Tesco PLC Business Economics Report: A Comprehensive Market Analysis

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Economics for Business
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Table of Contents
INTRODUCTION...........................................................................................................................1
Introduction to the company...................................................................................................1
Industry background...............................................................................................................2
Market structure of the industry.............................................................................................4
Factors that can influence demand for the company’s products............................................5
Factors that influence supply of the company’s products......................................................5
Elasticity.................................................................................................................................6
Impact of an event on the industry.........................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
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INTRODUCTION
Business economics is a specific area which is related to the applied economies that can be use
economic theory as well as quantitative method to analyse the business entity. It is necessary to
analyse all the factors that are contributing to the overall diversity of organisational structure and
relation between all the factors of production. It usually offers suggestion for valuable
application of certain principles during the time of developing policies and making decision for
the future. Moreover, a company must recognize their environmental systematically to determine
decision rules. This project reports is basically focused on the market structure of TESCO PLC.
Apart from this, all the factors that are affecting the demand and supply of the company’s
products are discussed under this report. Along with that elasticity position of the organisation
products are also examine effectively. Further, impacts of any events on the industry have been
covered accurately in this report.
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Introduction to the company
TESCO is a private limited company which deals in groceries and common merchandise
retailers. It is situated in the Welwyn Garden City, England and UK. It is third largest retailer in
the word that can measure through its total revenue. It has been seen that it is having shops in
seven nations across Europe and other parts of Asia. The marketplace organizer of groceries in
the UK carries a total of 28.4% of market share. It was established in 1919 by Jack Cohen as a
group of stall market (Bachmann, et. al., 2013). It is listed on the London Stock exchange with
the constituent of FTSE 100 index. It would have a market capitalization of around €18.1 billion.
The total number of employees working with the company is 460000 with the total net income of
€1208 million till 2018. The Tesco company is diversified their business operations in various
segment such as retailing of books, clothing, software and telecom sectors. The company mission
is to become a champion for their client through helping them to enjoy an effective quality of life
and make easier way to sustain their life. Customers want huge products at a maximum value
that can be easily available to them and Tesco role is to provide this in complete or proper
manner (Tesco, 2018). Tesco core values are to understand people such as society, client and
other members. It is all about listening people and creates awareness so that they can make use
of their products on regular basis. According to Tesco they are looking after their employee in a
proper culture of trust and faith which is valuable aspects of success in near future. The
employees feel recognized as well as appreciated for their work from the company side.
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Industry background
Retail industry is an essential process through which company used to sell their consumer
product and services by the means of various channel of distribution in relation to earn maximum
profit in near future. It would satisfy the different demand by using a supply chain. Retail market
The market structure of the industry and shop is having a wide ancient history (Shenkar, Luo and
Chi, 2014). It is the sale of goods and services to the end users not for the re-sales but for the use
and consumption by purchasers. The retail transaction is at the end of their supply chain which
consists of production to inventory management then it goes to distributors after that it goes to
wholesalers and last to the retailer. According to a report a total of $ 3.53 trillion in total sales
has been done last year. The NRF projects estimation has expected a retail sales to grow around
3.8 to 4.4% in 2018 to 12% growth for online and non-store at the same period. It has about 76%
in the economy as whole. A 6% of retail businesses have around 10 to 100 employees in context
to the 4% of their businesses.
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The retail sectors are going by a long-lasting duration of disturbance. There are certain factors
like varying customer behaviour, enlarge internet business and challenging economic condition
in the way retailer tends to operate and engaged with their specific customers. The retail sectors
economic output was taken into account as €92.8 billion. As well as retail sectors total
employment generation is about 2.8 million. There is total number of 319000 retail businesses in
2018. In the year 2017, around € 395 billion of total business has been generated from the retail
sales. It has been seen that a total number sales made through using online mode is 16%, whereas
growth rate in UK retail sales in 2017 is recorded with 4.3% (Shackle, 2017). The total number
of retail outlets operating is 294280 which tend to generate a total GDP of 5%. As per the
statistical data an average annual growth of online retail business has been mentioned as 16%. It
has been seen that retailers are more different from the industrial companies that cannot provide
a tangible products. It would purchase merchandise from total manufactured in wide quantities
for resales to their customer at a given profit. According to the survey it has been seen that retail
sectors is still dominating in the present era. In respect to the US Census Bureau, digital business
is accounted for a total of 8% of total retail sales with the dramatic growth of 3%. It has become
emerged as one of the drastic and fast paced sector because of entry of various new players.
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Market structure of the industry
(Source: Conventional market structure of retail market)
In relation to the retail market structure which tends to refers as the total number of companies
that sells similar kind of products in the same geographic location. In the leading supermarket in
UK is having very wide structure. There are specific business oriented characteristic aspects of
the market that aimed on various aspects of the market. It is having direct effect on the
competition in the industry which would impact on the business tends to product and services
pricing decision. In case of perfect competition there are few possibilities of entry and having
exist barriers. Under this type of competition the companies aimed to a mass audience and have
differentiated their products with certain changes in the homogenous product (Beard, 2017).
