Micro-Economic Impacts on Tesco Plc
1.0 Introduction
In this essay we are going to evaluate the micro economic factors on the activities and performance of Tesco.
Tesco Plc (2011) states, that the retail industry is a highly competitive environment. Tesco competes with a wide variety of retailers of varying sizes and faces increased competition from UK retailers as well as international operators in the UK and overseas. Failure to compete with competitors on areas including price, product range, quality and service could have an adverse effect on the organisations financial results. Tesco aims to have a broad appeal on price, range and store format in a way that allows them to compete in different markets. There is a risk that Tesco may not deliver their stated strategy in full, particularly since, like all retailers; the business is susceptible to economic downturn that could affect consumer spending.
2.0 The Extent of Competition in the Market
Tesco is a multi-national grocery and general merchandising retailer. By revenue, Tesco is the fourth largest retailer in the world after Wal-Mart, Carrefour and Metro. With 4,811 across 14 countries in regards to profit, Tesco is the second largest retailer in the world. In the UK, Tesco operates in an oligopolistic market competing against three major retailers; Asda, Morrisons and Sainsbury’s. Oligopolistic markets are those which are dominated by a small group of larger firms with several smaller firms also competing in the market with minority market share. The concentration ratio of the retail market is 4:76.2.
Figure 2.0.1: Comparing the Grocery Market (Preston, 2008)
Preston (2008) states, Tesco are the market leader with 31.4% with Asda, Sainsbury’s and Morrison’s having a market share of 16.9%, 16.4%, 11.5%. This means theoretically Tesco have monopoly power within the market but due to the intense competition which is apparent, they are not able to exploit their market power and discriminate against other firms as well as customers.
In this essay we are going to evaluate the micro economic factors on the activities and performance of Tesco.
Tesco Plc (2011) states, that the retail industry is a highly competitive environment. Tesco competes with a wide variety of retailers of varying sizes and faces increased competition from UK retailers as well as international operators in the UK and overseas. Failure to compete with competitors on areas including price, product range, quality and service could have an adverse effect on the organisations financial results. Tesco aims to have a broad appeal on price, range and store format in a way that allows them to compete in different markets. There is a risk that Tesco may not deliver their stated strategy in full, particularly since, like all retailers; the business is susceptible to economic downturn that could affect consumer spending.
2.0 The Extent of Competition in the Market
Tesco is a multi-national grocery and general merchandising retailer. By revenue, Tesco is the fourth largest retailer in the world after Wal-Mart, Carrefour and Metro. With 4,811 across 14 countries in regards to profit, Tesco is the second largest retailer in the world. In the UK, Tesco operates in an oligopolistic market competing against three major retailers; Asda, Morrisons and Sainsbury’s. Oligopolistic markets are those which are dominated by a small group of larger firms with several smaller firms also competing in the market with minority market share. The concentration ratio of the retail market is 4:76.2.
Figure 2.0.1: Comparing the Grocery Market (Preston, 2008)
Preston (2008) states, Tesco are the market leader with 31.4% with Asda, Sainsbury’s and Morrison’s having a market share of 16.9%, 16.4%, 11.5%. This means theoretically Tesco have monopoly power within the market but due to the intense competition which is apparent, they are not able to exploit their market power and discriminate against other firms as well as customers.
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