Tesco SWOT, PESTLE and BCG Matrix Analysis

EXECUTIVE SUMMARY

This paper will focus on highlighting the essential factors that influence and change the marketing environment for Tesco and its operations across the United Kingdom. Tesco is a large group that is operating in different areas such as grocery, banking, electronics, clothing and the list can continue. We will focus on grocery retail as we will analyse different frameworks to help us understand how and what influences decisions in the business. It is important to mention that the frameworks approached in this essay will consist of micro and macro factors that are usually driving managers to changing strategies or policies. By the end of the sections the reader will then have information on both the internal and external trends although they will not be presented individually, independent of the frameworks.
I chose three main models to describe Tesco’s grocery operations in the United Kingdom to be able to critically assess reasoning behind business decisions: SWOT and PESTLE analysis along with Boston Consulting Group diagram (BCG matrix).

Firstly, with the help of the SWOT framework we will get a better view on the strengths and opportunities of the company, as well as its weaknesses and threats, presented in the right marketing environment.

Secondly, we will use PESTLE analysis to differentiate between certain areas that might consist of obstacles for Tesco to succeed in reaching their goals and targets. Following that, the BCG diagram will help us see in more depth over their products and what is it that gives Tesco revenue, growth and market share along with products or areas with far less growth, return on investment or market expansion opportunities.

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Last but not least, after successfully analysing these concepts and how they influence Tesco’s grocery in the UK, there is the last section consisting of a set of recommendations based on a survey that summarises customer demands, so that the supermarket experience to be as pleasant as possible, which is also the company’s goal. Tesco’s goals can be found in the mission and vision section as well as future target areas that have also been mentioned and explained across the paper.

INTRODUCTION

Tesco is one of the largest retailers in the world and the biggest supermarket chain in the United Kingdom by market share with a percentage of 27.8. Tesco has the widest range of products i.e. food in the UK, with two main self-owned food brands: Everyday Value and Finest, each selling over £1 billion per year. Its ‘Every little helps’ philosophy puts customers, communities and employees at the top of their priorities list, making it easily recognisable for everyone to associate it with the company. Tesco’s operations in the UK are the largest within the Group, with over 3400 stores and, therefore, the focus of this essay will consist in Tesco’s grocery operations in the United Kingdom.

From March 2017 onwards, grocery market share figures reveal that UK supermarkets are experiencing their best sales growth in the last five years. Mr McKevitt announced for BBC that “All four of Britain’s biggest grocers managed to grow sales for the fifth consecutive period, a run of collective success not seen since 2013”. Since we are considering market prosperity, we need to analyse the primary target points and the procedures chosen in order to achieve and maintain the company’s goals.

As marketing is a process of identifying, anticipating and satisfying customer requirements and that Tesco succeeded in taking over the market, we can argue that the group successfully accomplished to identify needs, wants and to deliver value to their customers.

There are three main components of a marketing concept: customer orientation, integrated effort and goal achievement. We will analyse all of them along with the marketing planning process to help us understand why and how did Tesco become the biggest supermarket chain in the UK.

MISSION AND VISION

In order to critically analyse the market environment Tesco operates in, we need to identify their mission and vision and do the appropriate research in order to assess if their marketing approaches are efficient and satisfying.

Tesco’s vision is ‘to be the most highly valued business by: the customers we serve, the communities in which we operate, our loyal and committed colleagues and of course, our shareholders.’ (Tesco PLC). As we are talking about a changing world especially in this industry, companies like Tesco are focused businesses and they have a core vision that remains unchanged while business strategies, practices, customer needs and markets change. Tesco’s vision is an aspiration for certain goals that the company has, so they came up with a business strategy divided in several parts to help them build their vision. We therefore have a benchmark for what it aims to achieve: indispensability; growth with plenty of opportunities; modern and innovative ideas; inspiring, earning trust and loyalty from customers, colleagues and communities.

