According to Tesco, the retailer doesn’t just sell food and other items. It markets authentic food and shopping love stories. In my opinion, Tesco has truly redefined grocery shopping. I’ve seen that myself the first time I entered one of its stores. It was late at night, but the supermarket was still filled with clients.
Tesco’s never-ending aisles were the ones that struck me as impressive. Every shelf had an abundance of food products, groceries, clothes, and so forth. That first visit made me curious about Tesco’s business model and marketing strategy. So, here they are, presented exhaustively, together with the company’s main competitors and marketing mix.
- Tesco does all it can to serve its customers and local communities through its affordable products and responsible services;
- Lately, they’ve shifted from exclusively low-cost items to increased value and a line of premium goods;
- Its international presence, strong brand reputation, and wide range of selling channels make Tesco a leading retailer.
Tesco’s Business History
Jack Cohen founded Tesco in 1919, but the first store was launched in 1929 in London. It may have started small, but the company now owns other businesses. Among those, there are Booker, Tesco Mobile, Tesco Bank, and Dunnhumby. Over the years, Tesco became a multinational corporation with at least 30 companies under its umbrella.
At first, Tesco was selling groceries. Jack used to sell those goods from a humble market stall. He had that idea as soon as he returned home from the war. After several years, he began to market tea a few years before he opened the first Tesco store. In the next couple of decades, Cohen managed to expand his retail business.
He included self-service locations and a more comprehensive range of operations. Most of Tesco’s expansion is due to numerous acquisitions. The retailer started to engage in buying other businesses sometime in the 1950s. Interestingly, the company continues to rely on this strategy to this day.
Slow but steady, Tesco increased its product range. You’ll find different items, from food to books, toys, furniture, clothes, and even fuel. Today, Tesco is a large international retailer, operating almost 5,000 stores in many European countries. However, its primary focus remains the UK market.
As you can see, Tesco’s growth was organic and through acquisitions. Moreover, the company rebranded most of the other businesses it has bought.
Tesco Business Model Explained – How It Works
Tesco’s business model relies primarily on expansion through acquisition. But, they also focus on their clients who support the company’s organic growth. The retailer’s motto is Keeping It Simple, and they apply this approach in their business model, too.
- Mission – Tesco’s mission is to serve its clients while taking care of its community and the overall environment. Its experts try to be responsible. According to them, customers are the core and backbone of the company;
- Value Proposition – offering clients good-quality products and all the items they need or want at affordable prices;
- Selling Channels – it has online and offline distribution channels. It owns thousands of stores all over the globe. Moreover, most of its products are centrally distributed. The rest is delivered by suppliers directly to Tesco stores.
The core values of the company’s business model include convenience, affordability, accessibility, high value for customers, and a pleasant shopping experience.
Tesco has three main strategy pillars: customers, products, and channels.
At the core of the entire business, Tesco places its customers. They’re the ones who become loyal or choose another retailer if they’re unsatisfied.
Also, the company gathers numerous valuable insights from its clients. These three pillars are interconnected. They influence each other. Clients buy products that meet their expectations and fulfill their needs.
Better products attract more customers. Finally, diversified distribution channels are more appealing to a larger public. Hence, Tesco can address more market segments.
From quality to safety, labels, and designs, Tesco pays attention to how their goods are perceived and presented to their customers. Aspects like product development and category management are involved. They always try to improve their offer based on insights from partners and clients.
Tesco operates through the following types of selling channels:
- Wholesale locations/warehouses;
- Large stores;
- Small stores – convenience shops;
- Online platforms.
Through its products, Tesco aims to create value. They rely on their loyal clients to expand their brand and differentiate their strategy.
Tesco’s Six Strategic Drivers
Strong Brand Reputation
Tesco is well aware that a differentiated brand leads to long-term value. Hence, Tesco’s employees want to provide improved services and products daily. They even offer a brand guarantee.
Lowered Operation Costs
The company has also established several ways to decrease its operation costs. Through this action, it wants to create opportunities for significant savings.
The target is to accumulate a certain sum of cumulative retail cash in only three years. This amount of money should come from operations.
Boosted Profit Margins
They can increase the entire Group’s profit margin if they achieve and maintain sustainable profitability. That can be accomplished through waste reduction, attracting new clients, implementing new technologies, etc.
Property-Related Maximized Value
Tesco goes even further, and its dedication to creating profit from its real estate is impressive. There’s an ambitious desire to repurpose their operational space among their plans. This would enhance the company’s offer toward its clients.
Focus on Innovation
Innovation and technology are essential to Tesco’s goals. But, they can only do that if they have meaningful insights and experienced experts in all the areas of their business model: product, clients, and channels.
