Tesco: Analysis of Market Share, Competitors, and Industry Trends

This report provides an overview of Tesco, a major British retail company, examining its history, current activities, and financial performance. It compares Tesco with its main competitors, Sainsbury's and Morrisons, highlighting similarities in their business models, such as a focus on food products. The report analyzes financial statements from 2017 to 2019, noting improvements in gross profit margins across the industry but a decline in overall profit due to increased competition. It also discusses industry trends, including the impact of economic recession, price competition, and the rise of discount supermarkets. The report references market share data, showing Tesco's dominance but also a decline in its share, and discusses evolving shopping patterns and the impact of factors like Brexit on the market. The appendix includes financial data for Tesco, Sainsbury's, and Morrisons, offering a detailed comparison of their performance metrics.

Running head: ACCOUNTING AND FINANCIAL MANAGEMENT
Accounting and Financial Management
Name of the Student
Name of the University
Author Note

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Table of Contents
Overview of Tesco.......................................................................................................................2
Similarities with main competitors..............................................................................................2
Industry Trends............................................................................................................................3
References....................................................................................................................................5
Appendix......................................................................................................................................6

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Overview of Tesco
Tesco is a British retail company involved in the sale of grocery and general
merchandise. In terms of gross revenue, it is the third biggest retailer and on a revenue basis, it is
the ninth biggest retailer in the world. Founded in 1919, the company had initially started as a
group of market stalls. Since then, the focus has shifted towards newer products like clothing,
furniture, electronics, books, financial services, software and internet services. As of 2019, the
sales of the group were valued at £56.9 billion and the statutory revenues earned by the entity
were values at £63.9 billion (Tescoplc.com. 2020).
Similarities with main competitors
In the United Kingdom, the grocery retail market is dominated by four major companies
apart from Tesco. They include Asda, Sainsbury’s and Morrisons. Although, Sainsbury’s and
Morrisons are considered as a competition, their revenue generation and scale of operations is
not in a similar level to that of Tesco. Sainsbury’s and Morrisons. One of the similarities in the
business model of the entities is that the food products are the ones which are most commonly
sold by them and contribute a major parts towards their revenue. The closure of the retail outlets
and loss of employment combined with the increased competition from discounted online sellers
is one of the factors which is significantly impacting the business model of these entities. On the
comparison of the financial statements of all the three entities for the years 2017 to 2019, it is
quite evident that the gross profit margin has improved in 2019 from the preceding years. This is
due to an overall improvement in the profitability of the industry in 2019
(About.sainsburys.co.uk. 2020). Similarly, there was a decline in the overall profit earned by the
entities in 2019. The reason for this is the decline in the profitability is the increased competition
faced by the entities and a relatively lower increase in the operating profit earned by them in

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comparison to the increase in the revenue generated by them (PLC 2020). The debt-equity ratio
of the entities for the three years suggests that there has been an active effort on the part of all of
the three companies to significantly reduce their debt levels from those levels employed in 2019.
The level of debt as a percentage of the equity employed by the entity was extremely close in
2018.
Industry Trends
There are a few challenges faced by the companies operating in the UK retail sector. The
main reason for the same are the economic recession faced by the country and an overall increase
in the price levels of the products sold by the entity. The constant search for value by the entities
has increased the competition for the retail outlets from different entities. One of them is related
to the challenges faced by them from discounted supermarkets in terms of food items. The surge
in the demand for these markets has resulted in the retail entities reducing their prices to meet the
competition. The recent trends suggest that there has been a constant growth in the overall value
of the market since 2004. However, this growth slowed down in between 2014 to 2016. This
growth has however picked up again since then and is expected to continue in the near future. In
the beginning of 2019, the market share of Tesco was very high and stood as high as 27 percent.
However, when compared to the same period in the previous two years, the company had lost its
share in the market by some margin. The valuation of the entire market was estimated around
193.6 Billion British Pounds in 2019 (Statista 2020). Out of this, most of the revenue is still
generated from the supermarkets of the entity. The trends in the shopping pattern suggests that
the reach of the retail outlets is still greater than other channels through which goods are
available. At the beginning of 2015, Sainsbury’s was the closest competitor to Tesco in terms of
the market share and revenue generated by the entities. However, since March 2019, the share of

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Asda’s has surpassed that of Sainsbury’s to become the second largest company in the retail
market. Since 2017, a combination of factors like Brexit and unstable operating conditions have
resulted in an increase in the volatility in the market and have caused a significant dent to the
profitability of the entities.

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References
About.sainsburys.co.uk. (2020). Title. [Online] Available at:
https://www.about.sainsburys.co.uk/investors/annual-report-2019 [Accessed 16 Jan. 2020].
PLC, M. (2020). Annual Report 2018/19 - Morrisons Corporate. [Online] Morrisons. Available
at: https://www.morrisons-corporate.com/investor-centre/annual-report/ [Accessed 16 Jan.
2020].
Statista. (2020). Great Britain: Grocery market share 2015-2019 | Statista. [Online] Available
at: https://www.statista.com/statistics/280208/grocery-market-share-in-the-united-kingdom-uk/
[Accessed 16 Jan. 2020].
Tescoplc.com. (2020). [Online] Available at:
https://www.tescoplc.com/media/476423/tesco_ar_2019.pdf [Accessed 16 Jan. 2020].

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Appendix
Tesco
Particulars 2017 2018 2019
Revenue 55917 57493 63911
Gross Profit 2902 3350 4144
Operating Profit 1017 1837 2153
Profit Before
Tax
145 1298 1674
Profit After Tax -54 1210 1320
Gross Profit
Ratio
5.19% 5.83% 6.48%
Net Profit Ratio -0.10% 2.10% 2.07%
Current Ratio 3.87 2.49 1.58
Debt-Equity
Ratio
0.45 0.27 0.25
Sainsburys
Particulars 2017 2018 2019
Revenue 26224 28456 29007
Gross Profit 1634 1882 2007
Operating Profit 642 518 312

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Profit Before
Tax
503 409 239
Profit After Tax 377 309 219
Gross Profit
Ratio
6.23% 6.61% 6.92%
Net Profit Ratio 1.44% 1.09% 0.75%
Current Ratio 2.79 3.23 1.98
Debt-Equity
Ratio
0.21 0.18 0.14
Morrisons
Particulars 2017 2018 2019
Revenue 16317 17262 17735
Gross Profit 604 633 651
Operating Profit 468 458 394
Profit Before
Tax
325 380 320
Profit After Tax 305 311 244
Gross Profit
Ratio
3.70% 3.67% 3.67%
Net Profit Ratio 1.87% 1.80% 1.38%
Current Ratio 0.41 0.42 0.42
Debt-Equity 0.29 0.21 0.22

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Ratio