Analysis of Tesco's Cost Leadership Strategy and Market Position

Assessment 2: case
study 1
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Table of Contents
1. Introduction to case study........................................................................................................3
2. Problems in case study. What are people, organisation and technology factors in it..............4
3. Analysis of cost leadership strategy of Tesco based on porter competitive force model........5
6. Comment on Tesco strategy of opening a discount chain and would it be able to retained its
market position in near future?....................................................................................................6
5 Is ALDI and LIDI strategy of venture into e – commerce is good idea?.................................7
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10
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1. Introduction to case study
In the caste study it has been described about big four retail firms of UK. Also, it is stated
how tesco gain competitive advantage in market with adopting of cost leadership strategy. But
with rivals Aldi and Lidl heavy discounts it is found that tesco is not able to generate enough
profits. In addition to that, there is change on consumer behaviour due to recession. The people
are buying goods from supermarket. Due to that, there is decrease in Tesco market share and on
other hand aldi and lidl profits raised. Moreover, it is summarised that tesco CEO Charles
Wilson has taken decision to close website of firm. Now they are focusing on investing in other
platform and offering better and high quality services to customers. there was also cut of 500
jobs in firm and they faced various challenges in generating profits (Horgan, 2016)
Besides that, it is concluded from case study that tesco attempt to compete with Amazon
and argos has failed due to its low profits. In addition, discounted super market is also a reason
behind it as Aldi has opened 700 stores at global level. It highly attracted a lot of customers as
products were offered at low prices as compared to tesco. This resulted in shift in their buying
decisions and preference. Now, they focused on buying from discounted super market. There has
high contribution of Aldi and lidl in GDP of UK with £8.5 billion.
But main reason found was inflation in wages. The services offered by aldi are at low
prices. It led to gaining of customer satisfaction. These both companies have transformed UK
retail market. They are giving tough competition to other big firms. Besides that, Lidl started its
digital logistics. It was first step of innovation. Here, they introduced chat bot which was helpful
for customer to choose products. However, to compete with firm tesco decided to open 60
discounted stored in UK. But data shows that this strategy has failed. The competition between
tesco and aldi and lidl is stiff (Kirby, 2016). There are many people who prefer to buy goods
online and on daily basis. So, tesco is operating online since long time as in 1996 they launched
their first online store. It has benefited in attracting more customers outside UK. Virtual stores
were opened in South Korea where barcode system was used to purchase products.
It has been summarised that grocery industry needs to adapt to consumer demands and
lifestyles continuously. The UK and South Korea are examples of it. While people in the UK
switched from domestic big supermarkets to budget supermarkets, it was opposite in South
Korea that turned Tesco into the country’s second largest grocery retailer. Customers in the UK
are price sensitive due to economic recession and inflation, but in South Korea they have
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