Tesco is the largest UK retailer with an impressive client database and a wide range of products. As you’ll discover below, Tesco has many strong points and opportunities but also faces a few critical threats. Moreover, it should work on improving some of its weaknesses that could impact its current leading position.
As a business professional, I consider SWOT analyses essential to any successful company. It’s an effective planning tool that helps business managers create their plans and strategies. You must read the following SWOT components of Tesco. Otherwise, you won’t discover these metrics’ purpose. They help the retailer establish its market position. Moreover, Tesco’s SWOT analysis helps the firm’s experts in their decision-making process.
- Tesco is a well-known UK retailer with a significant market share;
- This grocery store provides numerous other goods. Those include clothing, electronics, and household items;
- Tesco is known for its convenience stores and hypermarkets. But it also has a robust online presence through the company’s mobile app and website;
- Over the years, Tesco has maintained its leading position. That’s due to its impressive financial performance. It also experienced constant profit growth and significant revenue values;
- From my experience, I’m aware of how dependent Tesco is on the UK market, despite the retailer’s presence in other countries;
- Tesco has dealt with challenges in foreign markets. That occurred because of unique client preferences. It also faced unstable and highly competitive market landscapes.
Tesco Brief History
Tesco, as we know it, was created in 1924. It’s a business launched in London and was first a small market stall that sold imported tea. The founder, Jack Cohen, expanded the company in the ’30s by building a new headquarters building. His business was the first modern warehouse in the United Kingdom that sold groceries and other food products
In 1946, Tesco introduced the self-service option after traveling to the US and being inspired by this idea. The following year, Tesco started to sell its shares on the Stock Exchange. Between 1955 and 1960, the retailer has known a quick growth, buying over 500 additional stores. In 1958, the first Tesco supermarket was opened.
The year 1979 represented the end of the founder’s era. Jack Cohen passed away that year. By 1989, when I was born, Tesco had created its first ad campaign and began its initiative to help Britain eat healthier. After 1990, the company invested in social causes and education, helping schools across the UK. In 1992, a smaller and more specialized format appeared as Tesco Metro.
An important expansion took place in 1995 in several European countries and a few places across Asia. Tesco Clubcard is launched the same year. After 2010, Tesco has focused more on putting its clients at the core of its every initiative.
Current Financial Performance
Over the years, Tesco did great or just fine in the financial performance department. In 2022, the company’s revenue exceeded 60 billion British pounds. It was an improvement of more than billions compared to the previous year. Still, compared to 2022, this year, Tesco has had smaller profits of only 4.4 billion dollars. The decrease was caused by the recent economic instability and very high inflation levels.
But all these challenges don’t seem to scare those at Tesco. The retailer plans to invest more in renewable energy. They also want to encourage clients to follow sustainable diets and cut plastic use.
Although in 2021, Tesco sales faced a severe drop, they achieved a 6% boost in 2022.
Tesco SWOT Analysis
Tesco’s biggest strength is its board product range translated into market leadership. Below, I’ve detailed all the retailer’s strengths, weaknesses, market opportunities, and threats.
Large Variety of Products
At Tesco, you’ll find an extensive product range representing the company’s most important strength. Unlike other retailers, Tesco has a diverse customer base. Its clients can shop for almost anything they need, from clothes to groceries, in one place. That’s highly convenient and time-saving.
Besides finding the things that are on your shopping list, you can also discover new products at any Tesco supermarket. This allows you to try new goods that you haven’t tried before. Whether you’re searching for daily essentials or luxury goods, Tesco will catch your attention due to its product variety.
Experienced and Well-Trained Employees
Most Tesco employees (at least the ones I’ve talked to) are proud members of this retailer’s staff. According to them, the company culture and working conditions are very good. Moreover, the management makes sure each of them is well-trained before being placed in one of Tesco’s supermarkets. In fact, Tesco’s approach to employee training is excellent.
It relies on a flexible training program. The program addresses the employees’ needs and level of experience. Some of them will develop new abilities during this process, whereas others will improve their already-existing skills. Tesco claims it treats staff members the way its employees want to be treated.
The retailer has a tall or hierarchical organizational structure. Its chain of command is pretty long, but each manager benefits from a narrow control span. Working at Tesco is different from any other supermarket. That’s because most employees feel a sense of belonging.
