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The Position Of Tesco In The Grocery Industry

5222 words (21 pages) Essay in Marketing

27/04/17 Marketing Reference this

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The humble beginning of this grocery company started in 1919, and the name Tesco appeared first at the top of a shop at Edgware in 1929. This company has been growing in size and complexities ever since. The company is today the Britain’s leading retailer and the 3rd largest retailer in the world.(Guardian 2010) Presently, Tesco has more than 4,300 grocers, which now operate in 14 countries: South Korea, Malaysia, Japan, China, Republic of Ireland, Czech Republic, Slovakia, Turkey and Poland, Thailand, Asia, India and US. They have over 2,329 stores overseas and are still growing.

The company is good at buying and selling. The company invest in what matters to people, and that is the major thing that propels Tesco progress. This progress bestowed on The Present Chief Executive ‘Terry Leahy’ who has contributed immensely to the growth of the company and that is why he has spent 13 years in the position he is still maintaining that. This is evidenced by the launch of the Loyalty Scheme club card and Tesco.com, internet home shopping service etc. The company passed through the global recession and yet grew stronger than it was by recording a 10% increase in profit to a mighty £3.4 billion at April 2010.

1.1 Environmental Analysis of Tesco (PEST)

The environmental analysis of Tesco will help one understand what is happening both at the inside and outside of Tesco, and to increase the probability that the organisational strategies will appropriately reflect Tesco’s environment. The strategy of Tesco should be directed at exploiting the environmental opportunities and to block environmental threats in a way that is consistent with the internal capabilities (Robson, 1997). Although Tesco is waxing stronger and was able to declare 10% increase in profit in spite of the recession, the analysis is still important as to determine what might affect it in the future. Environmental analysis of a company should be continuous and feed all aspects of planning.

Political Factors

Presently, there is no huge recognisable factor affecting Tesco. However, the winner of the fourth coming election is still unknown. Speculations have it that the Labour might loose out for the conservatives. The new government coming in might bring in a lot of unfavourable or favourable laws and policies for the UK grocery industry and other industries as well.

Economic Factors

The scourge of global recession that hit around 2008, this affected a lot of sectors globally. It could rather be said that Tesco withstood it by improving on there strategy, by changing there prices to suite every classes of individuals without compromising the quality. This is evidenced by 10% increment in profit they declared this year, making over 3.4 billion this year. The chairman as at last year that “I am pleased to report that despite the extra ordinary economic environment we find ourselves in, Tesco has once again delivered a good set of results. This demonstrates that Tesco is coping with the down town. Despite the challenging conditions around the globe we have remained resilient and are growing as fast as any major international retailer”. (Tesco 2009). After the declaration of the huge 2010 profit, Terry Leahy declared the retailer “stronger than it was before the recession”. (Guardian 2010).Tesco used its strategy to beat the economic recession. So the economy had no negative e effect on Tesco.

The spending power of people could equally affect groceries. The economic crunch has made quite a number of people change the way and manner at which they buy things. For instance, because of this economic crisis, a lot of people prefer to buy ingredient and cook because they see it cheaper to do so.

Inflation is another powerful factor that could affect the grocery market. This is an incessant increase in the price of items and services, leading to a drop in the currencies purchasing power. Ta However, Economists believe that supply of money is the key factor of inflation.(Economy Watch 2010).

Socio-cultural Factor

Lifestyle, healthy and fresh produce, immigrants and produce lines….The behaviour of humans also matters in this business. Most customers prefer buying the Tesco branded products. They prefer they go for the fresh products. Tesco are sensitive to read people and know what they need with the club cards. The people’s religion might affect the way they buy things, they might declare fasting within a location it could be mostly in there international locations, and it will reduce the number of sales within such periods. So Tesco take time to consider these as it affects the business. The population of inhabitants and the kind of life they live and the class of people within an area affects a business.