Along with their marketing strategies, the vision and mission are correlated, so their mission stating ‘Serving Britain’s shoppers a little better every day’ (Tesco PLC) follows the vision of the company to efficiently succeed in placing the customers at the heart of everything they do. The aspirations of the managers are outlined in Tesco’s vision and thus it is driving the business while embedding the strategic planning process.

MARKETING ENVIRONMENT

In order to be able to assess how Tesco built a dominant position in the retail market within the UK it is essential to evaluate the environmental trends that the company is actively engaged in. We will therefore look at the micro and macro factors that Tesco needs to overcome while strategic planning. Also, we will undertake a SWOT and PESTLE analysis to fully understand the marketing environment and to provide a more in depth picture of internal and external factors that are the focus point behind every business or marketing strategy.

(S)trengths

One of the most important asset that Tesco currently has in comparison with its competitors is that it is the leader in terms of market share with a percentage of 27.8%. At this scale it is not hard to predict that they have the highest number of customers, 66 per second respectively, so the standard need to be set high in order to meet the demands of each customer. So they introduced Tesco Values, an own-label branch that underpins the growth, success and strength of the company. Apart from that, Tesco is actively engaged in meeting the ever-changing standard of the society and in bringing new and old customers in its stores again, thus they want to reward its customers with Tesco Clubcards as a way of saying thank you. The power of this marketing strategy lies within the parameters of giving the company insights into consumer habits, preferences and trends. The marketing team is then ready to offer customers personalised promotions and additional incentives for them to shop further with Tesco.

On the other hand, they have Tesco own-brand products which are of substantial importance for the company as they are an opportunity to grow strategic advantage especially because they have the advantage of being the first supermarket to launch a Value range in 1993(Tesco PLC). The group has found the right path to innovation and, therefore, their Finest and Everyday Value products are now the largest food brands in the UK. (Tesco PLC).

Among the market advantages that Tesco has is that it is efficiently involving in environmental issues and thus they are the first supermarket to open the first zero carbon store and, according to Tesco’s chief executive Sir Terry Leahy, the new store cost 30% more to build, but it uses 50% less energy, which sent Tesco right at the top of supermarkets’ race to be green.

(W)eaknesses

Given the dynamic nature of the retail sector and product offering, studies show that only 6% of grocery customers use the same retailer in a typical month, so we need to take into account the high level of retail switching. Brexit is one of the main weaknesses right now for Tesco, driving high inflation in the UK and increased costs from a weaker Sterling. New import duties and tariffs will have a major economic impact and competition, markets along with political and regulatory compliance are just a couple of the obstacles Tesco will encounter in the next years.

According to Tesco’s Strategic Report, international sales growth weakened in the second half of the financial year due to an increasingly competitive environment in Europe, particularly Poland. Considering Brexit and growth of awareness on locally produced good, the farmer markets in Europe are gaining more trust from customers and thus BIO products are gaining very high demand in comparison with the usual day-to-day products that customers generally find in supermarkets. Due to the size of the sector supermarket retailers operate in, this is not a major liability for the Group. These uncertainties could cause an adverse effect on their operations, thus as Brexit emerges, the management should be able to assess potential risks and impact especially for Tesco shareholders.

(O)pportunities

Taking into consideration that the food retail sector is moving toward a degree of price uniformity, studies show that, on average, 50% of grocery shoppers state that the main difference between large chains of supermarkets are their own branded products. Therefore, Tesco’s own-range is one of its biggest assets at the moment. Customers look for products with a fair price-quality balance and Tesco already succeeded in meeting customer demands and, thus, they have the widest self-owned food brands. As 37% of supermarket shoppers would like to see increased quality in supermarkets’ own-brands, this is an obvious opportunity that Tesco has to find the suitable business and marketing plan to meet demand and ensure growth and profitability. Another aspect of certain retailer strategies is to move away from a promotion-led strategy to an every-day-low-price (EDLP) strategy. This action will help to reduce food waste, once more proving Tesco’s willingness to involve in environmental and social issues that the world faces nowadays.