Leading Market Share
In Great Britain, Tesco is the number one grocery retailer, owning almost 28% of the total market share. In Ireland, Tesco is the most popular supermarket and has been so for a long time. As the market’s leader, the company enjoys great brand recognition. I can tell you that all these strengths translate into a powerful influence that Tesco has over its suppliers.
Various Store Formats & Large Store Networks
Tesco has opened many store formats. The most popular are hypermarkets and supermarkets. But, clients also like Tesco’s small convenience stores. I’m sure many of you know about Tesco Extra, One Stop, Tesco Express, or Tesco Homeplus. Each of these store types targets specific market segments and caters to those clients’ unique needs. This strength leads to higher flexibility. Simply put, Tesco can adjust its strategy to changing market conditions while creating a broad customer base.
Tesco has numerous stores all over the globe. I love it when a brand it’s readily accessible to all its clients. It creates opportunities for the expansion of the retailer’s customer base. Moreover, through this type of advantage, a company can enter new markets. I always advise financially-potent businesses to penetrate new markets and open new stores. This will improve their brand awareness and visibility.
Customer Loyalty Programs
Tesco’s customers receive plenty of perks and benefits through the company’s Clubcard program. It’s mostly about the retailer’s loyalty program. It enables clients to buy discounted-priced goods. Meanwhile, the company collects valuable information for its database. So, it’s a win-win situation. These strategies encourage shoppers to revisit Tesco stores, buying more products.
Also, they boost loyalty among Tesco customers. Finally, the company learns a lot about the things shoppers prefer to buy more frequently. It also discovers their purchasing behavior.
Superior Technology & Innovation
I genuinely appreciate Tesco’s focus on innovation. Their tech-related initiatives have led to a highly convenient shopping experience. The company does its best to improve how its customers shop and spend time in their stores. That’s achieved through superior technology.
For instance, using Tesco’s new barcode system helped me count my purchased items automatically. I could also pay for my groceries through a mobile payment app. Besides excellent automated client services, the retailer offers self-checkouts and many other perks. I must mention how effectively it relies on AI-based inventory management.
Success in Different Industries
Besides the classic Tesco supermarket, the company has been successful in other areas and industries. Telecommunications and finance are two of those examples.
Tesco Bank offers loans, insurance, and credit cards. Managing your account is fairly simple. Clients can use their Clubcard Pay+, which enables them to save money on every purchase they make. One can safely use these bank services overseas.
While Tesco Bank was highly successful, entering the financial market was quite challenging for the company. I was baffled when I heard that they want to shut down all Tesco Bank operations by the end of this year. The reason behind this decision seems to be that the clients don’t prioritize their current accounts.
On the Tesco Mobile website, you’ll find mobile phone deals, SIM contracts, and more. It was launched 20 years ago.
Even here, clients benefit from using their Tesco Clubcard. Their payment plans are flexible, and clients can choose their desired tariffs. Tesco’s mobile virtual network operator functions in several countries like the UK, the Czech Republic, Ireland, and Slovakia. Families with multiple members as Tesco mobile clients receive additional perks.
Poor Market Performance Outside of Europe
For some reason, it seems that Tesco can’t achieve the same level of success in other countries as it has across Europe. At first, that baffled me. Then, I thought about how the retailer had failed to maintain its stores and services in the US market. Things didn’t look better in the Japanese market. Once I did thorough research, the reason revealed itself to me: this was a matter of export failure.
Tesco lasted only five years in the States, leaving Japan after nine years. Hence, the company had no choice but to exit these international markets. The retailer left the American market because of its small store formats and poor store locations. It finally exited the US in 2013. Tesco had to sell all its stores before the exit.
Their effort to adjust their foods to fit the American public’s lifestyle didn’t work out. As for Japan, Tesco left that market in 2011 after nine years. It seems that Japan was a challenging market for Tesco’s trade. The retailer faced difficult customer demands and high trading costs. Despite its impressive investment, Tesco didn’t manage to win that market over.
Tesco even tried to enter the Chinese market, but it was a bit late, and the company couldn’t secure the locations of its stores. It also failed to gain a large-enough market share in due time. Moreover, most Chinese people prefer to do their shopping online. This could be another reason for Tesco’s lack of success in China.
These problems are about product quality and safety standards. They have considerably damaged Tesco’s brand reputation. One example would be the well-known horsemeat scandal. Customers bought what they believed to be beef products. But Tesco had included horsemeat without informing anyone.
Another huge mistake that Tesco made was to display and sell expired products. For that, they had to pay a steep fine of over 170,000 British pounds.