- Internal stakeholders – the management board, Tesco’s employees, and Tesco’s shareholders (Fidelity International, Schroders Plc., and others);
- External stakeholders – suppliers, customers, local communities, local governments, competitors, and pressure groups.
Tesco targets cost-conscious clients. Its customers search for great deals, value variety, and bargains. To segment its clients, Tesco uses experiential positioning. That’s something they do especially regarding their beauty and health product lines. Another thing their use is multi-segment positioning.
Regarding demographics, most of Tesco’s customers are between 25 and 34. More than 54% of them are male clients, whereas female customers are around 45%.
Tesco’s marketing strategy bases its success on the company’s well-positioned brand image. This further attracts the perfect clients for the retailer through well-done customer targeting. It does that instead of the traditional way of segmenting the market based on psychographic and demographic factors.
At the core of its strategy, there are cost-conscious clients who’re always searching for the best deals and price offers. At first, Tesco was known as a low-cost and high-volume retailer. More recently, the company rethought that strategy. Nowadays, there are two main product categories you’ll find at Tesco:
- Tesco Value – low-cost products;
- Tesco Finest – premium products.
Tesco’s positioning targets the middle ground by providing both valuable yet affordable products and mainstream items. Still, the retailer keeps expanding its product line to keep up with customers’ new needs and preferences. For instance, they launched farm-fresh products in 2016. Their regular rebranding actions help them attract new clients.
As a marketing expert, I know too well that all companies address the four classic marketing mix Ps. They’re called the 4Ps. However, there are also three additional Ps that not all businesses consider.
These elements were first introduced by Philip Kotler, whom I’ve studied a lot as a Marketing student. Regarding Tesco, I’ll discuss all seven of them.
This retailer provides many types of goods, from groceries and food to electronics, appliances, fuel, furniture, and more. The goal is for the customers to find everything they need in one of Tesco’s stores. I like Tesco’s product development strategy. They have their own brands. My favorite is Tesco Organic, but you can also find Tesco Everyday Value and Tesco Finest.
Besides highly-convenient products such as readily-prepared meals, you can shop for non-food goods like clothes. Or, if you want to do your shopping from the comfort of your home, you can easily access Tesco’s mobile app and order everything you need with a few clicks.
Tesco tries its best to offer affordable and competitive prices. That’s great when you consider that most of its clients are price-conscious. Moreover, the retailer’s own-brand items are marketed at different price points to cater to clients with different budgets.
Many times, customers will benefit from special discounts or promotions. The most common ones are multi-buy deals, seasonal offers, and discounts offered for a limited time. I appreciate how loyal clients are rewarded with loyalty points through Tesco’s Clubcard program.
Moreover, the company’s online shopping platform features dynamic prices based on stock levels and current demand. All in all, clients have a positive perception of Tesco’s prices.
Tesco has thousands of stores in numerous countries. However, many of them are within the UK. They also have a wide variety of store formats. Tesco operates hypermarkets, convenience stores, medium-sized supermarkets, and small urban supermarkets. Its online presence is also strong.
All these, together with the company’s international operations, robust supply chain, and click-and-collect service, have made Tesco one of the most popular and successful retail brands worldwide.
Promotions have always been part of my expertise and my favorite marketing area. Digital marketing, social media, and advertising are the activities I engaged in the most as a market professional. Tesco uses various promotion channels to advertise its services. These include outdoor ads, TV ads, print, radio advertising, and online media.
Loyal customers know Tesco’s in-store promotions all too well. The company relies on banners, posters, and shelf labels. These point-of-sale materials are effective at capturing clients’ attention.
Tesco also releases press statements and engages in community activities and events as public relations strategies. Finally, the retailer has accounts on social platforms such as Facebook, Instagram, and Twitter.
Communicating with its potential clients online through social media and newsletters, Tesco reaches a broader audience and creates a stronger digital community.
Any activities meant to help a business achieve a goal represent a process. There are standard procedures and a few customized or unique tasks. One example that comes to mind is what an employee does when a client places an order.
In Tesco’s physical locations, clients select their wanted items. Then, they go to checkout to pay for those goods. That’s where a store assistant takes them through the payment process. Still, I prefer Tesco’s self-service machines. That way, I can make the payments independently and save time not waiting in line.
As of 2023, around 345,000 individuals are Tesco employees. Many of them are customer assistants. They’re valuable for the retailer’s overall success. Typically, these people are competent and friendly. They should be since Tesco invests a lot of time and financial resources into their development and training.
The company also has satisfying reward schemes that all employees benefit from. On the other hand, many young staff members complain about lack of motivation. So, Tesco should work on improving that.
