Strategic Analysis Of Tesco

Executive Summary

The following report was conducted in order to suggest target markets and strategic recommendations based on evaluation of the business environment, market segments and strategy of Tesco Plc and the factors contributing to the company's corporate position in the retail market.

Tesco’s size and brand identity are primary contributing factors to their current place in the market and their large customer base. They have faced considerable challenges since the economic recession as the consumer trend has been to look for cheaper alternatives and poor strategic decisions have led to a decrease in profits and slow in growth.

Tesco’s brand identity, customer orientation, propensity to innovate and positioning in comparison to competitors

Tesco’s UK market share is 28.8% (BBC, 2014) which has fallen in the last three years (Ruddick, 2014). Tesco’s profitability has fallen, with a Gross Margin of 4.73 far below industry average (Reuters, 2014). Shareholders have experienced a decrease in EPS, with Tesco’s PE ratio falling below industry and sector average (Ibid). In terms of employee capability Revenue and Net income per employee are below industry average (Ibid) reflecting poorly on managerial performance. Essentially over the last three years sales have been increasing but performance, profit and EPS have been decreasing, therefore Tesco are not currently achieving the third corporate objective.

1.4 Competitors

Within the UK the ‘Big Four’ (Tesco, Asda, Sainsbury’s and Morrisons) are the primary players in the supermarket industry, with a combined market share of 73.2% (Kantar World Panel, 2014). In addition to the big four, Tesco competes with upscale food retailers, such as Waitrose as well as money saving retailers such as Aldi and Lidl. Although Tesco has market dominance, they have been losing market share.

"We are seeing clear polarisation of the market, with both the premium and discount ends of the market gaining share, while the mainstream grocers continue to be squeezed in the middle," Fraser McKevitt from Kantar World

Geographic; as well as online availability, in the UK, Tesco operates nationwide, geographic determinants such as population density, competitors and ease of access affect which store type is built. ii. Demographic; the age, gender, occupation and family orientation of the average customer in the area in which a Tesco store has been opened are closely monitored and determine the type of store opened and what it stocks. The Tesco Clubcard scheme allows dataveillance on a scale with a high degree of accuracy. iii. Psychographic; the lifestyle and personality of the average consumer determines which products to stock and whether a superstore or smaller store is more appropriate based on the lifestyle of the average customer and their propensity to do large weekly shops, or buy merely the necessities.

The average customer in terms of segmentation varies depending on the specific store or online. The volume of their stores, careful analysis of buying patterns in those areas, as well as online availability mean that most of the population shop in Tesco- even if it is not regularly. Catering to the masses has led to Tesco’s corporate brand position at the ‘centre of the market’ (Hickey, 2014), catering to the majority of the populations’ needs in one way or another, as the case study states: ‘appeal to all segments of the market, lower, middle and upper’ through their ‘all inclusive’ strategy. ‘Tesco has pulled off a trick that I’m not aware of any other retailer achieving. That