Challenges Faced by Tesco: A UK Business Performance Analysis

This report provides a detailed analysis of the challenges faced by Tesco, a major retail company in the UK. It examines the external and internal factors impacting Tesco, including economic, political, social, technological, environmental, and legal changes. The report utilizes PESTLE and SWOT analyses to evaluate Tesco's strengths, weaknesses, opportunities, and threats. It also delves into Tesco's financial performance, analyzing key metrics such as market share, gross profit, current ratio, and debt-equity ratio, using financial statements. The report further explores Tesco's brand value, popularity, and strategies to enhance its brand image, including market research and environmental initiatives. Overall, the report offers a comprehensive overview of Tesco's business environment and performance, providing insights into how the company addresses challenges and maintains its market position.

Individual Report

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Current challenges faced by the UK businesses.........................................................................3
Tesco performance analysis through different financial statements and brands values.............6
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10
APPENDIX....................................................................................................................................12

EXECUTIVE SUMMARY
Tesco is the third largest retail industry in UK which provides various products and services to
its customer like supermarket, superstore, hypermarket and convenience shop. It also faces
various challenges due to economical, political, social, technological, environmental changes. It
addresses the challenges in the market through the SWOT analysing by evaluating its own
strength and different opportunity area. Tesco analyses the performance by analysing the ratios
through the financial statements like balance sheet, income statements, cash flow etc. Tesco
follow the various ethical aspect such as address the environment issue. The popularity of Tesco
also spread to its supermarket chain. It operates 7000 retail store in all over the world which
provide different market to enhance the brand image. The report provides a brief about the
various challenges faced by the company and different ways to overcome its challenges.
INTRODUCTION
Tesco is the third largest retail industry in UK which deal in groceries and household
items. It provides various products and services to its customer like supermarket, superstore,
hypermarket and convenience shop etc. It expands it business from 1990 by starting its operation
in various other countries of world. The report highlights the various challenges faced by the
organization I the UK nations and different ways to overcome the challenges. UK is developed
country but it faces several challenges due the change in the external and internal environment or
change in technology. The report explains the ways to overcome this challenges like using
effective promotional and managing strategy. The report explains the challenges and ways to
resolve the challenges through various forms of graphs, statistical data and number and by
different examples etc. It helps to explain the challenges of UK business with various financial
data like income statements, financial result, cost etc.
MAIN BODY
Current challenges faced by the UK businesses
UK is a developed company which provides various growth aspect to the different
businesses to expand their business in different countries and take the advantages of technology,
globalization, competitive advantage etc. still they have to face various challenges in the market
like cross border trade, construction regulation, technology advancement, British culture and
enforcing contracts (González-Benito, Martos-Partal, and Fustinoni-Venturini, 2015).
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Tesco is the one of the leading company in UK. It also faces various challenges due to
economical, political, social, technological, environmental changes.
PESTLE analysis of Tesco
Political changes : Tesco operate its business in different country. The political
environment are different from one country to another country. For example The political
environment of UK support the business of Tesco whereas in other country like Korea, India and
Japan the various legislation, tax rates restrict Tesco to expand their business with various
product line or brands.
Economic changes : The economic factor include the purchasing power of population,
labour cost, inflation rate etc. The increasing inflation rate in Asian countries affect the business
of Tesco. It forces Tesco to provide its product at lower cost which ultimately reduces their
profit. They also have o face the challenges like the change in increasing rate. Increasing interest
rate and borrowing cost increases the cost and reduces the profit of Tesco (Meyerding, 2015, ).
Social change : Tesco also face social challenges like change in consumer taste and
preferences, demand and supply of goods and services etc. Change in customer taste and buying
behaviour reduces the market share of Tesco and force Tesco to improve its market strategy and
product which increases its cost.
Technology change : Advance technology in industry brings various challenges for
Tesco like it increases the competition in market, improve the competitor products and services
and operational functions. The technology brings the various opportunity but the lack of
knowledge of employee creates the barriers in communication and transfer of product to the
customer.
Legal changes : The change in legislation, country rules and regulation affect the
business of Tesco. For example India provides various tax rebates to the multinational company
like Tesco to expand their business but the various country such as Japan and US have restricted
legislation regarding the entrance of company in the market (Hammad, 2015).
Environment changes : The change in environment like increasing pressure to address
the environment issues such as reducing plastic begs, carbon emotions etc. and use the strategy
operational work which support the welfare of society. For example UK force Tesco to reduce
the carbon footprints.
Different measures to overcome challenges
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There are different challenges like the market changes, change in policy, tax rate, interest
rate etc. to address this challenges and overcome its effect Tesco can adopt various measures and
techniques like SWOT analysis to meet the customer demand and preferences.
SWOT analysis of Tesco
Strength
Tesco is one of the leading company in UK and operates its business in 14 other countries
of the world. It is the largest supermarket in UK which increase its operating profit by 28% in
2018. to overcome its social changes and gain the customer trust with meeting their demand
Tesco can use the strategy of diversification (Bentham, 2018). It diversifies its business in 14
countries with 6800 store and provide range of products like grocery items, clothes, non-food
product like electrical product etc. which help them to retain the customer and fulfil their demand
with different product at same store. Diversification of business also help to gain the latest
technology with skilled manpower in different countries which help them to overcome the
technological challenges.