It’s also known as the environment. It consists of all of Tesco’s tangible elements, such as menus, furniture, equipment, business cards, etc. Tesco’s logo and its colors are also considered physical evidence. Last but not least, the company’s brick-and-mortar stores and mobile app are found in the same marketing mix category.
Tesco’s plans involve a lot of environmentally-friendly initiatives. They’ll focus on a greener and more sustainable future. Their goal is to lower their carbon footprint to zero by 2035. I must say that’s an ambitious objective. According to its representatives, they’ll use renewable energies and avoid plastic materials.
Let’s see the most important strengths and the most dangerous threats that Tesco faces.
- Significant market share – especially in the UK. Tesco is a major retail player worldwide, but it’s the first of its kind in the UK;
- Successful overseas operations – Tesco has more than 400 stores in numerous countries, including China, Ireland, Hungary, and more;
- Strong brand recognition – one of the greatest Tesco strengths is its brand recognition. That’s because the company has invested a lot in promoting its brand and raising awareness;
- Plenty of customers – each day, Tesco sells its items to millions of clients across the globe, in both physical locations and online platforms;
- A wide range of products – clients can find almost anything they want at Tesco, from groceries to electronics and even clothes.
- Quality control issues – things like expired products have damaged Tesco’s image and brand reputation;
- Strategic problems – these include not paying its suppliers enough and dealing with technological failure;
- Failure in penetrating the US market – occurred because of Tesco’s poor store locations, small store formats, food packaging concerns, and slanted customer research.
- Entering emerging markets – Tesco could explore a few developing economies like Mexico, Brazil, Turkey, and others;
- Strategic alliances – joint ventures and collaborations with other successful companies could help Tesco grow even more. I must say that they’ve already considered this option;
- Online shopping store – Tesco’s mobile app works well, but I would also add a home-delivery feature. I’m sure it would become appealing to more clients.
- High competition – the retail market is highly competitive everywhere, especially in the UK. Here, many grocery retailers provide good-quality products at affordable prices;
- Inflation and high living costs – economic recessions, the pandemic, inflation, and other crises have made customers change their shopping habits. This affected all companies, including Tesco;
- Brexit deal – when the UK left the EU, Tesco felt a severe negative impact. To be honest, all UK-based companies felt the same. Tesco went through a rough patch because it operated in numerous European countries.
As I said, Tesco faces steep competition, especially from the following retailers. Retail competition is fierce in the UK, but the top three brands are Tesco, Asda, and Sainsbury’s.
Aldi is all about thrift shopping. It relies on low operating costs, limited stock-keeping units, and high-profit margins. The core of the business has three values: consistency, responsibility, and simplicity. To drive and increase its profits, Aldi applies private brand margins.
Lidl is highly popular everywhere, including where I live. Many of my friends go there for a pleasant shopping experience. They’re satisfied with the retailer’s low prices. Still, I’m not a fan because Lidl has a limited product assortment. I must, however, give it to them regarding their intelligent pricing strategies.
ASDA uses everyday low prices as its business model. It focuses on selling high product volumes. Moreover, customers benefit from frequent discounts.
These promotional offers are made possible due to the retailer’s economies of scale. ASDA also has a strong online presence via its e-commerce platform. Its prices are lower than Tesco’s and the value it provides to its clients is remarkable.
Sainsbury’s has physical stores, mobile apps, and online shopping platforms. So, it’s covered on all existing selling channels. It markets high-quality products such as groceries, clothes, and general merchandise. Sainsbury’s relies mostly on database marketing and incentives derived from sales promotions.
Question: What’s the Business Strategy of Tesco?
Answer: It focuses on expansion through acquisitions. It also adapts to its clients’ shopping preferences and needs. Tesco sells affordable yet good-quality products and has numerous loyal customers.
Question: What Kind of Ownership Does Tesco Have?
Answer: Tesco is a PLC retailer. PLC translates as a public limited company. It means that everyone, including yourself, can buy some of the retailer’s shares as long as you’re over 18 years old.
Question: What Tools and Strategies Does Tesco Use for Its Digital Platform?
Answer: Tesco uses multiple digital tools, including artificial intelligence, cloud-based software, and big data. These are the main ones, but it also relies on a few disruptive technologies.
Tesco’s policy and business model rely on cost leadership. It focuses mainly on product variety, accessibility, availability, and customer service. Tesco promotes comfort, boosted value, and affordability. These traits made it highly popular among UK customers. Its global brand has become strong enough to support a massive customer database.
According to Tesco’s employees, they strive to offer clients a rewarding and smooth shopping experience. All these business and marketing tactics have propelled Tesco to the vanguard of the entire retail industry.
If you enjoyed reading about Tesco’s business model, read the company’s SWOT analysis. I’ve presented it in more detail here. (insert URL interlinking after the SWOT article is published).