Suppliers are internationally sourced, and Tesco gains scale economies from its large buying volumes. This has enabled the company to keep prices down and supported its low price strategy aimed at the broad consumer market.
However, the company has been criticized for its management of suppliers and clashes with the farmers union. There has been growing opposition to the supermarket because of its size, and the government (through the Monopolies and Mergers Commission) has been involved in ensuring competitive markets in the UK. Recent acquisitions such as T&S stores, have led to a high concentration, with only few dominant players within the market.
The organisation has a diversified product portfolio, which includes telecommunications, finance, insurance, which provides cross and up sell opportunities to customers. Profits have been invested to support research and development, and its aggressive international expansion plans.
Challenges and outlook for the Tesco Stores Ltd:
Intense competitive rivalry within the UK retail market is forcing retailers to look at cost savings and ways that they can differentiate from competitors. The retail market is mature and oligopolistic in its nature, with a few major multiple retailers dominating the market. Intense competition between the large retailers has to price wars with Asda and Tesco and low price competitors – Netto and Lidl are reducing margins for the industry as a whole.
Tesco has looked to increasing efficiency and effectiveness. Cost savings have been sought from the supply chain, through better use of IT, and from policies and management of suppliers to ensure the greatest value to the business and customer.
The market is highly regulated. The monopolies and mergers commission has been monitoring the market to ensure fair competition.
The government has also been active in planning restrictions for new store openings. Growth appears to come from gaining new customers, improving product offerings, and from higher margin items such as clothing, appliances and other non-food offerings. Many retailers have looked overseas to fuel growth.
Customers are still king. Success in the industry is still dependent on how well the retailer can meet the customer needs. Price, particularly in the UK has become a dominant feature. If the UK and US enter a recession, this will put added pressure on retailers to keep prices low.
