Case Study: Tesco's Competitive Strategies and Market Challenges

This case study examines Tesco's position within the UK grocery market, focusing on the competitive pressures from discount stores like Aldi and Lidl. It analyzes Tesco's cost leadership strategy through the lens of Porter's Five Forces, highlighting the challenges of maintaining low prices and market share in a price-sensitive environment. The study explores Tesco's responses, including the potential of opening its own discount chain, and considers the opportunities and difficulties of venturing into e-commerce. The case study identifies problems such as falling market share, difficulties in online marketing, and the pressure exerted by discounting stores. It also discusses the impact of recession and inflation on consumer behavior. The analysis considers whether Tesco should adopt a discount store strategy and whether discount supermarkets should enter the online shopping market.

Case Study

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Problems described in case study................................................................................................3
Cost leadership strategy of Tesco based on Porter’s Competitive Forces Model.......................5
Tesco’s strategy of opening a discount chain..............................................................................7
Aldi and Lidl’s strategy of venturing into e-commerce...............................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Case titled Offline, Online and Back. The evolution of the UK Grocery Market discusses
growth of groceries market of UK and main stores contributing in UK groceries market. Case
discuses that Tesco, Sainsbury’s Asda and Morrisons with market shares 27.4, 15.4, 15.3 and
10.3 percent respectively cover almost 70 percent of groceries market and are known as ‘Big
Four’ of in UK. Case study discussed problems and challenges being faced by these ‘Big Four’
because of discounting stores like Aldi and Lidl. Because introduction of discounting stores
make it difficult for Tesco to maintain its low cost policies and additionally consumer behaviour
because of recession and inflation encouraged them to shop on these discounting stores as their
price is lower and consumers are price sensitive. However, this is specific case of UIK where
consumers are price sensitive, other than this Tesco have been very successful in South Korea
with strategy that it adopted to identify and serve customers as per their routine and
requirements. Further case discusses opportunities available for Tesco in form of opening and
introducing discounting stores and for discounting in form of e-commerce strategy.
This case aims at discussing should Tesco adopt strategy of opening discounting stores to
gain its market share that it lost due to popularity of discounting stores. Another objective of this
case is to understand and analyse whether discount supermarkets should enter into online
shopping market.
MAIN BODY
Problems described in case study
Case study outlines and describes certain problems and these problems are as follows-
Popularity of discounting supermarkets leading Tesco to struggle on its cost leadership
This is one of the problems that have been described in this report. Reasons for this
problem are people and organisation. Because due to recession and inflation consumers
behaviour changed and they shifted to make their groceries purchase at big supermarkets to
discount stores (Corfe and Gicheva, 2017). Another reason is organisation, as could not offer
better value than discounting stores and this lead to changes shift in organisations. These are

reasons because of which supermarkets like Tesco are struggling on their cost leadership and
even after its low cost strategy its market share is reducing and discounting supermarkets are
getting successfully.
Falling market share of Tesco
This is another problem that has been identified and described in this case. Reason for
this problem is introduction and popularity of discounting supermarkets (Jonah, 2018). This is
also because of increasing market share of Aldi and Lidl and along with this recession and
inflation also cased fall in market share of Tesco.
Failed attempts of Tesco in its online marketing
This is another problem identified and described in case study. Tesco operates in two
ways online and offline, and because it failed to succeed in its online operations and compete
against retailers like Amazon and Argos. This required Tesco to close its Tesco Direct which was
operating to sell household goods and clothing. Reason behind this problem is inefficiency of
Tesco because of which it could generate any profit after its operations means covering cost of
marketing and fulfilling its orders. This is also because of organisational reasons that Tesco has
managed to carry out effective operations and practices in its traditional offline functions.
Force and pressure created by discounting stores
This is another problem that has been described in case study. This problem is concerned
with force that Tesco and other companies that are part of Big Four are facing challenge and
pressure because of introduction of discounting stores. UK and consumers in UK have
experienced recession and inflation and consumers have become price sensitive (Woohyoung,
Hyun and Hwang, 2020). In such situations discounting stores got introduced and they started to
provide products at low prices. This created pressure on Big Four stores that they required to
rethink their approach. This is also because these organisations could not adopt to changing
requirements and these organisation also required to face extra competition than what they were
facing earlier. Collectively these factors created pressure on Tesco and other Big Four
organisations.
Difficulty in making profits through e-commerce operations by Tesco and Sainsbury’s

