Tesco is one of the biggest grocery and general merchandise retailer in the world, operating around 6,351 stores across Asia, Europe and North America. Tesco’s core UK business is very significant within the group, with around 3,054 stores and over 300,000 employees, operating under four banners of Express, Extra, Metro and Superstore. Tesco as well has the widest range of any food retailer in the UK including the leading own-label range. Also, the company offers a home-shopping service through ‘Tesco.com’ website. (Tesco PLC, 2012) This report will provide an insight into Tesco’s marketing strategy with its real marketing practices and activities, also recommendations will be made in regards to the marketing based strategies. CRITICAL FACTORS OF SUCCESS Tesco’s annual revenue has reached £42,248 in the financial year 2011/2012. Three factors which we believe that have contributed to the group’s success are identified in this section.
VALUE AND PRICE
The group aim to provide better-quality goods to customers with lower cost comparing to other retailers.
Porter theorised that the more products that become standardised or undifferentiated, the lower the switching cost, and hence more power is yielded to buyers. (M. Porter, 1980) As Tesco mainly sells necessities rather than luxuries, price will greatly affect customers buying decision. Also, Tesco’s famous loyalty card, Clubcard, has remained the most successful customer retention strategy, that greatly raise the profitability of the business.
STORES AND FORMATS
Tesco has around 3,054 stores in the UK so far, operating under four banners of Express, Extra, Metro and Superstore. General substitution is able to reduce demand for a particular product, as there is a threat of consumers switching to the alternatives. (M. Porter, 1980) In the UK food retailing sector, this has been further weakened by some new trends, such as smaller chains of convenience stores or local shops are emerging the business even the whole industry. So Tesco is running a ‘Faster store refresh programme’ in order to acquire some existing smaller scaled business, and has opened some Tesco Express and Tesco Metro in local towns. As well this practice will introduce a warmer look and feel to the customers.
BRAND AND REPUTATION
Nowadays companies have to focus on selling their brands rather than selling the product, this is the real market trend. Tesco started its UK trading in 1942, and has a very long recorded trading history, which is more like a culture and has set up a secured commercial standing for the business. Now Tesco has transformed its basic brand into a specialised one, through carefully branded packaging and an “every penny counts” promotion.SWOT ANALYSIS This section will provide a SWOT analysis of Tesco supermarket, which critically examine the strengths, weaknesses, opportunities and threats of its marketing practices and activities.
Tesco is the largest food retailer in the UK and also has already gained a secured commercial standing within the global mark. As a market leader, it has over 25% market share of the UK food retail sector, over 30% share of the UK grocery market and around 20% share of the beauty and health market in 2011. The company ranks second in the sales of music, video and household segments. As well, the group’s market leader position enhances its brand image and private label products. Another strength of the group is its high performing online service system, Tesco.com. This is one of the biggest home-shopping services website in the UK. The strong online presence makes it possible for the business to provide new customer segment and meanwhile avoid high costs in real infrastructure, earning better margins also.
The group’s high dependence on the core UK business is the most important weakness. As the tables showed below, in the fiscal year 2011/12, Tesco’s total sales was £72,035m, while its core UK business has distributed £47,355m, over 65% of its total sales. I suggest that the company can possibly expand the international market in Assia, such as in India and China, because of the large population and rapid economic growth. Group results 2011/12
52 weeks ended 25 February 20122011/12Growth
Group sales (inc. VAT)*£72,035,000,0007.4%
Group revenue (exc. VAT, inc. IFRIC 13)£64,539,000,0006.8% Group trading
* Group sales (inc. VAT) exclude the accounting impact of IFRIC 13. UK results 2011/12
52 weeks ended 25 February 20122011/12Growth
UK revenue (exc. VAT, inc. IFRIC 13)£42,798,000,0005.0%
UK trading profit£2,480,000,000-1.0%
Comparing to industry averages, Tesco recorded low returns on assets and equity during 2011 to 2012. In this period, the company recorded a 6.8% return on average assets, against the industry average was 7.4%. And its return on average equity was recorded as 16.2%, while the industry average was 18.2.