In January, the Group announced a future merge with Booker Group, an action that will create the UK’s leading food business. It will bring together both complementary skills in retail and wholesale business will give Tesco the opportunity to discover new paths and to achieve one of their goals more efficiently, respectively to serve their customers better with high-quality affordable food wherever and whenever they need it.

Moreover, as mentioned before, Tesco was the first to open an environmental friendly store and it aims to be a zero-carbon business by 2050. This is a valuable opportunity as more and more people are engaging in environmental causes, so this action will bring positivity, sympathy and trust from customers as they have proof the Group is genuinely keeping its promises to help overcome problems of such importance.

(T)hreats

Customers are key to risk movements as the retail industry is indeed dynamic and a failure to listen to the grocery shoppers and to understand the marketplace will lead to a loss of market share, as customers purchases will be made with Tesco’s competitors. In terms of market share, its biggest competitors are Sainsbury’s (15.8%), followed by Asda and Morrisons with a market share percentage of 15.3% and 10.4% respectively (See Appendix 1 and 2). If the company fails to review trading opportunities, competitor strategy and activity then it will result in a loss of the market advantage it currently has, so the level of risk of this particular threat remains unchanged regardless of their head start and ability of doing business.

On the other hand, considering changing marketing strategies, the major downside of moving towards an EDLP strategy is that the level of impulse shopping will diminish if we consider that promotions attract impulse shopping rather than shopping made on a daily basis.

Apart from competitors and changing strategies, there is also the risk of the unknown caused by a changing political environment that resulted in increased regulatory intervention in the UK’s food retail market. If the company fails to comply with the new requirements due to changes in the political landscape this will give Tesco consequential litigation, negative reputation and unfavourable effects on their ability of implementing innovative business and marketing strategies to cover the new needs of legislations.

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PESTLE Analysis

Tesco has reported a £1.28bn annual profit, sales of 49,9bn(4.3% rise), in the UK like for like sales went 0.9% up, being the first full-year growth since 2009/10 and their net debt is now £(3.7)bn, 27%down, beating every analyst expectations. There are several factors that may affect this sudden growth of the Group and, in order to get a better understanding of the reasons and drivers, we will analyse them through a PESTLE analysis.

(P)olitical Factors

Since we are talking about a company that operates globally, international political factors have a great influence on its performance. Those include tax rates, inflation, exchange rates, legislation and, undoubtedly, the economic stability of the country in which they operate. Since we are considering its operations across the UK, Brexit is its main enemy as this event will cut down even further Tesco’s stability in terms of shareholders and financial statements. As they are playing an important part in creating growth and innovation opportunities for the retail market in the country, they need to successfully adapt their strategies in order to overcome future events when England will actually leave the EU.

(E)conomic Factors

A big concern for Tesco are the economic factors as these influence demand, costs, profits and prices. It goes without saying that demand for goods is influenced by the level of household incomes and employability and a fall in the two mentioned mean an altering of demand and supply curves both for the business itself and for the whole market. These factors are completely outside the control of the company, but they make a big difference on performance and the marketing mix of Tesco. As Brexit occurs, there will certainly be a major change in prices especially considering the area where Tesco uses outsourcing as trading will occur at a higher price so any slowdown in the Britain’s food market will badly affect their imagine of providing the cheapest products, therefore they may consider further diversification.

(S)ocial factors

Lifestyle changes, education, living conditions and movement towards organic products are trends that indicate that generally, in the UK shopper choose either bulk or one-stop shopping. Therefore, Tesco has increased the variety of their non-food items and chose an approach to constantly changing their organic and fresh-food range. They anticipated that demand is influenced by people’s beliefs which are also influenced by social conditions and so they reach out to these problems by altering their corporate behaviour by introducing working flexibility, a gender pay gap scheme to reduce the difference in payments for equal levels of work between men and women along with other actions to help both workers and communities. (e.g.: the horsemeat scandal consumers to be cautious with their purchases)

(T)echnological Factors

Introducing new and innovative technologies into the business was and will be Tesco’s advantage for improving customer satisfaction. Among technologies such as electronic shelf labelling or electronic fund transfer system, the self check-out machines are becoming more and more popular amongst customers as they are more convenient, together with the introduction of online shopping with home delivery facilities. This way, Tesco managed to improve stocking and distribution processes as well as to reduce labour costs and waiting times for customers.

