It has been informed that
the political pressure has revised the entire pricing strategy of the UK retail sector imposing
promising hike on product prices. All the retail brands including Tesco have been the victim of
the subtle political alterations. This has also affected the economic and the social aspects in the
UK market where the shopping intentions and behaviour of the customers have shifted from the
organised of offerings of the modern trade enterprises to the discounters, domestic retail stores
and e-commerce intermediaries. The brands operating in the UK supermarket sector have been
fighting against each other by imposing different pricing strategies that can meet the current cost-
effective nature of UK audiences. Tesco is also playing a major part in the race of maintaining a
leading position by overtaking the unique offerings of its competitors. Additionally, Tesco is also
threatened by the wider availability of substitutes in the UK supermarket. The switchover cost is
comparatively low in this sector, which is easing the potential customers from drifting their
preferences towards brands offering high discounted margins. Nevertheless, today's customers
are also driven by advanced technical facilities; hence, Tesco has introduced advanced
technological supports within its system to leverage the shopping experience of its potential
customers.
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6.0 Recommendations
It has already been discussed in the previous section that Tesco has been fighting against several
external odds to survive the fiercely competitive environment of the UK. The aggressive pricing
strategies imposed by the discounters have become the major threat for Tesco to retain its profit
margin. The brand has been involving its unnecessary expenses in non-requisite intermediaries.
This is differentiating Tesco’s existing pricing strategy from that of the discounters. Thus, it is
high time for the management of the brand to revise its internal methods and pricing strategy by
cutting down the unnecessary intermediary stages that incur redundant expenses. The brand
needs to conduct the internal operation on its own for example forming its own inventory
support, having own suppliers, etc. These methods can definitely help Tesco to cut down
expenses and using the savings on offering a high margin of discounts over its products to gain
stability. Therefore, finally, it may be recommended that a well-designed sets of corporate
strategies in its supply chain and operations as a whole, supported by the strong and efficient
leadership by way of effective controlling, following -up and monitoring will significantly
contribute towards the attainment of pre-determined corporate goals of sustainability in the
market in the long-run in most time and cost efficient manner.
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