This is another problem that has been described in case study, the context of this problem
is that supermarkets like Tesco have experienced difficulties in making its e-commerce
operations profitable. And Aldi and Lidl when start and introduce their online and e-commerce
operations, this problem and competition for such organisations will increase. This problem has
been created by organisation that are both discounting organisation as well as organisations like
Tesco are also contributing in this problem (Wood, Wrigley and Coe, 2017). This means that it is
because of their inefficiencies that they could not make enough profit through their online and e-
commerce practices.
These are certain problems that have been identified to have been described in case study
and these are mainly concerned with problems that big retail and groceries organisation because
of introduction of discounting organisations.
Cost leadership strategy of Tesco based on Porter’s Competitive Forces Model
Cost leadership strategy of Tesco
Cost leadership strategy is one of the generic strategies that have been developed by
Porter. This strategy is known be a competitive advantage for the organizations. Tesco also is
practicing cost leadership strategy. Cost leadership strategy involves an objective of becoming
lowest cost producer in the industry. Method to adopt this strategy and produce lowest-cost
products is to produce on a large scale which enables business to exploit economies of scale
(Heller, 2017). This strategy is often adopted by those who are biog organizations and produce at
large scale and offer standard product that has little or no differentiation and are readily
acceptable to majority of customers. Tesco offers groceries and that does not require any
significant differentiation and concerned with groceries majority of the customers are price
sensitive. Low-cost producers offer their products at discounts and provide cost and price
advantage to customers that encourage customers to select Tesco above its competitors. In is
important that for being low cost originations are highly efficient in using their resources and
their organizational operations are also carried out effectively. Certain strategies that firm
requires to achieve in order to be low-cost producer involves-
 High level of productivity or production at big scale
 Effective utilization of capacity

 Effective bargaining power to ensure organization can acquire material and inputs at
lowest possible cost
 Effective use of production process and technology
Tesco has adopted these strategies in order to be lowest-cost producer in industry and along with
this Tesco also considers maintaining standard quality of the products being produced and
provided by Tesco (Wada, 2018).
Porter’s Competitive Forces Model
Porter’s competitive forces model is a framework that organizations can utilize to
understand their competitive position in industry where they are operating. This model involves
analysis of five key forces that affect competition in an industry. Tesco is operating in retail and
groceries industry and competitive analysis for this is as follows-
Threat of new entrants- This is concerned with threat that new organizations and firms can enter
into industry and this will enhance and complicate existing competition in industry. This threat
of new entrants in low when there are high barriers to entry and in retail and groceries industry
there are low barriers. Hence any firm can easily enter into industry however it is not possible for
any firm to enter as direct competitor of Tesco. Entry barriers in this involve regulations,
investment required, skills and knowledge required and economies of scale.
Threat of substitutes- Substitutes are those products and services that can be used at the place of
products and services of Tesco. There is no substitute for groceries but there are several
substitutes for Tesco and its products (Omsa, Abdullah and Jamali, 2017). Hence power of Tesco
in this competitive force is low, because this power gets affected by number of substitutes and
cost of switching. Concerned with Tesco, there are several substitutes and cost of switching is
insignificant rather low price substitutes are also available to customers.
Bargaining power of suppliers- This is concerned with power of suppliers that they can use to
increase price of material and raw material being supplied by them. This power gets affected by
products being supplied and number of suppliers. Tesco has strong power in this because Tesco
works with thousands of suppliers and is not dependent in few suppliers.

Bargaining power of buyers- This is power of buyers that they can use to reduce price of
products of Tesco. This power gets affected by number of buyers and number of sellers and
Tesco has low power in this. This is why products of Tesco are sold at low prices.
Industry Rivalry- This is concerned with rivalry among existing organization in a industry. This
gets affected by number of organizations and Tesco operates in a highly competitive industry
with organizations like Sainsbury’s, Morrisons, and discounting stores among others.
There are certain elements like strong power of Tesco in suppliers power that has enabled
it to maintain cost leadership (Tomar, 2020). Another element that link both these is cost
leadership and competitive forces that because of its production in large quantity, it is able to
maintain its low cost strategy and this is also one of the reason that create barrier for
organizations to enter into groceries industry. This way Tesco even after low power in certain
elements of competitive environment has managed to maintain cost leadership as its competitive
advantage.
Tesco’s strategy of opening a discount chain
Tesco has planned to introduce and open its discount stores chain in order to compete
with discount stores and to increase its market share that Tesco lost because of introduction and
opening of discount stores. Case outlines that currently discount stores are increasing their
market share and because of these stores Tesco lost its market share. Tesco as has planned to
open its discounting stores’ chain to recover its previous position.
This strategy seems to be helpful for Tesco in order to restore and create its previous position
and increase its market share. This is because success of discounting stores is not to be tested
because it has been identified that discounting stores are successful and other organisations can
easily accept and implement this strategy without prior testing. Concerned with Tesco, its
products are currently also available on low price and it has capacity to successfully operate its
discounting stores because of its economies of scale and other efficiencies in its operations
(Coughenour, Bungum and Regalado, 2018). Opening discounting stores will be very helpful for
Tesco because doing so will not require Tesco to change its image and brand value, product of
Tesco are also available at low price and this is why it has high possibility that discounting stores
will be accepted easily by customers of Tesco. This will enable Tesco to attract customers of

