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100 years ago, Jack Cohen, a former member of the Royal Flying Corps, invested the demobilization money he received at the end of World War I to set-up shop in London. On his first day, he made a profit of £1 for £4 of sales. That was the start of Tesco – UK’s biggest supermarket. In this SWOT analysis for Tesco you will learn:
- Strengths: Tesco’s internal advantages driving its growth.
- Weaknesses: Problems within Tesco holding it back.
- Opportunities: Situations Tesco could leverage to progress.
- Threats: External factors putting Tesco at a disadvantage.
2020 is an exciting year for Tesco. Through strong leadership and management, the company transformed one of the biggest threats to Tesco into one of its greatest strengths. The year also marks the transition of leadership from Dave Lewis to Ken Murphy. What does this mean for Tesco and the industry?
Well, you can read more to find out. Let’s begin with Tesco’s strengths.
What are Tesco’s major strengths?
After a devastating accounting scandal caused a £6.4 billion loss in 2015, people thought Tesco’s run at the top of the supermarket chains was over. However, Tesco made a remarkable recovery. Many of Tesco’s strengths come from this magnificent turnaround. Here are some of the advantages Tesco has:
- Financial Turnaround: Thanks to the leadership of Dave Lewis, Tesco recovered from an annual loss of £6.4 billion in the annual report of 2015 to an operating profit of £1.9 billion in the annual report of 2020.
- Market Share: According to Kantar, Tesco has 26.9% of the grocery market share in Great Britain. Tesco’s closest competitor, Sainsbury’s, has a market share of 14.9%. Thus, Tesco’s dominance in the market is unchallenged.
- Strong Performance During the Pandemic: Despite the pandemic, Tesco registered a 10.5% growth in the last three months to September. The growth comes from Tesco boosting its online sales. The volume of growth is clear from Tesco hiring 16,000 people to cater to the growth in demand.
- Innovation: Couchbase judged Tesco as winners in the EMEA region for Advanced NoSQL Architecture. The award recognizes Tesco’s efforts to optimize its delivery scheme in response to COVID-19 induced shortages. According to Couchbase, Tesco ran nearly 2 billion iterations.
- Adaptability: In response to pandemic-triggered restrictions on in-store purchases, Tesco was able to double its delivery capacity to 1.5 million slots. The upgrade resulted in a profit of £551 million, which is 28.7% higher than the figures last year.
In light of Tesco’s strengths, the reason Tesco is so successful is its management. Dave Lewis has left Ken Murphy a winning company. Let’s hope Ken Murphy continues to drive Tesco’s growth.
But not everything is picture-perfect. Tesco does have some internal vulnerabilities to address. Next, we will look at Tesco’s weaknesses.
What are some of Tesco’s weaknesses?
Tesco’s biggest competitors are Sainsbury’s, Asda, and Morrisons. Together the four companies are known as the Big 4. They account for 66% of the market share in Great Britain. Each of the Big 4 has its set of hurdles to overcome, here are Tesco’s:
- Leadership Change: Ken Murphy took the reins as CEO from Dave Lewis in September. According to the Retail Gazette, the change heralds a new chapter in Tesco’s story. Maintaining the well-oiled machine, which Dave left behind while accelerating the massive push online would be no easy task.
- Quality Control: Tesco boasts rigorous quality control measures, but a disturbing complaint from a customer indicates room for improvement. Although Tesco apologized for selling chicken with partially digested feed, the incident should not have occurred in the first place.
- Shortage of Products: To prevent shortages due to panic buying, Tesco is rationing a few of its items. However, Tesco assured customers they are adequately stocked to cater to normal buying patterns.
- Inventory Management: Tesco paid £175,000 in fine for displaying products 15 days past their expiry date. On hearing about the issue, Tesco removed the items and put in place systems to avoid similar problems.
- Food Safety Issues: Given the range of food products Tesco sells, lapses in adhering to food safety guidelines have major consequences. For instance, Tesco issued urgent food recalls after discovering safety issues and defects that endanger customers.
Some of Tesco’s weaknesses, such as shortage of products or change in leadership, are temporary. The long-standing ones remain problems associated with quality control and inventory management.
