Analysis of Tesco Company - Case Study Example

Analysis of Tesco and Company overview Carving a niche in the market is one of the hardest things for any new business. Once in the market, the business founders have to make sacrifices, carry out intensive and extensive research and continuously adopt new technology to be at par with their competitors. This is what Tesco; a business established in 1919 at the east of London has continuously done, and has strongly made its presence known for over 95 years (Dinkholf, 2013). Tesco has been recorded as the third largest food, general merchandise and grocery retailer in the world, operating over 6,350 stores located at different places in the world. It has an employee base of about 500,000 people in its 960 express stores, 175 metro stores and 450 superstores (Haerifar, 2013). The express stores stock about 7,000 different products, a bigger percent being fresh foods. In the metro stores, food products are also sold and they are located in major city centers whereas in the superstores, food and non food products are sold (Dinkholf, 2013). Examples of the non food items include DVD’s and books. In January 2012, (end of its trading period), the company recorded a revenue of about £64.8 billion and a net income of £124 .0 million (BBC, 2013). Most of Tesco’s stores are located in the U.K, and hence the largest percentage of its market (about 70%) is located in the U.K (Haerifar, 2013). Tesco can be subdivided into four major sectors; convenience stores, traditional retail, online selling channels and hypermarkets, supermarkets and superstores. The company also provides its services online through its two sites, Tesco.com and Tescodirect.com. Its main competitors include ASDA, Sainsbury and Morrison’s (Humby, Hunt and Philllpns, 2008; Dinkholf, 2013). However, Tesco commands the largest market share as depicted in the figure below. Figure 1: Market share between Tesco and its competitors PESTEL analysis of Tesco Political environment The factors under this category include regulations by the government, rules (both formal and informal) on which the business operates, taxation policies, the political stability of a country, employment laws, restrictions on different types of trade, trading tariffs and the employment laws employed in a country (Dinkholf, 2013). Tesco has its businesses placed in about 14 countries which are spread in the U.K and in the USA (Haerifar, 2013). In most of the countries where the company has invested, the governments have trade conditions of requiring the foreign company to employ a significant percentage of the local population. With regards to this, Tesco has had a favourable environment since it has been able to provide jobs for many categories of people including the highly skilled, the lowly skilled, the lowly paid jobs as well as jobs requiring highly learned people. In addition, it has employed all categories of people including elderly workers, the disabled and physically handicapped people and even students. In addition, the stability experienced in most of the countries where Tesco has invested has ensured that it operates smoothly without any interference from the governments. The many chances that countries are enjoying from the increased globalization has made it easier for Tesco to trade in them (Haerifar, 2013). Conclusively, it can be said that the political environment (s) under which Tesco operates works to its advantages. Politically, with the maturing democracy and government incentives, Tesco is likely to register more profits Economic factors Economic factors influence and affect the purchasing ability of existing customers and new (expected) potential customers. They also affect the company’s capital that can be reinvested. Other factors in this category include the GDP of a country, the rate and change of inflation, the exchange rates and the interest rates in a country. Economic factors greatly influence the current and future demand of a product, the current and future price of a product and the profits to be generated by the company by the end of its trading period (Dinkholf, 2013). It is important to note that for Tesco, the bigger share of its market is concentrated in U.K, and this is a big threat to the company. In case of a market collapse or decline in demand in U.K, Tesco is most likely going to be hit. However, Tesco has remained stable due to the stability of the U.K economy. The country’s GDP has grown and improved constantly for a period of time (as shown in figure 2) and this has promoted the success of Tesco. Another reason for its envied stability is the fact that the people largely rely on Tesco’s products (since they are basic products, for example food) (Dinkholf, 2013).Even in times of recession or economic downturn, people would still need to purchase food and groceries. However, the non-food products are at a higher risk of losing the customer base in case of an economic downturn. Tesco’s businesses in the USA (and especially Turkey) have given a dwindling performance due to the economic status of the place (BBC, 2013). Figure 2: U.K’s GDP 1989-2009. Social factors Some of the examples of social factors that affect the performance of a business include the demographic characteristics of a business such as knowledge on safety, change in spending incomes, and amount of disposable income, population growth rate, consumer behaviors, preferences and spending habits among others. Tesco puts in mind the changing preferences and they adopt methods and products that will suit them. For instance, today’s customers are very selective and well informed on the many diseases that emanate from unhealthy feeding and as a result, they want to purchase healthy and safe foods. In addition, online shopping is another changing dimension, and Tesco has definitely maintained the customers’ loyalty by providing online retail shopping (The Telegraph, 2013). It therefore examines and carries out constant research so as to keep up with the customers and consumers needs. Technological factors Tesco is at the forefront of adopting updated technology to ensure that it retains its customers through timely delivery of high quality products. Technology is a great determinant of how successful a business is and shall be. Its introduction and use of self check out machines has helped Tesco to up their services and improve their stocking and distribution of products. Its adoption of online stores has definitely been a huge factor in determining their success (The Telegraph, 2013). Environmental