Technological Factor

Technology is another key thing that contributes to Tesco’s success is the introduction of Tesco club card. This has helped Tesco in reading and knowing the need of over 16 million of there club card holders in the UK and over 400 million globally. They know what you need and they provide them, which is one of there key success factors. The implementation of Information technology has contributed towards the efficient management of inventories logistics and ware housing which helps in bringing the cost down.

Automatic tills, their online operations, electronic supply chain management etc

Industry Analysis

UK grocery industry is a highly contributor towards UK economy, as buyers are in need everyday and people must satisfy their needs everyday. The buyers in the UK are equally very big because grocery/retail industry is a must in our everyday lives. There are a number of grocers in the UK: Tesco, Morrison, Asda, wal-mart, Sainsbury’s, Co-op, Iceland, Waitrose, M&S, Netto, Farmfoods, Aldi, and Somerfield etc There are the major player in the industry which include Tesco , Sainsbury, Morrison, Iceland, Asda Wal-Mart, M&S. The Grocery industry could be examined properly by adopting the Michael porter’s five forces. Which include the bargaining power of suppliers, the bargaining power of buyers, and threat of new entrants, Threats of substitutes and Rivalry among competitors?

2.1 Porter Five Forces: Tesco

The bargaining power of supplier in this industry matters, the key player in the industry now is Tesco and there are others like Sainsbury’s, Iceland, Morrison’s but Tesco is just the giant, in the UK grocery industry. They made a profit of £3.4 billion this year 2010 despite the scourge of the economic down turn. Tesco as a competitor buy in a very large scale because they have over 2000 stores in the UK and about 2300 stores across the UK. They have a wider market share, and they have a very high advantage over there suppliers. This is critical success factor that Tesco picks on to keep on dominating in the industry. They could even fix prices for their suppliers.

What then could be the fate of other competitors in the system? M&S is great going by that brand name the company has. It is a nice advantage. Asda Wal-Mart is equally waxing well in the industry after it was acquired by Wal-Mart in 1999.They get there supplies within and outside of UK. Sainsbury’s adopted other means to beat the market, they grow there own organic products even their meat in order to grow and maintain stands in the market. They do this in collaboration with the farmers. The same applies to Morrison’s and Iceland. They use other measures to get supplies, and they do not depend on a particular source of supplies. (Guardian 2010)

Bargaining power of buyers in this industry is not so significant yet it matters in the sense that even though prices are fixed and the consumers (buyer) can not bargain, they can check in other outlets. In that case they will not buy the product. The availability of various grocers at a place will make prices drop more. Though the price drop down may not be in the favour of the competitors. It is beneficial to consumers, and not the buyers. For instance, Tesco as a top grocer, with over 2000 locations in UK and still expanding, have a higher market share, they have a higher supply advantage ,consumers will not have bargaining power over them, as they have already brought down their prices and have numerous locations scattered all over the city. This is most likely to be affecting other key players in the industry.

New Entrant coming into the industry will easily start because of the large market share of the grocery industry but will rather find it very difficult to penetrate the market and beat the already existing competitors especially the giant like Tesco. The grocery environment in the UK could be seen as oligopolistic one. The major grocers in the UK are few and the market share for this industry is large. Yet it would be difficult for a new firm to spring up or rather the younger firms to rise, except for a bigger firm to acquire an existing one. Just like Wal-Mart acquired Asda in 1999. ( ASDA 2010). It is because of the high rate of competition in the industry, and most other grocers like Sainsbury’s, Morrison’s, Iceland, and M&S were adopted growth strategies, and where increasing there location most especially Tesco’s. The Grocers in the industry has diversified and they do a umber of different product ranging from home use products, electronics, technologies, automobile, etc. This is a strategy for them to survive in the industry.

In this industry, threat of substitute does not really take so much effect; this is mostly all about food. Buying a product here is almost the same in the other shop. For instance buying a digestive biscuit in Tesco, you go to another shop to buy digestive of different brand, it does not make much effect because they are all biscuits. They do not deal on one item; they deal on a variety of items. So, one can not substitute tens of thousands of item, when a normal grocer does ten brand of same item or product.

