Tesco confronts budget rivals - Leading retailer reforms to compete against insurgent budget stores

Tesco confronts budget rivals - Leading retailer reforms to compete against insurgent budget stores


Confronted by the threat of rapidly expanding competition from budget food retailers, Tesco has undertaken reform. The business has been slimmed down, foreign ventures ended and prices lowered to improve competitiveness. However, there are other threats the company must respond to amid declining relevance of the megastore concept on which Tesco built its fortune. Amazon is seeking to supplant Tesco as the leading online grocery store and the merger with Booker, on which the Tesco board has staked much, is under pressure from regulators and shareholders.

Key Highlights

  • Tesco has responded the rising threat of Aldi and Lidl by reforming product ranges and reducing costs. The main aim of the company is now to compete directly on cost grounds to prevent further depletion in market share on a long-term basis.
  • The company is changing how the out-of-town megastore is operated in the face of changing consumer behavior. Along with lower prices, the cost of running that part of the business has been reduced, essential if the company is to avoid further decline in a central part of the business.
  • Tesco has slimmed down the business in order to concentrate on growing the core business. Foreign adventures during the past decade have achieved mixed success, but even the most profitable foreign brands have now been sold off to help the company recapture old fortunes.
  • Examines the impact budget stores have had on UK food retail
  • Looks at the future of the out-of-town megastores
  • Analyses the new threats to Tesco
  • Examines the steps Tesco have taken to compete against budget stores
Reasons to buy
  • What impact has Lidl and Aldi had on the Tesco model?
  • Can the out-of-town megastore model survive?
  • Can Tesco compete on price against budget stores?
  • Will the slimming down of Tesco work?

Insurgent budget stores put Tesco under pressure
Tesco response: Threat from German entrants is serious, not disastrous
Unilever dispute reveals cost pressure Tesco must respond to
Tesco own brand takes on Aldi, Lidl and Asda by price matching
Tesco slimmed down business to stay competitive
Foreign ventures have been sold off to streamline business
Selling in-store services refocuses attention on core market
New brands launched to repel low-cost alternatives from rivals
Tesco needs megastores, but doubt surrounds their long-term future
Shopping habits have changed, placing the idea of the megastore under pressure
Tesco makes big stores cheaper to run to pay for price cuts and remain competitive
Tesco trials Currys PC World brand in megastores to boost profitability and entice footfall
Merging with booker is a risky move, if it happens
Attention from regulators raises uncertainty over multi-billion-pound deal
Some shareholders are not happy with proposed merger, increasing pressure on Tesco board
Amazon Fresh creates new threat to Tesco dominance
Amazon Fresh brings fast delivery and low overheads: Tesco responds
Tesco trials 1-hour delivery service in London, taking on Amazon and rival brands
Tesco has changed much to meet growing budget store threat, but there is no guarantee of success
Further Reading
Ask the analyst
About MarketLine
List of Figures
Figure 1: Tesco revenue (£bn) 2005-2016
Figure 2: Empty shelves at Tesco during Unilever dispute
Figure 3: UK food prices, Detailed indices of food consumer prices, Jan 2014 – Jan 2017 (Jan 14’ = 100)
Figure 4: Fresh & Easy losses (£m)
Figure 5: Giraffe restaurants, formerly owned by Tesco
Figure 6: New ‘farm food’ brands at Tesco
Figure 7: UK online grocery retail ($bn) 2011-2016
Figure 8: Booker Group Operating Profit (£bn) 2006-2016
Figure 9: Amazon Fresh

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