discounting stores because of positive brand image of Tesco and this will add element of
discounting stores. Another profit for Tesco through this strategy is that Tesco will be able to
retain its existing customers whom it might lose because of discounting stores, opening and
introducing discounting stores will provide benefit to Tesco to retain its existing customers along
with attracting new customers with its brand image. Hence Tesco can and should adopt this
strategy because mainly all factors are in favour of Tesco. These factors involve its capacity to
create low cost products, its brand image and effective brand identification. This means that
Tesco is being operating from long time and this is why it has significant brand awareness in UK
compared to newly entered discounting stores, this is a positive element for Tesco to adopt this
strategy (Hardaker, 2018). Tesco has also managed to ensure customer satisfaction and create a
base of loyal customers on which Tesco can rely for its successful operations in its strategy of
opening new discounting stores.
This suggests that Tesco’s strategy for opening a discounting chain is helpful for Tesco in
achieving its lost market share and get back its previous position.
Aldi and Lidl’s strategy of venturing into e-commerce
Aldi and Lidl are two disciounting stores that have given strong competition to big
groceries stores like Tesco and Sainsbury’s through their approach of operations. Now as Aldi
and Lidl are planning to enter into and venture into e-commerce, this strategy does not seem to
be a good idea. This is because before Aldi and Lidl big firms and organisations have
experienced failure in their e-commerce market. Concerned with this venture, it requires strong
capability to ensure that companies are able to make profit after completing their operations and
companies with strong companies have failed and this they can consider as an idea for their
strategy (Gorondutse and Gawuna, 2017). Other than this, offline they are competing with less
organisations, and in their online operations they will be competing with more organisations and
that too are Amazon and Argos who are leaders in this market. Another reason that this is not a
good ideas is that it is feasible to maintain low cost in offline operations and in stores for a
discounting store which is not possible in online operations. This means that cost of operations in
e-commerce operations are considerably high, one of the reason that Tesco could not get success
in e-commerce operations.

High cost of operations in e-commerce is likely to significant affect image of Aldi and
Lidl as discounting stores. As stated in case study these organisations’s uniqueness is associated
with their simplicity and low cost and venturing into e-commerce they can put these elements at
risk and this might cause failure of these organisations. Other than this, there are several
organisations that are only operating at digital platforms and are active on e-commerce and along
with this there are offline stores that are operating on online platforms. Collectively competition
and complexity both are high in e-commerce operations and this way discounting supermarkets
might lose their uniqueness and their low-cost and discounting strategies can also get affected
(Sharma and Kurien, 2017). These strategies are key strategies that have been adopted by
discounting stores and are basis for their competitive advantage and their uniqueness that enables
them to succeed in a highly competitive and complex environment.
This means that for Aldi and Lidl it is good that they work on improving and enhancing
their existing operations and their quality rather than venturing into e-commerce where they
might have to sacrifice their uniqueness and can also cause failure of their successful
organisations.
CONCLUSION
On the basis of above discussion, it can be concluded that case study have discussed
several elements of retail and groceries industry of UK. This involves that existing firms are
getting strong competition from firms that have recently introduced and became successful. This
even required existing big firms to think about their approach of operations. Later report
discussed about cost leadership strategy that has been adopted and implemented by Tesco and
strategy of Tesco to open and introduce new chain of discounting stores. This is to restore its lost
market share and position in UK because of discounting stores. Further report discussed about
strategy of Aldi and Lidl to venture into e-commerce market and discussion suggests that Aldi
and Lidl’s idea of venturing into e-commerce is not good.

REFERENCES
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