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Tesco Company’s Analysis and Future Strategies Report

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Updated: Jul 21st, 2021

Executive Summary

The UK retail sector has been expanding and growing exponentially recently. Being a part thereof, Tesco UK has managed to maintain presence in the UK retail industry by focusing on digitalisation and ecological production, at the same time responding to the needs of diverse groups. However, despite the current progress, Tesco needs to improve its performance in order to keep its position of a superior company in the U&K retail sector.

However, the current lack of a clear competitive advantage combined with low control over the subsidiaries makes Tesco UK vulnerable to external threats such as the current economic issues associated with UK’s political situation. A change in the management technique and the risk prevention strategy along with the introduction of a slightly new brand will help Tesco to regain its power in the UK retail sector.

Introduction

Gaining long-lasting attention and strong loyalty in the global economic setting is a crucial goal of any international company. However, the specified objective is quite difficult to attain given the increasing range of rivals and the risks that an organisation faces in the specified setting. Tesco is one of the organisations that has managed to locate the strategy that not only keeps it afloat but also helps it to maintain the consistent presence in the global market. With its impressive diversity of products and uniquely low prices, Tesco has managed to gain a competitive advantage that allows it to remain an important player in the global retail industry and its various sectors.

The current market trends have shaped Tesco’s strategy to a large extent. For example, the UK retail industry has been experiencing the revival of the environmental and sustainability-based movement, which has contributed to the development of the trends such as eco-friendly production, ready-made products, and similar opportunities. Due to the search for new options, the retail industry is growing unceasingly, which the recent change in market share indicates (“Tesco reclaims top spot,” 2018).

The observed change has affected Tesco, the market shares of which grew by 4.5% to reach a total of 22.3% (“Tesco reclaims top spot,” 2018). Therefore, the general trend toward expansion and search for innovations allows the industry to grow. Thus, the current strategic purposes for business that Tesco should consider include expansion and rebranding, as well as product diversification and digitalization of its marketing framework.

The approach that the organization is currently using to address its situation implies an elaborate use of resources and a cost-efficient approach toward managing its operations. The specified framework is quite common in the UK market, especially with Tesco’s rival companies, such as Sainsbury’s (Eley, 2018). Therefore, to build a competitive advantage in the UK, Tesco will have to introduce a new framework for handling its operations and addressing customers’ needs. Specifically, a sustainability- based, innovation-driven strategy should b considered as the optimum framework for Tesco at present.

Tesco’s Current Situation: An Overview

Background

Because of its sensible use of its resources and a proper understanding of the current trends in the industry, Tesco has been doing well in the realm of the retail industry. The company has established a positive presence in the UK market, thus cementing its brand image as a positive and eco-friendly one (Tse, Zhang, Doherty, Chappell, & Garnett, 2016). Furthermore, the organisation has been responding to the emergent market trends and changes in customers’ demands by introducing diversified products (Tse et al., 2016).

However, due to the challenges associated with the strenuous economic and political situation in the United Kingdom, Tesco UK has been in need for a new strategy that could attract more customers and potential investments. Analysing the issue from the perspective of the Supply and Demand Theory (SDT), or the Invisible Hand Theory, will help to explore the problems faced by Tesco presently.

Reasons for Success

Appealing to customers in the retail sector is a rather easy task given the constant demand and rather basic requirements, product quality being the main one. However, the specified characteristics also create the platform for high competition rates, as the example of the UK retail industry shows (Yamoah, 2016). To keep afloat in the target setting, Tesco has been using a combination of moderate to low prices and rather high quality (Pulker, Trapp, Scott, & Pollard, 2016).

The specified strategy has helped Tesco to gain the support of numerous customers, cementing its image of a company that creates value effectively and treats its customers with due care. Nevertheless, it is highly desirable for Tesco to explore other opportunities for keeping its customers satisfied. Further pursuit of digital market opportunities should be seen as a possible option.

Competitor

There are several large retail chains in the UK. Although Tesco plays the leading role in the specified setting, Sainsbury’s also takes an important place in the rank of the most influential retail companies in the UK (Eley, 2018).

The organisation owes its success to the unique and very effective use of infrastructure to reduce quality issues and maximise customer satisfaction (Eley, 2018). Therefore, unlike Tesco, which has not yet acquired a distinct and easily distinguishable competitive advantage, Sainsbury’s has designed a brand identity that makes it memorable and recognisable (Eley, 2018). Thus, Sainsbury’s represents a rather dangerous rival for Tesco.