In 2018 many angry clients expressed discontent. That happened when the company introduced the Clubcard scheme. Through this program, customers could double or quadruple their shopping points. Still, none of them were aware of that. You can imagine the kind of backlash Tesco faced with this mistake.
Tesco is too large and has a significant market share. These two, put together, make the retailer’s expansion very difficult, especially when it comes to its core markets. Moreover, entering new markets and selling new products is risky and challenging.
That’s the truth, from my experience, regardless of the business’s size or financial power.
One must adapt its strategies to fit the regulations and conditions of a local market. Also, this process involves significant investment.
Weak CSR Initiatives
Talented and skillful employees are hard to find, especially with Tesco’s negative publicity regarding its CSR initiatives. From what I’ve seen, younger generations are skeptical when working for retailers that don’t have solid and clear sustainability policies. Another aspect appreciated by youngsters these days is involvement in social causes.
To overcome this weakness, I suggest Tesco engage more in CSR processes. It should be transparent toward its customers and communicate everything it does in this regard. Moreover, Tesco must prove that its products are ethically sourced by featuring solid actions as well as measurable results.
Tesco should grasp the opportunity and expand into new countries to target new clients. This would help the company increase its revenue stream. It has already successfully entered other markets, including Hungary and Thailand. However, its representatives should consider other regions, such as South America, other parts of Asia, and Africa.
International expansion is a great way to diversify a company’s risk.
Focusing on Sustainable Products
The aim should be to provide healthy and sustainable goods. That’s a consequence created by more health-conscious clients. Also, consumers are more environmentally oriented. Hence, Tesco must capitalize on these market trends. I suggest providing a more comprehensive selection of eco-friendly, healthy, and organic products.
Boosting Youth Employment Rates
This is a significant opportunity, considering that the retailer is a major European employer. I was intrigued to see that Tesco was among the few companies that hired more employees during the pandemic instead of terminating contracts. As long as the retailer buys new stores and expands into new markets, it could also boost its youth employment rates.
The retailer should consider its underperforming markets and seek joint venture opportunities in those areas. If Tesco collaborates with local companies, it will gain a lot from those businesses’ profound market knowledge. Hence, it could seriously improve its performance in those regions.
Creating New Store Formats
I agree that Tesco already has several effective store formats, including smaller shops and hypermarkets. However, I would include more modern urban stores and specialized locations. In my vision, these would target more specific niches, offering well-determined product categories. Through these stores, Tesco could change the current shopping habits and address customers with evolved preferences.
Any retailer in the same industry as Tesco deals with steep competition, including in the pricing department. For instance, I can think of two important Tesco competitors (top of mind) that offer discounted prices: Lidl and Aldi. This threat can put extra pressure on the company’s profit margins.
To avoid losing its current market share, Tesco might have to adopt one or both of the following tactics:
- Introduce more promotional activities;
- Lower its prices.
On the other hand, any of these measures could impact Tesco’s profitability.
The harsh rules implemented by the EU after Brexit represent a crucial threat to Tesco. Combined with inflation and government regulations, this threat could affect the retailer’s activity. From what I’ve seen, Brexit has affected retailers’ supply chains the most. This translated into stock shortages for numerous products.
I have several relatives and close friends who live in the UK. They’ve told me about this issue and how strange it was to enter a supermarket and see many of the shelves completely empty.
Rising Costs & Supply Chain Issues
Brexit and other recent events have led to higher business costs. They influenced many companies. War-related and health crises have made Tesco spend an extra sum of around 900 million to one billion dollars.
And, since misfortunes never come alone, Tesco has also experienced supply chain issues. Product shortages threaten Tesco’s profitability and operations. To address that, the retailer had to reduce the number of essential goods a customer could purchase.
Digital and tech transformation are challenges that Tesco must overcome one way or the other. The bad part is that disruptive technologies appear all the time. The good part is Tesco has managed to adapt so far by using cloud-based programs, AI, and big data.
On-demand delivery and online marketplaces are two innovative things that could produce a glitch in Tesco’s system. But, as long as the company knows the proper way to address those, it will be able to transform them into opportunities.
Everchanging Shopping Habits
This is another major threat since clients tend to buy less than before. Moreover, they aren’t as loyal to one supermarket and willing to switch from one retailer to another. This threat was paired with boosted online shopping that more and more customers prefer – including myself.
However, Tesco handled this situation by releasing a new online service called click and collect.
