Tesco is a British multinational grocery retailer that offers food products, apparels and other merchandise. Its headquarters are located at Hertfordshire in England, United Kingdom. The supermarket holds the third position globally in terms of market share and is the leading groceries market in the United Kingdom (Hong 2010). By October 2019, the company reported a market share of approximately 17.7%, a drop from the previous year’s 24.8% (Wang 2019). However, with the rising consumer demands of freshness, punctuality and accuracy in the retail market, upcoming retail markets are slowly attracting customers from Tesco and significantly rising in terms of competitive advantage. Today, Tesco closely competes with ASDA and Sainsbury’s, which have risen ranks to obtain a 17% market share in the United Kingdom (Guo 2019).
Further, these companies are still launching convenience stores to enhance better service delivery to overtake Tesco from the top position. Other upcoming close competitors include Morrison’s, which uses the vertically integrated structure to reduce costs and attract customers and the Waitrose supermarkets (Wrigley 2016). These risks demand Tesco’s management to adopt a competitive strategy that will help them retain their market share and attract more consumers for an enhanced competitive ability. The report reviews strategic management practices that Tesco needs to adopt to maintain its position following a review of the company’s business environment to determine its competitive threat and plausible investment opportunities.
The section entails a business environment review performed through three analysis models namely SWOT analysis, PESTEL analysis and Porter’s five analysis to assist the management in formulating strategic plans that will help the company to retain its competitive position.
A SWOT analysis is a strategic planning tool used to determine the strengths, weaknesses, opportunities and threats on a company.
· Leading market share- Tesco dominates the grocery market share in the United Kingdom, with over 27% of the total population. Further, it is a leading supermarket in the international community with its fame highly spread across Ireland.
· It is the biggest grocery retailer in the UK- Tesco is the leading grocery store in terms of employees, revenue, market share and number of employees. The company has reported a consistent rise in profits over the years.
· Tesco is globally diversified- the supermarket has over 6500 thousand stores across fourteen countries in Europe, North America and Asia Guo 2018).
· Tesco is the largest private employer in Europe- the supermarket has been ranked as the top opportunity builder across Europe, having created over seven hundred thousand employment opportunities (Hong 2010).
· Superior tech application- the supermarket is innovative in that it has integrated all its business process to be controlled technologically. Products from the company are encoded with a radio frequency identification barcode to count and facilitate easier distribution (Wills 2019).
· Diversified stores in terms of number and naming- Tesco has around 6966 stores that operate in different names such as Tesco Homeplus, Tesco Metro, Tesco Extra, Tesco Express and Tesco Superstores (Wang 2019).
· A consistent decline in market share- in 2018, Tesco had a market share of 28.4% in Europe. However, the share dropped to 27.7% in 2019 business reports (Wang 2019).
· Failed operations in some international markets- Tesco has consistently failed to launch services in the US and Japan, forcing them to incur losses and close their stores in the two regions.
· Low-cost strategy leading to decreased operating profit- being a price leader in the UK, the low cost strategy has made the firm incur significant losses with operational profits declining by 9% in 2018 (Wang 2019).
· Fraud trial and accounting scandal- the supermarket has had legal issues whether they were heavily fined for false accounting declaration and misinterpretation of profits.
· Online shopping- Tesco can expound its sales activities by upgrading its online activities such that clients can purchase and request for deliveries via online platforms (Helms 2010).
· Emerging markets- despite failing in launching stores in Japan and the United States, Tesco can expand its business in emerging countries such as South Korea, Turkey, Indonesia as they present a favorable business environment
· Expanding Jack’s business- through developing the new discount store, it can effectively compete with low cost rival supermarkets in the United Kingdom such as Aldi and Lidl.
· Engaging in joint ventures- Tesco should identify regions where their stores are underperforming, or where they have completely failed to launch business operations and form business joints through franchising with established ventures
· Incorporation of artificial intelligence in retail- Tesco should seek to introduce artificial intelligence in supply chain planning, demand forecasting, consumer intelligence, pricing and running store operations such that they can always have prior information on the product to avail in the market.
· Consumer engagement through augmented reality- incorporation of artificial intelligence will assist the supermarket in revolutionizing the retail sector where consumers can virtually try on 3D versions of products before making purchases. Through these, customers can review how products such as shoes and electronics will look at their homes (Pollard et al. 2018). This will assist the company spread awareness on available products.
