Tesco: A Comprehensive Analysis of the UK's Leading Food Retailer

This article provides a detailed analysis of Tesco, the leading food retailer in the UK, and its competitors. It covers the industry trends, challenges, and future prospects. The article also discusses the accounting scandal that Tesco faced and the steps it took to regain the trust of investors. Additionally, it highlights Morrison's unique approach to providing fresh and high-quality food to its customers.

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Introduction
In 1919, Jack Cohen founded Tesco in a market stall at the east end of London
city (Cuthbertson, Furseth and Ezell, 2015). In the UK, Tesco is the leading food
retailer, which deals with a wide range of food services and other merchandises
including entertainment, insurance, appliances including more. (Global Company
Intelligence, 2017) It works with more than 440,000 people worldwide and over
280,000 people in the United Kingdom. There are more than 2,000 stalls in the UK
and innumerable stores in Hungary, Thailand, China including the United States. In
2017, the revenue of Tesco plc is 43.9 billion, which takes about 26.3% of market
share in the retailing industry in British (Global Company Intelligence et al, 2017).
Tesco had 3,433 UK establishments in February 2017 (Tesco, 2017). The big success
of Tesco is not sudden or unplanned; it has high research value not only for its
competitors but also for the growing retailing industry.
Founded more than 100 years ago, Morrison had a booth at the Bradford Market.
(Moore, 2002) For a long time since then, it has been a family business. Under the 55-
years of leadership of Sir Ken Morrison till his retirement in 2008, the company has
grown steadily from "market stalls" to "supermarkets" with more than 450 stores and
is now the fourth largest food retailer in the UK (Toms, 2015). In 2017, Morrison
occupied 9.9% of market share. It is one of the major competitors of Tesco
(IBISWORLD, 2017). The revenue of Tesco and Morrison experienced a little change
compared to its other competitors from 2016 to 2017. As the operating profit of Tesco

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fell, the operating profit of Morrison increased. It is important to analysis the statistics
in order to find the reasons for such changes.
Background
The supermarket industry has experienced fundamental changes in the last five
years. The financial downturn, widespread changes in the shopping habits of the
consumers and the massive extension of discounted supermarkets in Aldi and Lidl,
have affected the industry severely (Wortmann, 2004). In March 2014, Tesco and
Morrison announced significant price cuts, triggering a price war. Asda and Sainsbury
also followed, similar price cuts for the rest of the year. The price war mainly aims at
curbing the advancement of discount supermarkets with an increase in market share in
the recent years (IBISWORLD, 2017). In addition to these trends, Tesco, the largest
player in the industry, was involved in the accounting scandal in mid-2014, resulting
in massive regulatory changes in both Tesco as well as the broader industry. The
combined effect of these factors is expected to result in a relatively poor performance
of the five years in 2017-18. However, industry revenue is expected to increase this
year, due in part to rising inflationary pressures caused by rising procurement costs
(IBISWORLD et al, 2017).
In the last five years, operators in the industry have already begun to take advantages
of consumers' requirements for minimizing expenses and to earn revenue from the

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independent stores that they feel convinced with, departmental stores and food
retailers. However, the overall performance is relatively poor. It is expected that after
the contraction in 2014-15 and 2015-16, the revenue of the CAG will only rise by 0.4
within five years. The leading position of four big supermarkets becomes weaker
because of the rise of discount supermarkets. Driven by rising inflation, industry
revenue is projected to grow 1.9% to 167.2 billion pounds in 2017-2018.
(IBISWORLD et al, 2017)
The revenue of the supermarkets in the next five years may still be under the
pressure of strong competition to survive in the industry. The Businesses in the
industry will continue to focus on limiting the costs by consolidating, online selling,
expanding the industry in the hypermarkets and trying to gain more control over the
supply chain. The estimated discount supermarket will seize more market share
against the four supermarkets, further affecting the composition of the industry. It is
estimated that in 2022-23, industry revenue will rise to 174.5 billion pounds at a
CAGR of 0.9% in five years.
Industry maturity is marked by the lack of new contestants into the industry, the
extensive acceptance of the industry products as well as the slow pace of
technological changes. As a result of the mergers, the UK supermarkets are expected
to decline in five years from 2022 to 2023. This is a characteristic of a mature
industry (IBIS World, 2017).

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In April 2013, Tesco became one of numerous UK supermarkets, which got involved
in horse meat scandal. Beef burgers sold by Tesco were found to contain horse DNA.
This has overshadowed the public perception of the supermarket (Madichie and
Yamoah, 2016). Therefore, it had an obvious affect in the sales performance of Tesco.
In September of 2014, Tesco declared that it will overestimate its turnover by £ 250
million within the six months from August 2014. This resulted a scandal, intimidated
investors and led to a serious fraud in official investigation. Tesco refers to this multi-
posting, the time difference of the confirming commercial revenue from the suppliers.
Tesco has undergone extensive restructuring and changed auditors for regaining the
trust of investors. In January 2015, Dave Lewis, the new chief executive of Tesco,
announced the closure of its traditional headquarters in Cheshunt and 43 loss-making
stores including the abolition of 49 new supermarkets. In 2015, Tesco also sold its
loss-making Blinkbox, which is an on-demand video streaming service, fixed line
along with its broadband services. In June 2016, Tesco announced that it will sell its
Turkish subsidiary Kipa to Turkish rival Migros.
In the late January 2017, the company announced its purpose of merging with a
food wholesaler Booker Group plc. Despite the fact that the mergers face regulatory
hurdles before they are completed. The supply contract with the restaurants as well as
the foodservice providers through Booker will produce a grocery industry, with better
purchasing power of the consumers in various food markets.

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Morrison's goal is to be the best fresh food supermarket to outperform its
competitors. The advantage is achieved through its unique "live-to-table" integrated
approach that takes control of their supply chain and ensures that food is fresh and of
high quality. Morrison trains the associates through customer service programs such
as HOT to become experts and provide the best level of service to their clients. These
Training and development programs create an environment where workers can
provide excellent customer service (LLP, 2017).

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