The Critical Analysis of Tesco’s Development and the Opportunity of Furthering International Growth

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Although the recession came to end in 2012, the demand for discounted goods remained present. The demand for these discounted groceries seems to only be steadily on the incline, which we can see from the continuing growing success of the German-discounted retailers Aldi and Lidl. In 2013 Aldi alone increased it’s sales growth rate by 36.1%, despite the market growth for food retailers being at its lowest level in 11 years standing at 1.9% (Kantar Worldpanel, 2016). We can see now how consumers expect more for their money. As a result, this has stunted the development and growth of the big 4 competitors, including Tesco as consumers shift to other competitors. The vast majority of the period between the beginning of 2014 and the end of 2015 has been spent having negative market growth rates for all the top 4 firms (Appendix 3).

Tesco’s main market is situated in the UK, it could be argued that their profits and successes are heavily dependent on this sole market. Looking at the recent trends of the UK market, I believe it is important for Tesco not to solely rely on the UK for profits due to recent patterns of the firm struggling to compete. This dependency could present many challenges for Tesco if the market was to decline or trends carry on in favour of their competitor’s sales. Overseas stores account for only 20% of Tesco’s total sales (BBC, 2014), I believe in order to decrease this dependency Tesco should be looking towards further increasing their geographical spread.

Tesco so far have done well overseas, their growth has been limited to Europe and Asia, there are still numerous opportunities for Tesco to further their international growth in other areas. For example, one market which the company could attempt to tackle is the USA. One main country I believe that Tesco should focus on is the USA. Despite already failing to withstand in this market, I believe the stable economy and encouraging market trends are not one to be unnoticed by Tesco. With sales in 2014 alone totalling $365.4 billion, an increase of 2% from the previous year the size of this growing US grocery market is not one to be missed (Euromonitor, 2015).

Tesco has previously tried to compete in this market with the launch of ‘Fresh & Easy’ in 2007, however despite the extensive consumer research which was undertaken the chain was negatively affected by the economy. The main areas where the chain was focused were badly hit by the economic downturn and recession in the launch and growth stage of this chain, this resulted in consumer tastes changing. Due to consumers having less disposable income, they were less inclined to purchase fresh, more expensive goods and switched to cheaper products which were sold at hypermarkets provided by competitors such as leading US grocery store Wal-Mart. However, this was not all failure for Tesco, the firm succeeded when recognising the growing trend for healthier lifestyles in America and the importance of fresh organic produce. Although they entered the market when the economy was at its worst, thus wants and needs were shifted I still believe that this idea could thrive in the current health-obsessed country if the brand was to enter in a more stable economy, presenting less risk. America’s GDP has been growing at a steady 2.3% (average) since 2012 (Trading Economics, 2015, appendix 4), this could prove to be an opportunity for Tesco if they began looking to re enter the market. With the economy stable and consumer tastes focusing on a healthier lifestyle I believe that Tesco could flourish in the market if they rebranded their original idea.

Although the US economy has been stabilised showing positive signs for retailers such as Tesco wishing to enter the market, it has to be noted that the fierce competition could prove to be a threat. In 2014 Wal-Mart held 24.5% of market share of the grocery market (Statista, 2015) this large rival may be difficult for Tesco to break, as loyal customers may prove difficult to try a new unknown brand. However, income per capita is steadily rising with the past 4 years showing the countries GNI has increased by 12% (Appendix 5) this means that alongside steady GDP growth rates the economy is becoming richer, thus the individuals. As the individuals have greater spending power they begin to demand more luxiourious items such as organic, fresh produce. This growing economy is already affecting marketing trends with US organic food sales totalling £35.9 billion in 2014, a 11% increase on the previous year according to Organic Trade Association (Food Navigator, 2015), the positive results mean that stores are predicting to have strong growth periods for the future. I believe that if Tesco was to stick with the niche idea of solely focusing organic fresh produce and healthier food this may act as a unique selling point for Tesco, therefore having a competitive advantage over such competitors as Wal-Mart. Recent trends it has also been recognised that sales at hypermarket stores are slowing, the hypermarket channel is becoming increasingly saturated as stores have difficulty entering urban cities because of their size (Euromonitor, 2015). There has been a shift towards demand for smaller convenience stores, Tesco could use this to their advantage as it provides a great opportunity for their idea of smaller organic food stores.

Conclusion

If Tesco was to be encouraged by entering the market when the economy was much more favourable I do believe that they could be very successful, targeting the US market in particular offers remarkable growth and development thus improving profits. With the US market being so large if Tesco were to begin to succeed and grow in particular in this market it could take away the dependency on the UK market, where Tesco is struggling to grow their market share much further.

To conclude, I believe that Tesco’s mainly affected by the economy and this in turn influences competitor’s actions. Tesco is becoming too dependant on their main market situated in the UK, with discount competitors stunting their growth and development I believe it is now time that Tesco look for opportunities elsewhere to advance themselves. From their previous ventures in countries across Europe and Asia we can see that Tesco have the ability to adapt their stores to local needs and become successful. I ultimately believe in their idea of healthier organic produce due to the rising health conscious trend, and unfortunately in the past I believe this idea failed in the USA mainly because of the economic downturn. Despite previously failing, I am confident that the USA’s steady economy and growing health trends will favour this niche idea and help Tesco to further their success and become less reliant on their home profits.