Abstract
Tesco PLC is one of the UK’s leading international food retailers, with over 2500 stores worldwide. Products include food and non-food products, including appliances, opticians, and pharmacies, and there are also retail services such as Tesco Personal Finance, Tesco.com, and Tesco Telecom. Tesco was one of the first to demonstrate this when it launched Clubcard over 20 years ago as the world’s first loyalty program for mass grocery stores. It was one of the first retailers to realize the value of knowing its customers. This knowledge has helped Tesco achieve unprecedented growth, incorporating critical knowledge and best practices that remain relevant today and are increasingly important in winning customers in the digital age. The paper analyzes the company’s strategies that led it to a high place among UK retailers.
Introduction
This study focuses on understanding Tesco’s competitive landscape. The company is one of the UK’s leading international food retailers, with over 2,500 stores worldwide. Its products include food and non-food products, including electrical products, home entertainment, apparel, health and beauty products, stationery, culinary and upholstered furniture, and more. The company has been one of the top retailers in the UK for decades, constantly evolving and striving to be better for its customers. This study explains the strategies and systems that Tesco has put in place to achieve its goals in a competitive market where it operates most actively, especially in the era of the digital revolution.
Company Profile
Tesco is the UK’s largest food and non-food retailer. The company is one of the largest grocery supermarket chains in the world. The popularity of this network in the kingdom is evidenced by 12 million club cards issued to the British. Here, Tesco can be found in any city, including supermarkets and small shops. Though the retailer’s network is not only Britain, it is another 2.7 thousand stores in 14 countries, including Thailand, Poland, America, and Turkey (FAME, 2022). Globally, Tesco ranks third in turnover, behind only Walmart and Carrefour. As a trademark, the name was registered in 1924; in 1929, it first appeared on a store sign, and in 1932, several stores were officially registered as Tesco (Tesco PLC, 2022). In 1947, Tesco issued shares and sold them on the stock exchange at 75 pence per unit (Tesco PLC, 2022). The funds received allowed the development of new types of trade, in particular self-service stores.
From 2017 to 2022, a generally stable turnover can be traced in recent years, with an increase of 23.36% since 2019. It is interesting, given the global outbreak of the COVID-19 pandemic, which has led to a severe increase in the economic crisis. Although the company often has a stable turnover, it still does not lose its place among other businesses. Online sales rose 77% during the year to £6.3bn as the grocer quickly doubled its online delivery capacity to 1.5m slots per week (FAME, 2022). Online products accounted for 18% of sales in the last three months as fear of the virus kept shoppers at home (Tesco, 2022). The company’s management realized a very complex idea: they laid a scalable vision based on their strategy, in which the club card and the loyalty program served only as a starting point. Based on the research conducted, Tesco could understand its customers’ needs, draw up their portraits and systematically collect all the information about their purchases and preferences, and steadily increase their income.
Context Analysis
Context analysis is a technique for analyzing the environment in which a business operates. Environmental scanning mainly focuses on the macro environment of a business, but contextual analysis looks at the entire background of a business and its internal and external environment. Internal analysis is a thorough examination of the company’s internal components, both tangible and intangible, such as resources, assets, and processes. The analysis is an essential aspect of business planning that allows businesses to understand their strengths and weaknesses and the opportunities and threats posed by the market. The main goal is to analyze the environment to develop a strategic action plan for the business.
Strategy
The company’s carefully crafted strategy keeps it competitive in the grocery sector. Tesco has expanded significantly since its inception and now offers a wide range of products in categories such as food, electronics, health, books, clothing, home and decor, parties and gifts, sports and fitness equipment, cosmetics, jewelry, children’s goods, and others. Tesco caters to the different needs of consumers from different segments and is a retail giant. Since 1995, the Tesco Club Card has been in use (Tesco PLC, 2022). Tesco understood even then how important it was to gather consumer information through a loyalty program and use it to better understand its customers. Tesco offers its 20 million members discounts through its loyalty program.
