Evaluation of Tesco's Business Strategy and Market Share
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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.
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APPLIED MANAGEMENT
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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 Page2of16
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. Page3of16
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 frameworkthat 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 firmsincluding 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 themostdramaticpricerisesprolongingfromthepre-Brexitdeflationtopost-Brexit inflation(Mintel., 2017). Page4of16
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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 theagile shopping formats of Lidl and Aldi (Gupta and Singh, 2019). Technology Page5of16
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 deliveryserviceasthemaindifferentiatorinthisfiercelycompetitiveenvironment (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). Page6of16
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 andASDA’s merger. It has been identified that in 2018 Sainsbury’s andASDA’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 ofSainsbury 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). Page7of16
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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 ofMohanty (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 ofSharma 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 Page8of16
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 Page9of16
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. Page10of16
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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. Page11of16
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 arealsodrivenbyadvancedtechnicalfacilities;hence,Tescohasintroducedadvanced technological supports within its system to leverage the shopping experience of its potential customers. Page12of16
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. Page13of16
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