However, where threat could be envisaged is at, may be the health/hygiene product. For example, the government has publicized to encourage ‘healthy eating’. It recommends eating ‘5 a day’ it has been noted by many other food retailers, who now label their foods with in depth nutritional information.

The degree of rivalry in the grocery industry in the UK is very high. Highly perishable items are part of the contributor of the rivalry in the industry. Tesco is indeed an extremely powerful economic force in the in the industry. They are growing every now and then. They have the highest number of branches in the UK; UK is their biggest market when compared to other locations outside the UK. This is evidenced by the huge profit of £3.4 billion profit they recorded this 2010. It is a 10% increment in profit when compared to last year’s profit. It is today beloved that in every £10 spent on grocery in the UK, Tesco’s account for £3. Tesco occupy about 2/3 of the grocery market in the UK. Presently they are rated the 3rd retailer in the world. In addition to the degree of rivalry, this report will explain the competitors’ analysis that has been taken place in this industry (Quick MBA 2007).

(remember to affix in text reference in the industry analysis where necessary)

3.0 Competitor Analysis for Tesco

Porter’s five forces will be a better tool for accessing the stand point of Tesco in the grocery industry. These include the bargaining power of suppliers, the bargaining power of buyers, the threat of new entrant, threat of substitute and the degree of rivalry.

The bargaining power of suppliers towards Tesco is very low, as Tesco is such a very large grocer. They have over 2000 stores within the UK only and 4300 stores in general, so as such they buy in a larger quantity far greater than its competitor. Going by this bulky purchase, the suppliers seem to be at their mercy because of their high demand of products. They tell the suppliers what to sell and they stick to that.

Considering the huge profit they declared this year 2010, inspite of the economic downturn, the strategy they adopted was that they have envisaged the change in the behaviour of people, and they changed strategy by doing more discount, price ranging for various classes of people, whilst maintaining its quality, and doing more promotions. They tell the supplier what they will buy; they have no choice than to succumb to it. More so Tesco produce most of their foods and meat by employing or hiring people. (Tesco 2010).

The bargaining power of buyers towards Tesco is obviously very poor. This report suggests that there is no power Tesco buyers have at all. Tesco is absolutely in charge. Tesco wields so much power in the grocery business and they have brought their prices so low to match different classes of people in the society. More over their prices are fixed already. They provide promo’ for their customers and issue free club cards that grants you point in any item you purchase that is above a pound. At the end they use it to calculate the points and read what your likes and shopping behaviour. With this, they give offers to its customers. So, Tesco always have their focus on its customers. (Guardian 2010).

Threat of new entrant is never an issue to Tesco PLC because of their strengths, which include but are not limited to their brand name, the large number of their locations, The higher number of their staff, their chain business, The high power they have over their suppliers and buyer and so on.

However, a new entrant can come as an existing world class retailer to acquire or merge with another top retailer that is the only way they could penetrate. Though even at that, it is still very difficult to beat Tesco most especially in the UK as it is evidenced in the 2010 Tesco’s strategic intent;”…to develop retailing services, maintain strong core UK business and be as strong as non-food, as in food”. (Tesco 2010)

Threat of new substitute could not be seen much in a high degree when it comes to Tesco and grocery industry at large. Tesco sell their branded food as well as other products from various brand. So any substitute that is food, every tendency is their for Tesco to sell it. Another thing is that because of their high bargaining power, they could buy over a producer and that product will be done in the name of Tesco.

Nevertheless, the switching cost for customers could be easy, but it could be hindered by proximity barrier because before he could walk for 5 to 10 minutes, he will see another Tesco shop instead of others. One can not because of one item and travel so far.