Beyond physical stores and online apps, Tesco aims to captivate consumers with its commitment to innovation. Tesco has opened a GetGo store concept in High Holborn, London (Beh and Ting, 2021). This store allows shoppers to go out with their groceries without scanning any items or going through the checkout. This store uses a ‘combination of cameras and weight sensors’ to determine what shoppers have bought. Customers are then charged for products through the Tesco app.
Tesco has an efficient supply chain network that allows them to take advantage of economies of scale and offer products at the lowest prices. Tesco does not sacrifice quality for the price. They regularly receive consumer feedback and try to cut inappropriate spending to ensure low prices (Tesco, 2022). Thus, Tesco is pursuing a cost leadership strategy. Tesco’s marketing strategy targets its ideal consumers through a well-positioned brand image (Tesco, 2022). Tesco offers a wide range of products and services in various markets and, therefore, cannot segment based on demographic and psychographic factors.
Culture
Many business organizations operate in different countries, which differ significantly in the level of economic development, political structure, culture, historical experience, natural and climatic conditions, and more. It stimulates the search for an answer to how these facts are reflected in the characteristics of the cultures of organizations and, consequently, in people’s behavior. At Tesco’s retail network, there are no distinctions among employees based on race, nationality, gender, or physical characteristics (Tesco, 2022). The company appreciates the diversity of views and cultures and supports people with disabilities, considering it an integral part of its activities. Creating a heterogeneous team, where everyone can reveal their talent and realize their potential, helps to achieve business goals.
Market Analysis
Market analysis involves the assessment, definition, modeling, and forecasting of all aspects of the market, the processes taking place in it, and the functioning of the company within this market. SWOT analysis suggests that for the successful development of a commercial project, it is necessary to consider specific characteristics, presented in Table 1.
Table 1. Tesco’s SWOT Analysis
Consumers
In order to effectively sell a product or service, organizations need to know how consumers behave about what they are buying. The study of consumer behavior includes the study of what products certain types of consumers buy and when and how consumers choose products. Consumers are the primary source of demand for all goods. Manufacturers of industrial goods or producers of agricultural products produce various goods according to the order in the market.
Britons are cutting spending in various discretionary categories, including clothing, homeware, and digital content, as their budgets become increasingly stretched by the rising cost of living. With higher year-end inflation projected, 28.0% of consumers believe their finances are not currently sufficient to cover their electricity bills right now (Loxton et al., 2020). Consumer behavior indicators showed mostly falling or stable activity last week (Loxton et al., 2020). Thus, the growing crisis may negatively impact the turnover of Tesco, which represents goods in various areas that have long gone beyond the grocery business.
Competitors
Tesco is a major British grocery and retailer whose main competitors are Sainsbury’s and Morrison’s, often referred to in the United Kingdom as the ‘Big Four’ along with ASDA. Sainsbury’s is the second-largest grocery store chain in the United Kingdom, with 1,418 stores. These places are divided roughly in half between supermarket and convenience store formats. According to customer surveys and brand strength reports, Sainsbury’s is considered the highest-quality grocer among its competitors (Sainsburys, 2019). Morrisons runs more than 500 supermarkets and convenience stores (Morrisons, 2021). The company is also heavily involved in food production, being the second largest manufacturer in the UK. At competitors Sainsbury’s, and Morrisons, sales were down 4.4% and 6.5%, respectively, over the 12 weeks compared to last year (Denton, 2022). Despite a significant market share in the United Kingdom, Tesco’s sales are not experiencing such difficulties and continue to grow.
Environmental Analysis
Environmental analysis is the process by which strategic planners control factors external to the organization to identify opportunities and threats for the firm. The analysis of the external environment includes:
- the study of the influence of the economy,
- legal regulation and management, political processes,
- the natural environment and resources,
- the social and cultural components of society,
- the scientific, technical, and technological development of society,
- infrastructure, and more (Çitilci and Akbalık, 2020).