What’s unique about Tesco is its value “no one tries harder for customers”. Based on this core value, Tesco will address its weaknesses over a period of time. Now, let’s move on to Tesco’s opportunities.
What are some opportunities for Tesco?
The supermarket industry is one of the few industries to hold its own during the COVID crisis. This once in a century crisis marks a permanent shift in the way people conduct business. And this new world brings new opportunities. Here are some of Tesco’s opportunities.
- Growth of Online Grocery Sales: Measures to prevent the spread of COVID-19 also prevent people from stepping out as much as they used to. The restrictions popularized buying groceries online. That’s why Ocado benefited from a 76% rise in online sales. Tesco can and should leverage the trend.
- High-Unemployment Rates: An article in the Guardian shows a massive decline in employment numbers for people aged 16-24 years. Supermarkets being one of the few places where people could still find jobs, the high-unemployment rates could help Tesco acquire the numbers to fuel its growth.
- Rise of Meat Alternatives: The global demand for plant-based sources of protein is estimated to be £4.1 billion in 2020. Switching to meat alternatives also promotes sustainable business. It’s in light of this opportunity Tesco is committing to a 300% increase in sales of meat alternatives by 2025.
- Social Supermarket: Social supermarkets stockpile unsold inventory that’s within its use-by date. Then, the supermarket sells the inventory at very affordable rates, preventing wastage and food poverty. Tesco is passionate about both causes and should actively participate in this initiative.
- AI and Machine Learning: Supermarket chain Morrisons partnered with TCS, a leading IT consulting company, to improve operations and productivity. Using AI and machine learning to predict and deliver street-level requirements could be a game-changer.
At present, Tesco’s best opportunity is to bolster its presence in the online space. If Tesco gets this right, it would ensure its reign at the top for many years to come.
But Tesco should not take things for granted and should masterfully navigate through a changing landscape. We’ll talk about Tesco’s threats next.
What is the biggest threat to Tesco?
At present, the UK is going through a political crisis, a health crisis, and an economic crisis. And one of Tesco’s main rivals is making a comeback. So, Tesco much watch out for these threats. Here are the details:
- UK-EU Relations: UK’s current pursuit of a no-deal Brexit could lead to the suspension of the free trade agreement with the EU. On suspension, the UK would have to trade its goods with the EU based on WTO rules. The adoption of new rules would lead to additional tariffs, customs checks, and quotas.
- Brexit and Supply Chain: Brexit will affect 80% of the imported food sold in supermarkets. With Brexit imposing restrictions at the port of entries, the stymied flow of imported goods from the EU to the UK will negatively impact Tesco’s supply chain.
- Economic Recession: Ken Murphy, the new CEO of Tesco, forecasts tough times during the holiday season. Economic recession and the resultant drop in purchasing power are the main reasons for concern. Also, rising unemployment adds another layer of financial uncertainty for Tesco’s patrons.
- COVID-19 Pandemic: Tesco’s quick shift to online service saved Tesco during a time when many major companies fell. However, corona virus-related expenses hit £533 million. Also, Ocado overtook Tesco as the most valued UK retailer. This could signal an industry-level shift.
- Competition: Recently, the ownership of Asda changed hands from Walmart to the billionaires Issa brothers. The new owners seek to bring Asda to their 6000 forecourts across 10 countries. The revival of Asda poses a serious threat to Tesco’s market share.
Among the threats, the most significant threat to Tesco right now is the no-deal Brexit. We’ll have to wait and watch how Tesco handles this situation.
Tesco SWOT Analysis: Conclusion
Tesco’s strengths are unique to Tesco. However, its weaknesses are common to other players in the supermarket industry. So, Tesco will continue to reap the benefits of robust leadership and management practices that make it stand tall among its rivals.
Also, with ongoing challenges Brexit and COVID impose, Tesco has shown its resilience by reinventing itself to cater to the rise in online grocery sales. Tapping this vein could be very profitable for Tesco.
The main take away from Tesco’s SWOT analysis is that strong leadership can turn any crisis around. It can also transform a perilous situation into a training ground for reinvention and growth.
Recommended Read: PESTLE analysis of Tesco
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