Tesco has withstood the threats of Rivalry in the grocery industry through a number of ways, these include: The long years of consistence and care towards its customers, Their high bargaining power, The loyalty they have built vis-à-vis their customers, Their high network of branches, their technologies, chains of other businesses, high performance all year round, they where able to make huge profits this year 2010. 10% increment against what they made last year in spite of the global down turn.(Tesco 2010). It is also believed presently that out of every £10 spent on food here in the UK, Tesco accounts for £3 pounds Guardian 2010).

More so, Tesco keeps on bringing in more and more strategies that will make them be the no.1 in the world as they hope to be as strong in non food as in food, an international retailer, Maintain a strong core UK business, develop retailing services and put community at the heart of what they do.

The competition is there, but Tesco has a core competency in the grocery industry. They wield much power.

(Tesco is in the star position of the BCG Matrix. They have a high market growth rate and a high market share. Their 2010 revenue is £62.54 billion while the 2010 operational income is £3.41 billion i.e. 10% increment against 2009).

4.0 Portfolio Analysis

This could be seen as the collection of a business and product that make up the company. The best business portfolio is the one that match the company’s strengths’ and help bring out the attractive opportunities.

The two better best known portfolio planning methods are the BCG matrix and the McKinsey / General Electric Matrix. In GE Matrix, market attractiveness replaced market growth of BCG as the dimension of the industry attractiveness and includes other range of factors other than the Market growth rate. Secondly, competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. (Tutor2u 2010)

Market Growth Rate of Tesco

Tesco is a great force in the grocery market. The major strengths of Tesco is: they have their focus on customers at all times, Like the MD would ask “what do you need”. They believe that when you look after your customers, everything else will look after itself. Yes other companies are as focused as Tesco’s, but size of the company is a great strength. Having more locations means selling more, cause most shoppers goes to the nearest shop to buy. The more locations for Tesco brings about selling more, and selling more brings about better buying terms ,and which brings about lower pricing and or higher profit margin. The lower prices then bring in higher sales volume. Tesco has made itself classless with price ranges formed to cater across the board.(Guardian 2010).

In summary, Tesco’s focus on customers; their numerous stores scattered all over and their classless pricing is the major strength that brings about the market growth. They declare huge profits at all year. In spite of the recession, Tesco declared £3.41 billion profit this April 2010 i.e. a 10% increment in profit as against 2009 financial report. However, the people have a high demand for Tesco products majorly because it’s close to them and because they sell cheaper and general items, you must need in one or two ways. They have a very high bargaining power over their suppliers and buyers.

Their market growth rate is indeed very high.

Market Share of Tesco

The club card which rewards customers is a good contributor to Tesco’s success. There is a research group called ‘dunhumby’ co owned by Tesco, they analyse the 16 million cards and study the buying habits of there shoppers and tailor offers to them. This factor contributes to their high market share. Tesco has existed for 91 years, and as such they multiply in size and complexity as the year goes bye. This has given rise to so many loyalists to the company. The various promo they arrange for their shoppers from time to time especially at this recession, helps build up Tesco’s’ market share. Tesco today has the highest market share in the grocery industry in the UK.

5.0 SWOT Analysis for Tesco

(Explain a brief about swot)

Strengths of Tesco

The strengths are those things that propel the steady growth of Tesco. Usually, they are positive things .It could be by way of action of the company, process, or service. These include: the introduction of Tesco club card which not only makes them no the no. Of their dedicated customers, but helps in offer to their customers. Tesco have a very high reputation in the grocery market and as such that makes their market share so high. The technologies Tesco have are an added advantage to them and they try to improve on it everyday. The own label ranges e.g. Tesco finest; Their range of store format e.g. Tesco express convenience stores, Tesco metro stores which can be found on high street and in city centres, Tesco super stores and Tesco extra-Hypermarket. they have They have a very powerful supplier relations ion. The scattered locations they have is an added advantage, their strengths is very high and they beat their rivals in the industry, They have over 2300 locations outside the country and still expanding. This adds to their market share globally. They have got a good distribution chain; Tesco has a very strong brand. Their online services is an advantage as well, they offer high quality items to people. Most of the other grocers in the UK does not have their own research company, but Tesco does and has contributed towards Tesco growth, especially in the area of Tesco club card.