It gives the organization time to anticipate opportunities, plan, and develop strategies that can turn past threats into profitable opportunities. In this study, the PESTLE model for Tesco’s environmental analysis was considered, but the emphasis was on social and technological factors. The selected categories best reflect the strategy and goals of the analyzed business.
Social
Due to various social changes, trends show that shoppers in the UK have moved towards bulk and one-stop shopping. Therefore, Tesco has increased the number of non-food products offered for sale. The type of goods and services demanded by consumers mainly depends on their beliefs and attitudes, which, in turn, depend on social conditions. As customers become more aware of health issues and their approach to food is constantly changing, Tesco is adapting to these changes by meeting the demand for organic products.
Technological
Advances in technology have opened up new opportunities for Tesco. The two most prominent of these include, first, the development and implementation of online shopping with home delivery options. Secondly, self-service checkouts have provided convenience and simplicity for shoppers, reducing labor costs. The company has succeeded in changing the trend of online shopping: today, 43% of its customers shop online for home delivery (Tesco, 2022). Tesco’s recent announcement of its teaming up with Amazon Go to create a new checkout invoicing technology is an update that will revolutionize how retail shopping is done. That will help consumers avoid long queues and save time. In addition, Tesco has also invested heavily in energy efficiency projects to meet its long-term goal of reducing carbon emissions (Tesco, 2022). In general, innovation has an essential place in the organization’s development and its stable position among the giants of the UK.
Tesco also combines customer focus with the technological development of the network and offers new opportunities every time, starting with the issuance of the first club card. In this way, the company, with the help of an innovative solution, was able to analyze the needs of its customers and personalize them. It increased consumer satisfaction and enabled the business to become a food and non-food retail industry leader.
Marketing Communication Strategy
Marketing communications can be called messages and media aimed at conveying information about the product and establishing a connection with the target audience, the market. The DRIP model supports marketing communications planning and helps set broad communications goals (Fill and Turnbull, 2019). It can be applied, for example, when launching a new product or repositioning an existing business, which is used by Tesco, which has introduced non-manufacturing products on sale.
Differentiate
Tesco is a retailer with 40,000 products, including food, mobile devices, and banking.
Reinforce
An effective loyalty program and the correct value proposition have helped Tesco regain market share in the competitive grocery market in the United Kingdom. The Tesco Club Card has been around for a long time, since 1995. Even then, Tesco realized the importance of collecting customer data through a loyalty program and using it to understand its customers better. Today, following the trends in the world, the business has expanded technologically: online stores, convenience stores, self-service checkouts, and more.
Inform
In terms of the promotional aspect of the marketing mix, Tesco’s brand image is based on the idea of low prices, which complements its cost leadership strategy. Tesco uses a wide range of different media to promote B2B and B2C. Above all, Tesco also uses television advertising, a newspaper, a club card, and discounts if necessary. Tesco’s extensive global workforce focuses on bringing customers to stores through B2C and E2C process marketing.
Persuade
Tesco uses its loyalty program to offer discounts to its 20 million members. For example, between October and December last year, Tesco offered a 50% discount to club card holders (Tesco, 2022). These promotions were so compelling that Tesco added 1.9 million new app users over those three months (Tesco, 2022). Of all Tesco’s promotions, 95% are related to its club card, making it easy to see why Tesco has been able to attract millions of members (Tesco, 2022).
Segmentation, Targeting, and Positioning
The marketing strategy is based on segmentation, targeting, and positioning (STP). First, one needs to determine the types of customers, divide them into key segments, then, for each component, find target markets in which it will be more profitable to do business and optimize the product for them (Fill and Turnbull, 2019). The result will be a unique selling proposition that will satisfy the buyer’s needs and emphasize the differences from competitors.
The process of STP marketing (target marketing) covers three main stages following its name:
- market segmentation – dividing the market into clearly defined groups of buyers, each of which can purchase certain goods or services;
- selection of target market segments (target selection) – an assessment of the attractiveness of each and the choice of one or more market segments to which the company’s marketing activities will be focused;
- product positioning in the market – bringing to consumers information about the basic values that a product can give.