Tesco is having perfect market structure that because of their identical products or varieties of
product. In this types companies used to have push strategies therefore maximum efforts would
be done through their sales team and have focus on product availability. The retail industry is
spending a valuable part of the global spending into the market by taking into account the
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customer needs and wants. The above chart is showing a conventional market structure flow of
various segments in the retail sectors. It would help them company to plan their business
operation according to the requirement of the customers.
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Factors that can influence demand for the company’s products
There are various valuable factors which are associated with the demand of different products
that are being provided by Tesco to their customers. Some of them are mentioned below:
Price: It has been seen that it is one of the most crucial factors that can affect the demand. There
are various products that are having various understanding to modify in the price. Like for
example, demand for Tesco necessities like cloths, and other grocery products cannot tend to
change significant with the price movement (Friedman, 2012).
Income level: In relation to individual income that can goes up with their overall ability to
purchase the goods and services increases. This would cause demand to enhanced drastically
with the changes of production. In relation to income decrease there would be a downfall in the
total demand for the most goods.
Consumer taste and preferences: In some situation, because of changing tastes and preferences
would have a valuable effect on demand for their clothing as well as grocery products. They are
doing persuasive advertising to cause a change in tastes and other preferences that can create an
increase in total demand (Dunning, 2014). It would tend to measure the utility of a wide number
of Tesco products. Every marketed has shaped through a collective and individual taste as well
as preference. These are related to a specific pattern which is partly shaped through a culture and
some part of them is implanted by information and skills of products and services delivery to
their clients.
Competition: It has been seen that there is a huge competition in the retailer sectors that is
having a bigger share of the market. It has perhaps through cutting their price through
introducing a latest or advance version of a product. It is having a huge competitors with a
ASDA, Sainsbury and Morrison that can often create maximum burden on the company overall
performance (Stanley and Doucouliagos, 2012).
Factors that influence supply of the company’s products
Supply is the one of the valuable factors of a products or services that Tesco or any other retail
company is willing to offer sales during the period of time. The supply curve is made to show the
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effect of relationship among price or a goods and total number of product a retail business are
willing to sell with the same prices range (Bocken and et.al., 2013). According to the law of
supply that is associated with the direct relationship among price and quantity supplied. It other
things remain constant and then there is an increase in overall prices that could results in increase
in quantity supplied. This particular relation between prices and quantity supplied is entirely
relies on the potential increment of profitability which would occurs with the rise in price. There
are various factors that can affect the supply of Tesco products and services. Some of them are
mentioned below:
Input price: In case the price of raw material which has been used by industry in the production
of goods has gone down, then supply would increase. It would shift to the right side and vice-
versa. The inputs can be raw material, labour and even other product. These are considered as
factors of production (Bräutigam and Xiaoyang, 2012).
Improvement in technology: In case there is various advancement in technology. The cost of
producing of products can reduced and supply shift to the right side. In case the cost of
production goes down during the time consumer would specific demand more of their goods at a
more low cost. The most of the consumer are trying to purchase the product over the use of
online mode this has happen because of customer demand. It has been available at minimum cost
and with discount offers (Schumpeter, 2017). It would affect the supply because Tesco need to
increase the total number of products.
Size of market: It has been essential factors that can affect the supply of Tesco products. It has
depended on total quantity which has been traded during the period of time. Under as valuable
assumption there is an increase in total market size which would lead to growth in quantity
traded even in case of changes in the market supply curve. In case the supply curve goes slope at
higher level there is an increase in market size which would lead to growth in the market prices
of the products. The wide market for a public good is having greater aspects for utilitarian good
reason for their overall condition which has been based on harsh cost benefits analysis.
Expectation: It is known as another factor that is based on market condition which is directly
affecting the market. In case the seller used to believe that demand for their product would
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increase in near future, then the company can quickly enhance production as per the price in
coming time (Hall and Lawson, 2014).
Elasticity
It is a change in the total price of a product that can affect their demand. It has been found that
elasticity of demand or degree of responsiveness by comparing the total percentage of price
modification with the total quality demanded. On the other hand, it is the total amount of change
in the quantity demanded by dividing it by percentage in one of the other variable over which it
depends (Laudon and Traver, 2013).
Price elasticity: It is said to be the response of total quantity demanded to the specific change in
the price of a product. It has been assumed that consumer income, taste as well as prices of
various products remain constant. The Tesco price of products remain constant with the change
is quantity demand by the customers.
It has been found that product of Tesco is having unattractive design. It would shouts that it is
economical and low quality. The customer with having sensitive price option so it products are in
elastic demand for them. Thus, don’t care about the packaging that will shop at Tesco to get rid
of all valuable products. The two important factors that affect the change in demand elasticity of
the customer are; income level and availability of substitute goods from the other company
which are providing the same products in better quality. With the 10% of increase in prices, the
clothing demand would only estimate to reduce to 1%. In case the demand of products or any
other commodity is under consideration is having various use, then its demand would be elastic.
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