Above all, it is pertinent to note that Tesco withstands every force that may likely affect their grocery business.

Weaknesses

This could be seen as things that could or makes Tesco not to meet their objectives. This weakness could also be seen as those elements that hampers the growth and development of Tesco. Though that there is no recognisable weakness of Tesco because of their core competency and team player spirit they posses. One recognisable weakness this report may suggest is that they need to improve on their market, they have not yet fully covered the whole of UK; they do not provide fresh fruits in Tesco, especially at Tesco Express. They have not gained full dominance in the world when it comes to retails.

Opportunities

These are those external things that could improve the Tesco more. Some of the opportunities of Tesco include: Tesco’s objective to open a Tesco cash and carry shop at India is an opportunity for them to explore. Tesco plans to open bank this year 2010,They hope to create more employment this year by recruiting about 9000 employees more. Some of the other grocer is not doing well at the moment, so that could be an opportunity for them to acquire them.

Threats

Threats of Tesco are those factors that are beyond the control of Tesco, and they are likely to jeopardize the company. Some of these threats include: The daisy nature of area of investment or diversification could pose a threat due to unforeseen events. Grocers could start to reduce price even to a break-even point. There could be Likely tendency of 2 or more mergers to form a more formidable player in the industry to compete with Tesco, unforeseen inflation could pose a threat to Tesco’s Strategy and the value rate of GBP is dropped gradually in recent times.

6.0 Vision

Providing value, care and satisfaction to its customers and its people; through collaborative efforts.

6.1 Mission

To maintain a strong core local and international business by creating value for customers to earn their lifetime loyalty.

6.2 Objectives of Tesco

This report states that the objectives of Tesco are: providing customers with quality items that goes in commensuration with their money value; offering progressive returns on investment for their shareholders, improving on technology and investing on efficient stores and distribution depot for profit maximisation. Build a long term rapport with the suppliers so as to gain a lasting relationship based on price and quality level; help in protecting the environment; focusing on the community and catering for them, through the provision of customers needs based on steady soughting of their opinion on the aspect of quality, pricing, innovation, technology and other aspects whilst acting on them; awarding all its staff an equal opportunity , by giving them good training and proper management practices; contributing in the National Food Industry Policy, in the area of food hygiene, health safety and nutrition.

6.3 Measures

Some of the things Tesco should adopt in order to achieve there objectives is to continue with low price and promos because people has not fully recovered from the recession, in addition, they should also continue to increase their locations because their are some places that Tesco needs to establish in. Doing this could go a great length to be building more and more their market share they should extend this to the Tesco international, as this would take them up a bit in the global ranking. They should adhere strictly to any laid down format towards achieving the company’s objectives; these include Key performance Indicator. They should continue to maintain and protect the Environment locally and internationally. Never should they fail in constantly taking care of there customers by fulfilling their social responsibility.

Tesco must continual with staff training and management practice across board and equally invest more on R&D, for farther progress.

6.4 Strategic Intent

Inasmuch as Tesco has attained a height in the grocery industry in the UK, they need to take it up to a commanding height of excellence by becoming the no. 1 in the globe. They need to establish anywhere favourable in Africa, after a careful research. In that case, this report suggests that Tesco should improve on the position they are at present, and climb to the next level as a world leader in food and non food market.

7.0 Strategic Development

The summary of Tesco’s Objectives is to be an international retailer, maintain a strong core UK business, be as strong as in non food as in food, develop retailing services and put community at the heart of what they do. The Ansoff matrix will be a better tool to decide Tesco’s development strategy. Tesco need to improve, to be rated no 1 in the globe.

Existing Products New Products

Existing Market

New Market

Diagram 1: Ansoff Matrix Representation.

