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.

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.

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:

• http://www.bbc.co.uk/news/business-41011259
• https://www.cim.co.uk/media/4772/7ps.pdf
• https://www.tescoplc.com/about-us/our-businesses/tesco-uk/tesco-in-the-uk
• http://businesscasestudies.co.uk/tesco/vision-values-and-business-strategies/vision-and-mission.html
• https://www.theguardian.com/business/2010/feb/02/tesco-carbon-neutral-green-building
• http://academic.mintel.com/display/804121
• http://academic.mintel.com/display/804123