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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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SWOT ANALYSIS

Found in 1919, Tesco is a British multinational general merchandise and grocery retailer.

Strength

Private label market

Leadership position in the UK

Consumer information tool - Clubcard

Weakness

Weak financial performance

Decline in operating profit

Opportunity

Growing e-commerce market in the UK

Improve international performance Threat

Inability to sustain cost leadership competitive advantage

Surge in shoplifting losses

Strengths

Private label market

The UK's private label market is becoming increasingly popular, the preference for private labels has increased due to consumers becoming price conscious. The company offers both Tesco Value and Tesco's finest which are the two largest food brands in the UK market, these contribute to the company's increasing customer footfall (ESM Magazine, 2016). Tesco's private label brands offer higher profits positively due to the reduced price in comparison to national brands.

Consumer information tool – Clubcard

Tesco's loyalty card offers a point per pound spent, 17 million UK users benefit from the Clubcard that Tesco offer. The loyalty card carries out a vital role in collating imperative data regarding consumer behaviour, as well as providing research to analyse consumer's shopping habits and to improve Tesco's value offerings. The data can also be sold onto FMCG suppliers and producers, which creates additional revenue for the business (Hobbs, 2015). The Clubcard is also used as an operational tool to increase consumer retention and loyalty to Tesco.  

Leadership position in the UK

A massive achievement and strength in the grocery market for Tesco is possessing the largest market share of 27.9% in comparison to their closest competitors Sainsbury's (16.6%) and Asda (16.4%) (Kantar Worldpanel, 2017). This strength allows Tesco to produce extensive revenues.

Weakness

Weak financial performance

Tesco have clearly outlined that their financial strategy could potentially be unclear or unsustainable. As a consequence, their weak performance put further pressure on free cash flow, which impacted their ability to improve their credit rating. Tesco's profitability has been impacted by the restricted inability to operate successfully in international markets due to the insufficient returns required in each market.

Tesco has stated that investor support may be impacted if their financial strategy doesn't achieve the specified deadline for turnaround. The company displayed a 1.3% decline in sales in comparison to the previous year. A fall in like for like sales has displayed there was a 58.1% decline in trading profit. Tesco suffered a fatal loss of £6.4 billion to the business in 2015 (Tesco PLC, 2015).

Oppurtunities

Growing e-commerce market in the UK

The UK's e-commerce market is rapidly emerging and the trend is set to rise. Besides retail stores, Tesco has also joined the online retail market to sell merchandise on www.tesco.com in the UK, the online website offers fresh food, fresh food, bakery products, frozen food, beverages, baby care products, health and beauty products, pet care products and household products, among others, under Tesco groceries. The company has also expanded to offer retail-banking services through Tesco bank; the presence in the banking service determines Tesco's addressable market and growth (Rigby, 2015).

Improve international performance

Tesco's concentration on improving international performance and expansion is palpable by its entry into the Indian market, the entry will enhance the company's global market position. India's largest industrial corporation, Tata group signed a limited franchise agreement with Tesco (Daily Mail, 2010).

Threat

Inability to sustain cost leadership competitive advantage

Being the leading company in the grocery market, Tesco is faced with intense competition from other supermarkets. Its main competitors include Sainsbury's and Asda Stores (Kantar Worldpanel, 2017), in addition to abundant small and local store operators. Competitive pressure in the UK's grocery market is intensifying further with competitors like Marks and Spencer expanding operations in both in the UK and emerging economies such as India and China (Ruddick, 2014). Tesco is focusing on strengthening its market position by improving the performance of its online businesses (Rigby, 2015). Increasing competition could lead to pricing demands, which, in turn, could have a negative effect on the company's profits.

Surge in shoplifting losses

The UK retailers are exposed to increased costs of shoplifting. According to industry estimates, the cost of UK retail crime surpassed $610 million in 2015, an increase of over 1.5% compared to the previous year (Business Crime, 2015). As a result, retailers have been increasing their surveillance spend. This is increasing the costs for retailers as well as for the end consumers. The shoplifting losses are adding to the costs for the retailers and the customers have also been bearing the brunt (Davis, 2010). Hence, increasing shoplifting losses could negatively impact the cost structure of Tesco.

 References

Hobbs, T. (2015) “Is Tesco Clubcard still relevant?”Marketing Week, Available at: https://www.marketingweek.com/2015/10/09/is-tesco-clubcard-still-relevant/

ESM Magazine (2016). Private Label Performance Helping Tesco Maintain Market Growth, Kantar Worldpanel Data Reveals | ESM Magazine. [online] ESM Magazine. Available at: https://www.esmmagazine.com/private-label-performance-helps-tesco-maintain-market-growth-kantar-worldpanel-data-reveals/34936 [Accessed 29 Oct. 2017].

Kantar Worldpanel. (2017). Grocery Market Share - Kantar Worldpanel. [online] Available at: https://www.kantarworldpanel.com/en/grocery-market-share/great-britain [Accessed 29 Oct. 2017].

Tesco PLC. (2015). Annual Report and Financial Statements 2015. [online] Available at: https://www.tescoplc.com/media/1426/tescoar15.pdf [Accessed 29 Oct. 2017].

Daily Mail (2010), “Tesco starts Pounds 1bn price war”, Daily Mail, Jan 18, 2010. p.7

Rigby, C. (2015). Ecommerce holds up for Tesco as its sales fall and its profits crash - InternetRetailing. [online] Internet Retailing. Available at: http://internetretailing.net/2015/04/ecommerce-holds-up-for-tesco-as-its-sales-fall-and-its-profits-crash/ [Accessed 29 Oct. 2017].

Ruddick, G. (2014). Marks & Spencer plans massive international expansion. [online] Telegraph.co.uk. Available at: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10737831/Marks-and-Spencer-plans-massive-international-expansion.html [Accessed 29 Oct. 2017].

Davis, R. (2010). Security firms demand £100-plus 'fines' from alleged shoplifters. [online] The Guardian. Available at: https://www.theguardian.com/uk/2010/dec/10/citizens-advice-shoplifting-fines [Accessed 29 Oct. 2017].

Business Crime. (2015). BRC Retail Crime Survey. [online] Available at: https://www.businesscrime.org.uk/assets/files/BRC-2015-Crime-Survey.pdf [Accessed 29 Oct. 2017].

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