7.1 Market Penetration

Tesco need to spread more of their products (it’s known already) spread more branches within UK so as to make business impossible for new entrant, and make business tougher for the existing ones, more customers will be using the product etc.

Market development

Tesco need to expand and as such this strategy will Tesco sell their existing products at new markets. This is most needed in the overseas where they are yet to be known.

Product development

This strategy is essential to adopt when Tesco wants to introduce any of their new products into an existing market like UK.

Diversification

It is a strategy that will enable Tesco market new products such as other non food items, in a new market. Tesco hope to establish a bank soonest in the UK, they could equally strategize on extending to other countries. They should adopt this strategy would help.

8.0 Strategic Implementation

For market penetration strategy, it needs to be adapted to in order to boost the market share. They will achieve this by continually highly distinguished competitive price and more promotions for the customers, personal selling is encouraged and advertising. This will go a great length to dominate the market for Tesco.

The management of Tesco needs to approve aggressive promotional campaign, with this will go vis-à-vis a pricing strategy that will make other the market unattractive for other competitors. When they are doing this, they are restructuring a mature market for themselves. They also need to introduce a loyalty scheme.

They should carry out a market development strategy to extend to those existing markets they have not been to with their already existing products. Just like some other countries in Asia. They should extend their existing products to such places. They need new competencies and those products should be modified so as to draw the attention of the existing market.

Diversification could be a risky strategy. Tesco is about to start a Bank soon, which is expected to cash on opposition that exist amidst consumers toward UK’s banks. (Guardian 2010),it is a good growth strategy for them, because this was what helped them, they started a non food items in 1997 which was led by Terry Leahy the chief Executive of Tesco (Tesco 2010) ands it immensely contributed to their profits. The Tesco non food raised 6.2% to £13.1 billion with £9 billion in the UK. They made £4.1 billion in international. (Tesco corporate 2010).

They should apply their usual process; use the competencies to carefully assess the risk involved and the gains in the diversification they would make.

9.0 Recommendations and Conclusion

Inasmuch as Tesco is the leading grocer or retailer in the UK, they need to adopt the market penetration strategy of Ansoff matrix to dominate the market completely and broaden more and more their market share, thereby making the present notion that in every £10 spent in grocery market in UK, Tesco account for £3.The notion will change to every £12 spent, Tesco accounts for £6. It would be easier because they are not new in the market.

Tesco need to use their competencies to extend and develop in foreign places, most especially Africa. They exist in almost other continents, but not Africa. Africa contributes either directly or indirectly so much towards the Economic growth in UK and America. (Lagos Chamber of commerce)

Tesco should be continual in the study of customers so as to know the best strategy to adopt when there is another economic or socio-cultural situation.

In conclusion, Tesco needs is a large diversified company and obviously they are doing better than others, but they still need to adhere to those measures and observe these suggested recommendations to be a world leader in retail industry.

References/Bibliographies

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Economywatch (2010) Inflation; Economic inflation [Online]. Available from: http://www.economywatch.com/inflation/ [Accessed: 27th April 2010]

Guardian, (2010) Tesco beats the recession to unveil record profits again [online].Available from: http://www.guardian.co.uk/business/2010/apr/25/tesco-record-profits-terry-leahy [Accessed: 25th April 2010]

Porter M.E.(1980) Competitive Strategy; Technique for analysing industries and competitors. New York: First Free Press.

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Robson W. (2007). Strategic Management and Information Systems. 2ed. Harlow: Pearson Education Limited.

Smith P. J. (2006). Strategic Planning Readings. Cape Town: Creda Communications

Socyberty, (2007) Government intervention in the UK supermarket Industry [Online] Available from: http://socyberty.com/economics/government-intervention-in-the-uk-supermarket-industry/ [Accessed: 25th April 2010]

Tesco PLC, (2009) Tesco Annual Reports and Financial Statements 2009 [Online] Available from: http://www.investis.com/tesco/pdf/repp2009.pdf [Accessed: 25th April 2010)

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