A positioning map, or a perception map, is a convenient way to visualize the target audience’s understanding of the critical attributes of a market product.
Peer Analysis
Peer analysis is one of the most common financial analysis methods used by analysts and investors to compare stocks and find suitable candidates among peers in a group. It is also useful for identifying overvalued and undervalued stocks in the same industry and sector (Phuriphanvichai, 2020). Peer group analysis helps shape many decisions in finance and investment. The use of peer groups has a number of distinct advantages, especially in investment analysis.
Clear and in-depth analysis of comparisons of peers
The UK’s leading retailers were supermarket chains, with Tesco in first place with annual sales of around £53.2 billion for 2021/2022. Together with Sainsbury’s, Asda and Morrisons, the quartet is often referred to as the ‘Big Four’ in the UK food retail market. Collectively, Big Four sales account for over 55 percent of the UK food market.
Delivery speed is at the forefront of competition in the retail sector. A few years ago, delivering a package in less than two days was considered a significant achievement, but now some companies can provide orders in less than half an hour. With that in mind, Tesco launched Whoosh last year, promising to deliver groceries in 60 minutes or less. The service allows shoppers in selected markets to order products from 1,700 items, including fresh produce, essentials and baby essentials, and home goods. The company is doing everything possible to, firstly, not concede to competitors; and, secondly, to provide its customers with a variety of buying opportunities.
Booker catering sales strong UK and ROI non-food sales and a solid market lead. Like-for-like sales increased by +8.8% in two years, with all lines of business up from pre-pandemic levels (Tesco, 2022). Constant analysis of customer needs and the desire to meet them show the presented results and explain the position of Tesco in the ranking. Adjusted UK operating income and ROI was £2,481m, up 35.4% at constant rates, as higher sales volumes and lower COVID-19 costs year-on-year offset underlying operating cost inflation (Tesco, 2022). Despite its leading position in the UK market, Tesco also experienced significant difficulties, which affected the organization’s profits (FAME, 2022). As it can be seen from Figure 4, in 2019, despite the spread of the pandemic, Tesco experienced a rise in earnings of 10.2% (Tesco, 2022). However, the company’s history also has poor results, which constantly alternate with bursts of profits.
In the UK, Tesco continued to incur costs related to COVID-19, mainly due to the absence of those colleagues who were sick or in self-isolation, as well as additional costs associated with a steady increase in online sales. Total COVID-19-related spending was £220m, significantly less than the £892m incurred last year (Tesco, 2022). The assumption for the current year is that Tesco will incur significantly lower levels of COVID-19 spending as absenteeism rates return to pre-pandemic levels. In this regard, it is possible to expect a new increase in profits, which will once again consolidate Tesco’s position as a leader in the United Kingdom.
However, the company, along with other leaders, is concerned about the possible inevitable decline in profits associated with the heating crisis. Tesco, which accounts for 27% of the UK grocery market, said on Wednesday that shoppers continue to change their shopping habits to save money and reduce waste (Tesco, 2022). Back in the spring, Tesco and UK No. 2 grocer Sainsbury’s were both voicing fears of a hit to profits this year as they invest in maintaining competitive prices. Firstly, this is necessary to keep customers from switching to German discounters Aldi and Lidl, ranked 6th and 9th in the top 10; second, people are facing skyrocketing energy and labor costs.
Conclusion
The analysis of the level of sustainable growth of the company is a dynamic analytical framework that combines financial analysis with strategic management. This analysis allows to determine whether Tesco’s existing economic growth opportunities exist, determine how the company’s monetary policies will affect the future, and analyze the strengths and weaknesses of the company’s competitive strategies. The market share controlled by Tesco has gradually increased since the 90s because of the retailer’s customer-centric strategy. It is aimed at achieving long-term growth with an emphasis on four elements: the non-food business, the leading company in the UK, the global market, and services retail trade. Tesco is committed to continually increasing its market share by providing exceptional value and choice to customers.
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