What’s best for Tesco?

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Shareholders at Tesco have been left feeling disgruntled as the company recorded a 6.9 percent drop in profits last week. Profits at Britain’s biggest retailer have now dropped for the second year in a row after going 20 years without this happening. This has led to some calling for Philip Clarke, the Chief Executive to be replaced. Despite this the share price still rose about 7.5% primarily down to an improvement in the firms Eastern European business. Tesco shares are currently trading around the 290p mark, falling from 400p which was the share price around the time the under pressure Mr Clarke took over.

Tesco are a company dear to my heart as they provided me with a capital moment – my first job. I’m going to perform a simple SWOT analysis to provide an insight into what next for ’em.

Strengths/Opportunities
Brand – let’s face it, everyone knows Tesco. Finding someone based in the UK that has not heard of Tesco is like finding a team better in North London that’s better than Arsenal, impossible (don’t argue). Tesco has continually maintained a strong brand name in UK market, obtaining a large chunk on the consumer market share. They have grown from strength to strength, providing quality products as seen with their “Tesco Finest” range introduced in the early 90’s.
Tesco.com – The online experience on the Tesco is seamless and very straightforward. Again they were one of the first supermarkets to provide online shopping which provided convenience to many consumers, especially the elderly who were able to order essential groceries from the comfort of their own homes.
Diversification – Tesco is much more than that market stall selling groceries founded
by Jack Cohen in Hackney nearly a hundred years ago, Tesco has increasingly diversified with regards to the location of their operations and what is sold by the company. They have diversified into areas such as the retailing of books, clothing, electronics, furniture, petrol and software; financial services; telecoms and internet services; DVD rental; and music downloads.
International Growth – there is a real opportunity for Tesco to establish themselves as the global brand they wish to be. They have been able to firmly establish themselves in Central Europe, with over 80 stores in the Czech Republic, but the next stage is to break out and tap into the American consumer market. Yes they have had an unsuccessful attempt, but careful re calibration of their strategies may do the trick.

Weaknesses/Threats
The main weakness/threat that can affect Tesco is whether the firm can adapt to remain competitive on all fronts. The consumer market is undergoing deep structural changes. Customers are switching from quality to value and the big supermarkets have to adapt to this. This has affected Tesco in 2014 as the emergence of discount value stores such as Poundland, ALDI and LIDL have been contributors to the consecutive reductions in profits and an all time low market share. In an attempt to win back shoppers, Tesco launched the first wave of a £200m price cutting campaign back in February focusing on staple foods (milk, bread and vegetables) and the retailer said prices were coming down by an average of 24%. Although they cannot beat the discounted due to differing business models, they can stay close to them to ensure they are as competitive as ever and that is what they will need to do to buck the current trend of consecutive reduction in profits.

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