· Strategic alliances with other brands- joining with reputable companies and introducing their product at Tesco will assist Tesco in increasing the number of products on offer hence attracting more customers.
· Destruction of reputation by the fake farm legal threat- in 2017, Tesco faced legal accusations against misleading consumers with fake farm brand names and marketing products under fake names of Woodside Farms. These cases have since then destroyed the reputation of the company with some customers running away with claims that its products are fake.
· The controversy rising from the Christmas advert- also, Tesco launched a Christmas ad that appeared rather disrespectful to the Christian religion. This contributed to a heavy social media backlash, forcing some customers to boycott products from the supermarket.
· Competitive supermarket giants in the UK- Tesco faces stiff competition from upcoming supermarkets such as ASDA, Carrefour, Aldi, Walmart that threatens to overtake the company’s market position. The company has over the last two years faced consistent decline in market share.
· Economic and credit crunches
Pestle analysis is a strategic business analysis tool that analyzes the uncertain and unpredictable external business environment factors in the bid to formulate a strategic formula to combat them and retain a competitive advantage. PESTEL analysis entails the political, economic, social, technological, environmental and legal factors affecting a business entity.
Political factors that are likely to affect a business firm include taxation laws, exchange rates, political stability, intellectual property rights, and risks of military invasion, among others (Akhmadeev 2015). Being multinational firms, political factors affecting Tesco supermarkets vary according to areas of operation either in Asia, China and the United Kingdom. The most crucial factors likely to affect Tesco include taxations on imports and exports. The company at times, exports products from the United Kingdom to its branches in China and East Asia. As a result, the company must be considerate on the import duty rates to prevent incurring losses. Political stability is favorable in the three regions since there are no reported political faults among them. Also, the Tesco Tax proposed by the local council in the United Kingdom is likely to incur losses should it be signed into law (Guo 2019). Also, the company needs to be considerate on exchange rates while deciding on the currency forms to use across the three regions. With the accession of China to the World Trade Organization guidelines, the company is now free to venture into the wide market presence in China.
Economic factors influence the buying behavior of consumers. They include employment rates, labor costs, domestic growth product of the country and the level of disposable income among consumers. There is a relatively low rate of unemployment in the United Kingdom. This suggests that the buying power of the consumer is relatively high due to higher disposable incomes (Hong 2010). However, the company must spend more to acquire labor. For instance, in 2018, the wage rate was increased by 4.4%, meaning that Tesco has to pay more to gain employees Guo (2019). Further, following the fears of the recent economic recession in 2008, people still fear to overspend cash. This means that most consumers opt for meals prepared at home. These are good news to Tesco since consumers will purchase more groceries.
Social factors entail the cultural beliefs and values that determine the population’s way of life. It also entails health status, education background and demographics (Akhmadeev 2015). An analysis of the United Kingdom population presents that a high number of the population are aged. Aged people rarely take meals from outside. Thus this increases buying rates of groceries. Also, with a high education background in the UK, most customers will be wise enough to select quality products. However, the rise of infectious Coronavirus could reduce sales significantly since customer movement is restricted (Guo 2019). However, since most of these customers will opt for a one-time shopping, the company should establish consumer trends to identify the days to avail massive stock amounts. Also, the company need to segment services in terms of age since most of the aged people will opt to ask for home deliveries rather than travel to supermarkets.
Online platforms are likely to affect the operations of the supermarket, with most people opting to order online deliveries. Further, the company should integrate its advertisement strategies to online platforms. The company could also introduce online loyalty programs such as capons to discourage consumers from shifting to consumers.
Customers are enlightened enough to select socially responsible organizations. Tesco must, therefore, ensure environmentally friendly practices in terms of distribution and packaging. Further, the company should avail reusable bags to reduce plastic bag pollution, save consumer spending and also present Tesco as an environmentally friendly company. Furthermore, Tesco has introduced the Greener Living Scheme that guides consumers on environmental friendly terms such as reduced food wastage and carbon footprint during meal preparations (Lalwani 2012).