Weaknesses
The poor performance in operational work of Tesco reduces the profitability and
productivity of the business in different countries. Also, Tesco is fail to operate its business in
US and Japan which affect the trust of the customer on Tesco (Haleem, and Jehangir, 2017). To
overcome this challenges they have to do a proper market research on the buying behaviour,
culture and market condition. The research help them to get the knowledge and information
about the country. For example To enter into the Indian market Tesco have to conduct a proper
study about the culture and taste of the customer to overcomer the social challenges with
difference in the values and culture.
Opportunity
Tesco can offer different employment opportunity to the population of different country.
By offering the employment they can get the support from the political forces. Tesco can also
done a proper market research before entering to other country which help them to understand
the political environment in more efficient manner. It can also use the strategy of market
expansion out of the nation boundaries. It provides them low cost labour and reduce the
economic challenges. For example India is reach in labour, it provides the labour at low cost
which help Tesco to increase the profit with minimum labour cost. They can also increase the
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range of non Food retail items with different safety measures like proper guideline regarding the
usage of product, after sale services etc. which help them to gain the customer attention and
understand the demand and buying behaviour of customer (Fernie, and Sparks, 2018).
Threats
Threats are the external forces which affect the business of the organization like the
increasing competition., tax rate, inflation rate, economic crisis etc. Tesco can use various
measures to overcome this challenges like the lower pricing strategy help Tesco to provide the
product at lower rate and increasing the market share. In 2018 the market share of Tesco in UK
was 4%. For example the competitor of Tesco are Walmart, Morrison and Sainsbury. The study
on the pricing strategy of the competitors help them to change the pricing and promotional
strategy of the product and services and attract the more customer. Addressing environment issue
also a big challenge for the business organization (King, and Fitzgerald, 2016). To overcome this
challenge Tesco announce to reduce the carbon footprints by 50% by 2020.
Tesco performance analysis through different financial statements and brands values
A company performance can be analysis through different ways such as analysing the
ratios through the financial statements like balance sheet, income statements, cash flow etc.
Financial result
The market share of Tesco in UK is 4% by the end of 2018 which reflect the total
revenue generate by the organization in particular accounting year (TSCO Tesco PLC Stock
Analysis, Price & History | Morningstar, 2019). The gross profit ratio of 2018 and 2019 if Tesco
was 6 % which indicate that due to the economic changes in the nation Tesco was unable to
improve its profitability in the market. From the SWOT analysis of Tesco it can be found that the
increasing role of competitors in market such as Morrison, Walmart affect the gross profit of the
company.
Current ratio of the organization reflect the current asset over the current liability. The
ideal current ratio is 2:1 which means that the current asset must be just double to its current
liability to meet the liquidity requirement of the company. Higher current ratio reflect the higher
liquidity. The current ratio of Tesco .7134 : 1 which reflect that the current assets of the
organization is less than its liability and Tesco because of the fewer debtors of the company.
Tesco is leading company in Grocery items (Lukić, and Vojteski-Kljenak, 2017). It is the largest
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retail company in UK in grocery items which reflects that due to the lead in market the
requirement of liquidity is less.
The debt equity ratio of the organization reflect the debt of the company to its equity. The
debt equity ratio of Tesco is 0.67% in 2018 and 0.37% in 2019 which reflect that ratio is quite
below to its ideal ratio 1 to 2. Lower ideal ratio indicate that the company is unable to take the
advantage of increases profit.
The market share of Tesco in grocery market reflect that the sales of the Tesco increase year by
year. Due to the pricing strategy and managing the brand value Tesco is able to remain in the
number 1 position in grocery items (Grocery market share year-on-year in Great Britain (UK)
2012-2018, 2018).
Comparison of market share of Tesco in grocery items with other competitive company.
2018 2017 2016 2015
0
5
10
15
20
25
30
27.4 27.8 28.1 28.3
15.5 15.8 16.1 16.3
10.4 10.4 10.6 10.8
Tesco
sainsbury
Morrisons
Popularity
Tesco is popular with its grocery product in UK but the same time it also provides the
various product such as clothes, food items, non-food items etc. in different countries in their
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retail store like supermarket, superstore, hypermarket etc. Tesco deal with different brands in
their store and provide their services under the single roof. The online websites of Tesco also
provide a different platform to introduce their product in the market (Christopher, 2016).
The popularity of Tesco also spread to its supermarket chain. It operates 7000 retail store
in all over the world which provide different market to enhance the brand image. Tesco has large
brand image in the market and to enhance its brand valuer through different brand awareness
events it able to get the higher customer. Tesco organize various events such as online survey,
market research and the feedback form which make quite famous in the market and create a good
image in the customer mind. To increase the popularity it also focuses in environment issues
such as reducing carbon footprints, plastic polythene etc. which create a good image.