(L)egal Factors

Government policies and legislations directly impact the company’s performance. For example, the Code of Practice is banning many current practices such as changing agreed prices without notice or demanding payments from suppliers (Mintel Report, 2004). Government practices for monopoly control and reduction of buying power limits entry to these markets and as they impose license requirements and limits. Tesco addresses to these policies by providing price reductions and promotions for fuel purchases in accordance with the amount spent in its supermarkets.

In terms of employability legislations, the British government encourages retailers to provide a mix of job opportunities and to meet demand when it comes to population categories such as working parents, students or seniors. Among other legal factors that the company needs to account for are quality control regulations in order to assure that customers get their desired quality for the price they pay.

(E)nvironmental factors

Tesco’s corporate social responsibility image is recently seen extremely positive as they are constantly involving in different activities to reduce their impact on the environment. As they operate in the food sector, their life span depends on the health of the nature so they clearly state their role in protecting the environment by addressing impacts on operations and supply chain. Also, by 2020 they are committed to reduce their carbon footprint by 50% and to minimise the waste produced in their stores. Their target is to implement strategies to produce more food to feed a growing global population and to restore farming practices along with reducing field emissions. (Tesco PLC). They are also engaged in achieving zero net deforestation by 2020, a sustainable footprint on climate, local reductions on water waste, marine initiatives and many more. Furthermore, they introduced the ‘Reduce, Reuse and Recycle’ action in their stores, to give customers recycling options in their stores.

BCG matrix

TheBoston Consulting Group matrix helps in allocating resources and distinguishing aspects of the business such as profitability and position in the market.

Cash cows have high market share and low growth in a mature market. Needless to say, Tesco main source of profit it is its fresh meat as it has the highest demand across the UK. Despite the incident with its meat supplies that damaged their brand image, they managed to overcome this problem and regained customer trust. Considering there are other meat retailers operating at a large scale suggests that the market is operating at a mature stage, thus, the high income generated from meat sales makes it one the cash flows of the group. Apart from meat, their fresh fruit and vegetables are also included in the cash cow category as there is high demand for these and, implicitly, opportunity to high revenues.

Stars are products that create growth for the business and that run in markets characterised by opportunities to develop. They usually require more investment than cash cows but they can grow into cash cows when the market becomes mature. Here we can include Tesco’s finest range as they target customers who are willing to pay more for a certain degree of quality.

Dogs have low market share, low market growth and in order to keep the operations going they require investment, which however can result in poor performance still. A suitable example for this situation is Tesco Mobile which has an uncertain future and it is unlike to generate expected results since the mobile industry has high competition and slow growth potential.

Question marks consists of products that create lower revenues and are not considered as profitable. The future of these products is uncertain as the market may grow, therefore it can become a positive source of revenue. They have the potential to become stars or dogs so they need to be highly analysed before making investment decisions. In this category, we can include Tesco’s lard which generates some income but it does not create high demand among customers.

All these frameworks have been used to critically analyse decisions behind the business rationale and to be able to understand more in depth how certain areas such as legislation or environment can alter marketing strategies or business decisions.

Recommendations

Looking at results from supermarket shoppers that were asked what they would change about their favourite supermarket, significant amount of people chose selected improved availability, improvement of a loyalty scheme, improvement in the quality of fresh foods, waiting times at checkouts and ease of store navigation. Arguably, for a customer it is highly essential to find all the products they need within a single store, at a reasonable price and without wasting too much time. In order to correctly choose marketing strategies Tesco has to look at customer desires so that they have a broader view on demand and thus investment or new strategies will be implemented in the right sector. It is essential that the company succeeds in anticipating trends and market changes in order to keep its current advantage of being the market share leader.

Appendices

Appendix 1

REFERENCE LIST:

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