Tesco needs to identify employee protection laws and abide by them to prevent legal actions against them. Recently, Tesco has been a victim of legal actions for accounting frauds, misleading investors and disrespecting religion. The company should stick by the provisions of Food Retailing Commission to prevent the occurrence of such cases that cost the supermarket twelve million dollars’ worth of fines and also destroyed the reputation of the industry.
Most products from Tesco rise from the farm. This means that there are numerous suppliers who Tesco could turn to should a supplier pose a high bargaining power. Since large supermarkets order these products in large quantities, they manage to convince the suppliers to avail the goods at low prices that are unmatchable by the small firms, weakening the bargaining power of suppliers against Tesco. Also, with the plausibility to source these products from abroad, the bargaining power of supplier is further weakened. Therefore, the bargaining power of Tesco supplier is weak.
The UK grocery market consists of a few dominant competitors such as Tesco, Asda, Sainsbury’s and Safeway with other upcoming small chains such as Waitrose and Somerfield, occupying only ten per cent share of the market. The United Kingdom grocery market have had a dominance of a chain of supermarkets over the last three decades due to operating efficiency resulting from the availability of a wide range of products (Martinette 2013). As a result, small retail shops in the UK are no longer efficient in operation as the chain of supermarkets has absorbed most consumers. These weaken the strength of incoming entrants who might wish to cause competition on existing grocery markets since they have already been established. Further, with the economies of scale and product differentiation, it would be almost impossible for a new entrant to gain roots in the grocery industry in the United Kingdom.
With standardized prices adopted at most Tesco stores, the company has significantly managed to retain customers, denying them a chance to complain or shift to close competitors. Further, Tesco’s famous loyalty card is a successful consumer retention strategy. The company has succeeded in satisfying consumer demands through better product choices, constant promotions, and customizing products. However, consumers still have dominant bargaining power against Tesco, considering that there is a wide range of supermarkets offering similar products. This means that should Tesco fail in high product provision at a single chance. They would risk losing a significant number of customers. Therefore, the bargaining power of consumers against Tesco is medium.
Availability of substitutes reduces demand for certain products as it presents consumers with an option to try on a new product. Most products at Tesco have a product for product substitute, where consumers can opt to leave beef from Tesco and obtain pork or chicken from an upcoming store. To counter this force, Tesco has strived to avail most substitute products in their stalls. For instance, the company offers both margarine and butter and offers different forms of milk such as fresh, condensed, and powdered milk. Through this, Tesco has wholly weakened the threat of substitute products making the threat irrelevant.
This can be termed as the most significant threat to Tesco, due to the huge number of powerful supermarkets in the United Kingdom. Though Tesco boasts of a leading position in terms of market share, these supermarkets are posing significant pressure through lavish advertisements, cost reduction among other marketing techniques. For instance, the company has lost a substantial number of consumers to Aldi and Lidl as they have launched price wars with Tesco, whereby they offer products at significantly low prices. Tesco’s efforts to counter the price wars through a discount chain known as Jack’s have been thwarted due to a limited number of stores, poor sales and extensive job losses. Therefore, the rivalry among existing Tesco’s competitors poses a significant threat to the competitive ability of the supermarket.
Based on the above analysis, it is clear that Tesco faces a significant threat of losing its market position by its close competitors. However, Tesco might evade such situation by incorporating some strategic management practices as recommended below.
- Incorporation of artificial intelligence to enhance online shopping and consumer engagement through augmented reality- the company, should integrate its processes via the artificial intelligence system to facilitate online business activities where consumers can check, order, pay and request for deliveries through online platforms (Wang 2016). Further, AI will promote consumer engagement where consumers can test Tesco’s products via virtual reality. This will assist the company in attracting and retaining customers while at the same time passing information on available products at the firm. As a result, the company will have increased its competitive advantage
- Enhanced corporate social responsibility. Today, most customers support organizations that are into community development programs (Herrera 2015). Tesco needs to improve its CSR strategy by engaging in communal activities such as fundraising, environmental conservation campaigns and disaster management strategies to attract more customers.
- Perform in-depth market research and market analysis before entering a new market to avoid failure and losses.
- Exploring emerging markets in Asia and Africa before expanding its operations- as per the SWOT analysis, Tesco has reported failed business operations in the US and Japan, mainly due to failed market research (Wrigley 2016). The company should conduct extensive market research in any emerging market before deciding the penetration strategy to adopt in the new market.