Communication Strategy

Communication is the key to successful performance for most companies in the modern business world. At present, Tesco uses direct marketing as the key means of connecting to its customers and business collaborates (Vilas et al., 2018). However, the first should also consider other opportunities, including popular social media as the means of advertising its products to a wider range of people.

For example, the use of Facebook as a possible tool for promoting Tesco’s ecologically friendly and healthy dietary options (Vilas et al., 2018). From the SDT perspective, the proposed technique will allow not only attracting new buyers but also spreading the word about the company’s innovative approaches and changes in its brand image. As a result, Tesco will be able to communicate its message in a more palatable manner.

The application of social media as a possible method of disseminating information about Tesco has its disadvantages. A recent study debates whether the application of Facebook advertisement tools may affect the organisation negatively (Peeroo, Samy, & Jones, 2017). However, with the opportunities for appealing to target audiences directly, one should use the proposed tool to spread awareness and key information about the changes that Tesco has experienced, including its rebranding and the promotion of eco-friendly products. In addition, social media may be used to seek opportunities for partnership.

PESTEL Analysis

Political
  • Outcomes of Brexit;
  • Difference in tax rates
Economic
  • Correlation between pricing and production expenses;
  • Labour costs
Social
  • Propensity toward online shopping;
  • Need to appeal to diverse communities
Technological
  • Information technology (IT);
  • information and communication technology (ICT)
Environmental
  • focus on ecological food;
  • sustainability as the key corporate policy
Legal
  • Brexit outcomes;
  • Global trade agreements

Table 1. Tesco: PESTEL.

The results of the PESTEL analysis should quite predictably that Tesco UK has to face an array of economic and financial issues caused by the current political controversy. Because of the Brexit decision taken by the UK government, the profit margins of the organisation may be reduced significantly due to a drop in the number of customers (Tse et al., 2016). Moreover, there is the threat of a decrease in the levels of customer volatility, which will cause a significant drop in Tesco’s performance (Sanchez-Rodrigues, Harris, & Mason, 2015).

Therefore, the combination of the political and economic factors caused by Brexit is currently most unfortunate for Tesco, representing the greatest threat to its existence in the UK retail market. The specified factors seem to be the key drivers affecting the UK retail industry at present (Sanchez-Rodrigues et al., 2015). The competition issue should also be mentioned as the primary economic factor that may sink Tesco’s profits.

Social issues, in turn, are unlikely to affect Tesco negatively. Given the current focus on healthy eating, the company’s policies align with the values that are held high in modern society. Consequently, the company will feel relatively safe in the context of the British retail market. Indeed, with the levels of obesity increasing exponentially and affecting more people every day, the opportunities for healthy dieting that Tesco provides are bound to be valued highly by the target population. Applying the SDT perspective, one will have to admit that the rise in demand for healthy products defines the necessity for Tesco to improve its R&D processes and raise its quality bar.

Technological innovations represent the advantage that will help Tesco to regain the trust of its buyers and attract new customers. With the increase in the influence that modern media has over general audiences, the use of advanced tools for maintaining quality rates and increasing the quality of products should be deemed as essential. Technological development is an essential macroeconomic factor that drives companies’ progress in the retail industry; therefore, it has to be taken into account when reshaping Tesco’s current approach.

Technological advances will have to be used in three key areas, which include quality management, product diversification, and communication. The latter is especially significant since it implies receiving feedback from customers, maintaining communication with partners within the supply chain, and exerting control over the corporate processes, in general (Tse et al., 2016). Therefore, Tesco should integrate the philosophy of innovation into its setting and incorporate IT and ICT advances into its framework.

Moreover, Tesco should include the retail technologies that will improve its products and services. Although the incorporation of the RFID technology has contributed to making the customer experience more fulfilling and address the negative factors that lead to a rise in dissatisfaction levels among customers (Tse et al., 2016). The specified issue can be seen as the direct effect of the recent political issues and the economic challenges that followed. Therefore, Tesco as one of the largest UK retail chains will need to incorporate the tools such as kaisen and horizontal logistics in order to improve the quality of the end product and address the needs of its buyers (Sanchez-Rodrigues, Harris, & Mason, 2015).