Very Steep Competition in the UK
Although the common consensus is that Tesco is the most popular UK retailer, it seems that no one is actually leading the race. There are, however, a few companies that are more profitable than others: Tesco, Aldi, and ASDA. Allow me to explain just how high the competition is within the UK’s retail market. The country occupies third place on the globe for its competitiveness.
In terms of online retail, the UK lands in the first place, globally speaking.
See also: Walmart Business Model
Here are Tesco’s main competitors. In the UK, competition is steep. Most retailers play on a pretty plane field. Still, most people consider Tesco as the most popular brand, followed by Asda and Aldi.
ASDA was launched in 1949. It’s a popular supermarket chain in the UK. Today, the company has over 145,000 employees and more than 630 stores. They sell groceries, home items, beauty products, and general merchandise.
- Strengths – competitive prices; wide product range; large store network; great brand recognition;
- Weaknesses – limited international presence; steep competition; quality perception issues; ownership changes;
- Opportunities – online presence expansion; customer experience enhancement; international expansion; partnerships and acquisitions;
- Threats – online and offline competition; consumer preferences; technological disruptions; reputational risks; economic fluctuations.
Lidl was founded over 90 years ago and has a strong reputation across Europe. Its headquarters are in Germany, and it has more than 310,000 employees. Lidl owns over 10,000 stores. You’ll find this retailer in the US and in 30 European countries.
- Strengths – affordable goods; international presence; adaptability; strong brand recognition;
- Weaknesses – limited product range; lower employee satisfaction; limited online presence;
- Opportunities – eCommerce expansion; product diversification; improving customer experience;
- Threats – steep competition; economic fluctuations; labor regulations; inflation.
Aldi is successful as a retailer due to its speedy checkouts and generous return policy. It was founded in Germany in 1961. It started as a family-owned business, but it’s now a well-known multinational company. Aldi relies on simplicity and consistency.
- Strengths – efficient business model; high convenience; quality reputation; sustainable initiatives;
- Weaknesses – limited brand variety; lack of loyalty programs; intense competition; limited online presence;
- Opportunities – wider product selection; geographic expansion; diversifying store formats;
- Threats – economic downturns; supply chain disruptions; everchanging customer preferences; data breaches.
Sainsbury’s has a long history, being founded in 1869. Customers like it for its affordable prices and great quality food. The company holds on tight to its quality reputation and brand heritage. Moreover, the retailer uses its sources with integrity. Sainsbury’s private label products help the business differentiate from other retailers.
- Strengths – strong online presence, excellent client feedback and reviews, effective promotional strategies;
- Weaknesses – price increases, a bit expensive, financial instability;
- Opportunities – global expansion, rural area coverage, embracing new trends;
- Threats – competition, rules and regulations, controversies.
Morrisons is another British supermarket chain founded in 1899. It has around 110,000 employees and occupies a fifth place as one of the largest UK retailers. The company owns almost 500 stores in England, Scotland, and Wales. It even has a store in Gibraltar. They’re mostly known for their groceries and fresh foods.
- Strengths – private label brands; sustainability policy; strong and durable partnerships; loyalty programs;
- Weaknesses – market share decrease; limited international presence; brand perception issues;
- Opportunities – online operation expansion; store format diversification; strategic collaborations; increased focus on wellness;
- Threats – steep competition; digital disruption; economic uncertainty; political factors.
Question: What Market Challenges Does Tesco Face?
Answer: It faces both external and internal challenges. For instance, it could fail to adjust to other markets besides Europe. Rules implemented after Brexit can also be a problem. Tesco was involved in several quality-related scandals. Finally, inflation and competition are among the most important threats of all.
Question: Why Do Retailers Like Tesco Rely on SWOT Analyses?
Answer: SWOT is a powerful tool that helps Tesco establish its competitive strategy and market positioning. It’s easier to make informed decisions after completing a SWOT analysis.
Question: How Do Retailers Like Tesco Maintain Their Competitive Advantages?
Answer: Tesco has numerous strengths that it uses to maintain its competitive advantage. These include a large market share, high adaptability, and significant investments in new technologies.
While Tesco has unique and excellent strengths, it also has common weaknesses that other retailers have. Regardless of the high competition in the retail market, Tesco will continue to remain a top provider in its industry and reap the benefits of that advantageous position.
The company can do that through its robust leadership, innovation, and clever management practices. After all, Tesco has proven its resilience after surpassing both Brexit and the Covid pandemic.