factors All companies have a responsibility to the society to minimise green house emission. In response, Tesco is determined to become known as a zero-carbon-emission business by the year 2050.It also aims at reducing its carbon foot print by a50% margin. This has further boosted its success as people realize that it is not just aimed at making profits but is also responsible to the society (Dinkholf, 2013). To further promote this, Tesco’s greener living scheme and its green club points are of great value. It rewards its customers for minimal use of polythene, adoption of recycling and packing their food and groceries in environmentally friendly bags (Humby, Hunt and Phillps, 2008). This way, it has been able to have good relations with the society and the local governments. Legal environment Legal factors may include aspects such as value added taxes, wage payments and policies set by trade commissions. Most of the competitors and business people usually adjust their prices frequently in order to maintain existing customers and attract new ones. The Food and Retailing Commission had put a barn to this but the rule did not hold for long. The expected rise in VAT may make things a bit harder for Tesco, but hopefully, it will survive the turbulent times (Haerifar, 2013). General market and customer analysis The characteristics of the food and grocery market in U.K are unique. To begin with, the customers prefer shopping in a place where they can access several things under the same building. Secondly, the customers are very particular in their needs, especially those that are already loyal customers. This raises the level of competition between businesses. In addition, customers in the mature age bracket prefer shopping in convenience stores, and they also have a strong liking for online shopping (Dinkholf, 2013) (D. This number decreases as one moves below thirteen and past 60 years of age. In addition, the rate of growth in the grocery and food industry has been constantly increasing as shown in the diagram below. Figure 3: U.K grocery and food retailing Tesco customers largely follow the same characteristics as described above. Tesco remains a chief player in the most famous grocery stores in the U.K, especially after having opened about 150 convenient stores in 2013( Haerifar, 2013). The customers are keen on quality, autonomy and flexibility, and Tesco is keen to fulfill all these. The “top up” shopping style is also rampantly spreading and Tesco is keen to deliver to such customers. Tesco SWOT analysis Strengths To begin with, the Tesco brand has already carved a niche for its self, and it remains a brand to reckon with by many up and coming retailing groceries. With its largest market share, it has the largest number of consumers and this is a great advantage. Secondly, Tesco enjoys a large and loyal customer base which most of the smaller competitors do not have. It also has loyal and hard working employees. Lastly, the fact that it already has the ability to sell to its customers in an online form makes it more stronger (Dinkholf, 2013). Weaknesses There are two major weaknesses in Tesco. To begin, over 70% of its key operations are located in the U.K, the same to their largest portion of the market. In case of an economy downturn, Tesco is most likely to record huge losses. Secondly, the company has failed to diversify its operations, which, if done, would definitely yield a high profit and revenue. Opportunities Some of the opportunities include the rise in the groceries and food segment from £125billion in 2009 to the expected £145 billion in 2014 (Haerifar, 2013). Tesco should definitely take advantage of this. Tesco, having already made a strong reputation and brand image for itself can reap higher chances by investing or opening up health and beauty stores. This would further increase its earnings. Lastly, international trade is a good source of revenue when effectively managed. Tesco should carry out more analyses to identify the best places for investment. Threats The main threat to Tesco is the constant price wars from its major competitors (Asda and Morrisons). The global financial crisis is another threat likely to affect it too. In the U.K, the GDP is expected to change, and this will most likely be on the negative side. The decline in income and the low wages being paid to people are further threats to the success of the business. Its aggressive strategy and its attitude to its competitors have attracted negative publicity to it (Dinkholf, 2013). Conclusion and recommendations The changes that have been noted all through this work will definitely affect the expansion, development and operations of Tesco. However, if constant research is done, the company may be able to withstand the rough and harsh times of the economy, and by taking advantage of its opportunities and strengths, it can definitely keep soaring higher. If the company’s efficiency decreases, it will most likely lose its customers to its competitors. However, it may survive and keep on having an up-scale record in revenue if it considers recommendations such as the following. To begin with, if it intends to expand its stores further internationally, Africa is definitely a wise choice. With the increased demand, maturing democratization and the increased government incentives to encourage foreign investment, Tesco should consider expanding in Africa. It should not slow down in its up-speed adoption of technology and this will ensure that it is always a step ahead of its competitors. Careful consideration of its marketing mix (product, price, place and promotion) should be done carefully to ensure that even with the forecasted contract in development, Tesco will remain strong and continuously enjoy higher profits. In addition, to be at pace with the changing customers needs and preferences, constant research is mandatory for Tesco. The company should also carry out a PESTEL and SWOT analyses as frequently as possible. References BBC., 2013. Tesco U.K sales decline 1.5 in third quarter. BBC.COM. [Online]. Available at [Accessed 26th February 2014]. Dinkholf, M., 2013. Business Valuation of Tesco. Chicago: Grin Verlag. Haerifar, P., 2013. Knowledge management within Tesco. Chicago: Grin Verlag. Humby, C., Hunt, T., and Phillips, H., 2008. Scoring points: How Tesco continues to win customer loyalty. London: Kogan Page Publishers. The Telegraph. 2013. Tesco plans to accelerate global investment in digital technology. Telegraph.Co.uk [Online}. Available at [Accessed 26th February 2014]. Read More