SWOT Matrix

Strengths
  • Well-established presence in the UK market;
  • Cost-efficient approach toward production;
  • Flexible pricing system
Weaknesses
  • Lack of an innovation-based approach;
  • Loss of a unique brand identity;
  • Dependence on the UK political choices and the following negative consequences
Opportunities
  • Enhancing the efficacy of digital marketing;
  • Creating a strong partnership;
  • Attracting new and powerful investors;
  • Addressing the needs of diverse communities
Threats
  • Economic challenges caused by the political issues;
  • Financial concerns caused by increased expenses;
  • Inability to develop a new competitive advantage.

Table 2. Tesco: SWOT.

As the SWOT analysis performed above shows, the political issues and the associate economic outcomes presently pose the greatest threat to Tesco’s success. Therefore, it is critical for Tesco to develop the competitive advantage that will attract an even greater number of customers and potential sponsors to it. Presently, the firm should consider investing in market research to determine the latest trends in the industry and respond to them promptly.

Even though Tesco has been meeting customers’ demands lately, an enhanced framework for meeting buyers’ requirements has to be designed to address the issue of high competition. Therefore, it is suggested that the firm should create a well thought-out risk management strategy and focus on searching opportunities for an alliance with another organisation that could provide Tesco with support.

Enhancing market research should also be interpreted as another important issue that Tesco should consider. By exploring the benefits that the digital market offers, Tesco will develop new tools for keeping its brand easily recognisable and memorable. For example, creating online applications for product ordering and delivery should be seen as an important step toward increasing customer satisfaction and diversifying Tesco’s services.

The specified change will require creating an online application and introducing the organisation to the digital market. Therefore, Tesco should consider investing in R&D and especially the use of IT and ICT tools. With the update of its current strategies and the focus on meeting the needs of diverse customers, the organisation will retain its influence in the UK market.

Conclusion

Tesco has been performing quite impressively in the UK context, especially given the recent political issues and the economic challenges that ensued. However, while the recent political choices made by the British government are rather questionable, the Brexit decision being a rather irresponsible decision, there are opportunities for Tesco to maintain its influence in the retail sector. Moreover, with the innovation-driven approach and the changes in its current production processes, Tesco may improve the overall performance of the UK retail sector, thus leading to an increase in economic growth.

Recommendations

Rebranding the company’s products and enhancing its presence in the UK retail sector should also be seen as an opportunity. Given the recent economic challenges, UK citizens are expected to appreciate Tesco’s reasonable pricing strategy and the quality standards that it sets for its products, yet further diversification thereof along with the introduction of digital services will be required. Creating online applications that will improve the sped and quality of services will be needed.

Moreover, to reduce risks and not to incur losses in the future, the organisation should adopt a different approach toward managing its supply chain. Specifically an innovation-driven strategy toward information and quality management will have to be introduced. Moreover, the firm will need to update its corporate HRM strategies and values to meet the new standards for treating staff members and satisfying their needs. Once the suggested changes are integrated into the company’s design, Tesco will be able to address the issues caused by the current social, economic, and financial concerns observed within the state.

References

Eley, J. (2018). What next for UK supermarkets after ‘Sainsdas.’ Financial Times, 1-2.

Peeroo, S., Samy, M., & Jones, B. (2017). Facebook: A blessing or a curse for grocery stores? International Journal of Retail & Distribution Management, 45(12), 1242-1259. Web.

Pulker, C. E., Trapp, G. S., Scott, J. A., & Pollard, C. M. (2018). Global supermarkets’ corporate social responsibility commitments to public health: A content analysis. Globalization and Health, 14(1), 121-140. Web.

Sanchez-Rodrigues, V., Harris, I., & Mason, R. (2015). Horizontal logistics collaboration for enhanced supply chain performance: An international retail perspective. Supply Chain Management: An International Journal, 20(6), 631-647.

. (2018). RTE. Web.

Tse, Y. K., Zhang, M., Doherty, B., Chappell, P., & Garnett, P. (2016). Insight from the horsemeat scandal: Exploring the consumers’ opinion of tweets toward Tesco. Industrial Management & Data Systems, 116(6), 1178-1200. Web.

Vilas, A. F., Redondo, R. P. D., Crockett, K., Owda, M., & Evans, L. (2018). Twitter permeability to financial events: an experiment towards a model for sensing irregularities. Multimedia Tools and Applications, 1(1), 1-29. Web.

Yamoah, F. (2016). Fairtrade consumers and “global south” producers supply chain management. African Journal of Business and Economic Research, 11(2-3).33-52.

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