Strong Brands
To strengthen the brand image of Tesco it conducts a market research and found that
during the Christmas eve the sales of Tesco is increase. According to the study it can be found
that during the period of Christmas Tesco increases its sales by 2.2% which means that customer
is more willing to purchase the product. By providing high quality product with minimum cost
its able to strengthen the brand image in the market and compete with other competitors. From
the PESTLE analysis we can conclude that Tesco done research on the customer behaviour and
provide them demanded product and services (Stobart, 2016).
Ethical aspect
Tesco follow the various ethical aspect such as address the environment issue. For
example Tesco announce to reduce its carbon footprints in 2020. It also used the paper begs in
their retail store which reduces the paper waste and environment pollution. The promotional
advertisement done by Tesco also consider the different value and culture of the different
countries (Ambrozy, Valco, and Bhattarai, 2017). Before entering to the other country market it
conduct a market research to evaluate the culture, consumer perception and behaviour toward the
product and services, so they can focus on the ethical aspect and did not hurt the customer
values.
CONCLUSION
The following report summarizes the various challenges faced by the businesses in the
market. Tesco faces the various challenges like the change in technology, tax rates, income
structure, purchasing power of customer etc. The challenges faced by the company provides
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different opportunities to improve their performance and get the higher market share with high
profit and minimum cost. It can be concluded from the report that the different measure like
market research, skilled labour, addressing environment issues, competitive price strategies
analysis and study on culture and customer preferences help the organization to overcome their
challenges and get effective output. It also summarizes the different financial tool to analyse the
company performance and various brand study to aware about the purchasing behaviour of
customer in particular nation and variances to the other nations. From the study of the report it
can be concluded that the various factor such as brands, ethical consideration, financial results
help to analyse the company growth and popularity in the market with its brand image.
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REFERENCES
Books and journals
González-Benito, Ó., Martos-Partal, M. and Fustinoni-Venturini, M., 2015. Brand equity and
store brand tiers: An analysis based on an experimental design. International Journal of
Market Research, 57(1). pp.73-94.
Meyerding, S., 2015, May. Determination of part-worth-utilities of food-labels using the choice-
based-conjoint-analysis using the example of tomatoes in Germany. In XVIII
International Symposium on Horticultural Economics and Management 1132 (pp. 17-
24).
Hammad, A., 2015. Strategic Change and Its Management to Expand Business Through
Implementation of Models: A Case Study of Boots UK. Available at SSRN 2676800.
Bentham, J., 2018. Business and Economics in the News–Sainsbury's and Asda-the decade's
mega-merger. Teaching Business & Economics, 22(3). pp.11-12.
Haleem, F. and Jehangir, M., 2017. Strategic Management Practices by Morrison PLC, UK.
Analysis, Lessons and Implications. Middle East Journal of Business, 12(3).
Fernie, J. and Sparks, L. eds., 2018. Logistics and retail management: emerging issues and new
challenges in the retail supply chain. Kogan page publishers.
King, R. and Fitzgerald, L., 2016. 10. Challenges facing the accounting profession: maintaining
relevance in a changing environment. Perspectives on Contemporary Professional
Work: Challenges and Experiences, 187.
Lukić, R. and Vojteski-Kljenak, D., 2017. Analysis of intangible assets in retail trade. Strategic
Management, 22(2). pp.18-26.
Shi, Y., Lim, J.M., Weitz, B.A. and France, S.L., 2018. The impact of retail format
diversification on retailers’ financial performance. Journal of the Academy of Marketing
Science, 46(1). pp.147-167.
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Ambrozy, M., Valco, M. and Bhattarai, S., 2017. The Ethical Aspect of Scientific Interest in
Selected Physical Theories. Communications-Scientific letters of the University of
Zilina, 19(4). pp.79-84.
Stobart, P. ed., 2016. Brand power. Springer.
Online
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TSCO Tesco PLC Stock Analysis, Price & History | Morningstar. 2019. [Online]. Available
through : <https://www.morningstar.com/stocks/xlon/tsco/quote.html>
Grocery market share year-on-year in Great Britain (UK) 2012-2018. 2018. [Online]. Available
through : <https://www.statista.com/statistics/300656/grocery-market-share-in-great-
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APPENDIX
Particulars Formula
Profitability ratio analysis
2018 20019
Gross Profit 3350 4144
Net profit 1206 1322
Sales revenue 57491 63911
Earnings before interest and tax or
operating profit 3024 3343
Net income 3350 4144
Average total assets 68284
69385.
5
GP ratio Gross profit / sales * 100 6% 6%
NP ratio Net profit / sales * 100 2% 2%
Return on assets Net income / avearge total assets
0.0490
59809
0.0597
24294
Liquidity ratio analysis
2018 2019
Current assets current assets 13726 12688
Current liabilities current liabilities 19238 20680
Inventory 2263 2617
Quick assets 11463 10071
Current ratio Current assets / current liabilities
0.7134
837301
0.6135
396518
Quick ratio Current assets - (stock + prepaid 0.5958 0.4869
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