“Our financial results demonstrate the breadth of the Tesco Group. Thanks to strong performances internationally – particularly in Asia – we have been able to deliver modest profit growth for the group. Going forward, a financial strategy of increased capital discipline and restraint will support the changes we are making for customers and will drive higher cash generation and higher returns for shareholders.” said Laurie McIlwee (2012), the chief financial officer of Tesco. The group’s expansion in global market enable it to cut its heavy dependence on the UK business and will allow the company to benefit from the rapid growing Asian market.
Tesco Group is currently developing its non-food sales, and the potential growth is very significant. Based on the leading position among its supermarket pears, Tesco is now driving substantial improvement to its range, by the reason of increasing the group’s competitiveness among some other specialist retailers in the UK, such as cotton clothing and electric products. As information technology is developing rapidly, online consumption is increasing very fast. Tesco has a very strong online selling website – Tesco.com, which is providing customers a much more convenient way to do shopping, and even can strengthen its non-food market online.
Intense competition in the UK is one of the biggest threats for Tesco. According to the figures from market researcher Kantar WorldPanel (2012), Tesco’s market share was 30.7% in the twelve weeks to the 15th April, comparing with the 30.2% and 29.7% in the previous two months. This supermarket giant’s market share had been squeezed by upper market retailers such as Waitrose, as well as those low-cost grocers such as Lidl and Aldi. Another threats the company facing with is the increasing labour costs. In this year, the coalition government had announced that the national minimum wage rates for 2012/2013, increased by 1.8% to £6.19 per hour from October. As we mentioned before, Tesco’s core UK business has hired over 300,000 employees in over 3,000 stores, let us just imaging that each employee will work 6 hours everyday, the raise of minimum wage may result in £72,270,000 increase costs of labour in the next year. It would impact the profit growth significantly. To deal with this problem, we suggest that the company can further expand its online services, for this will kill two birds with one stone, to adapt the modern online shopping trend, as well as to cut the labour and rent cost.
To conclude, the Tesco Group has met its great success in the grocery and general merchandise market by providing high-quality products in wide range, setting a customer benefit price strategy, creating various retailing formats and promoting a clear and relevant communication with customers. As a market leader, Tesco has a great market share in the whole world and especially in the UK. Its online service is strengthening its market position, while the intense competition and increasing labour costs are threatening the business. High dependence upon the UK market and low returns compared to the average level are the Group’s main weakness. Taking every considered, we suggest that Tesco can expand international market in large population countries in Asia to reduce its dependence on the UK market, and further develop its online services in order to cut the costs of labour.
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Finch, J. (2010) ‘Tesco opens its first zero carbon store’, The Guardian, 28 November [Online]. Available at: http://www.guardian.co.uk/business/2010/feb/02/tesco-carbon-neutral-green-building (Accessed: 28 November 2012). Ruddick, G. (2012) ‘Tesco recovers UK market share’, The Telegraph, 28 November [Online]. Available at: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9224301/Tesco-recovers-UK-market-share.html (Accessed: 28 November 2012) Walters, D. (1994) ‘The Impact of the Recession on Retailing Management Decisions and Performance’, International Journal of Retail & Distribution Management, 22 (4), pp. 56-82 REPORTS
Tesco PLC (2012) ‘Tesco PLC Annual Report and Financial Statements 2012’, Tesco PLC [Online]. Available at: http://www.tescoplc.com/files/reports/ar2012/files/pdf/tesco_annual_report_2012_performance.pdf (Accessed: 31 November 2012) WEBSITES
Tesco PLC (2012) Our business. Available at: http://www.tescoplc.com/index.asp?pageid=8&panel=1#panel1 (Accessed: 28 November 2012 )
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