Marketing Organic Foods at Tesco Essay

Open, View, and/or
Download this Document

Total Length: 3680 words ( 12 double-spaced pages)

Total Sources: 4

Page 1 of 12

Tesco is the leading grocer in the UK, with a 28.15 share, putting it ahead of ASDA (16.6%), Sainsbury's (16.1%) and Morrison's (10.8%) (Statista, 2015). The company sells a wide variety of goods, including non-grocery items, and it does so with stores in a wide variety of formats. The competitive environment is intense, with low-cost providers aggressively targeting market leaders like Tesco in a bid to gain market share from cost-conscious consumers (Yeomans & Armstrong, 2015). Tesco's strategy, as the market leader, is to appeal to as broad an audience as possible. As part of this strategy, the company has a number of different initiatives, including a range of own branded-goods. These include Finest, Organic and Healthy Living. Organic is tied into the drive to appeal to customers who are less price-sensitive, as purchasers of organic products have demonstrated a willingness to pay a premium for a specific attribute, in this case organic production. Organic is a growing segment of grocery markets worldwide, and the UK is no exception. This paper will focus on the Tesco Organic label, and the marketing thereof, in the context of Tesco's overall strategy.

Business Model

In its 2015 strategic Report, Tesco describes its business model as to "regain that total focus on serving customers" (p.8). To that end, the company defines this as "listening to, understanding and reaching out to customers to create the best possible offer," "working with growers and suppliers to make great products" and "working across different channels to get those products to customers in the most convenient way possible." The company alludes to a fresh start, which is essentially a recognition that it has been losing market share because other companies have been more responsive to the needs of customers. This can be operationalized in many ways, but one of which is responding to trends in the market.

The case for own-brands is a strong one in the grocery business. Stores typically offer own-brand products at prices below those of national brands. The goods in question are typically staple goods that are either undifferentiated or poorly differentiated. There are numerous producers, and customers are highly sensitive to price, with little to no brand loyalty. When grocery stores began own-branded lines, those were usually for product that fit this model in a classic ways --tins of kidney beans, bags of rice, cola, and other similar products. However, own-branding has become more sophisticated over the years. Clothing stores will work with specific designers for house branded goods that are differentiated. Something similar has occurred in the grocery business, for example a store might have a proprietary line of signature sauces that are unique to other products in the market, but are still own-branded goods. The rise in private label groceries has occurred in direct response to consumer demand for quality goods at a lower price (Nielsen, 2014).

In general, private labels are viewed by consumers as a good alternative to name brands, offer lower prices, and good value for money. In the United Kingdom, private labels account for an estimated 41% of the market, a share that ranks 2nd in the world only behind Switzerland's 45%, and is much higher than most OECD countries (Nielsen, 2014). For Tesco, the implication is simple -- to meet the needs of consumers it needs to offer a wide range of goods as private labels, in order to ensure that consumers perceive Tesco as a place to get value for money. The best goods for private label are those with high price sensitivity and high purchase frequency. Products such as milk are often cited as the ideal for private labels -- and milk just happens to also be a popular organic product. In general, when differentiation is low, price sensitivity increases and the opportunity for private labels also increases.

SWOT

Tesco has a number of strengths on which to build its Tesco Organic private label strategy. Tesco is the biggest grocer in the UK by market share, and is not seriously challenged for this positon. This size allows it certain advantages. First, Tesco has economies of scale in purchasing. This is a distinct advantage in private label goods, as Tesco can negotiate lower prices and therefore offer its private label goods for prices lower than other stores. Alternately, Tesco can deliver higher quality goods. Specific to Organic, Tesco may find itself in a position to effectively corner the market on the supply of certain organic goods by virtue of its buying power, which could give it a monopoly on those particular organic goods.

Stuck Writing Your "Marketing Organic Foods at Tesco" Essay?

View All Our Example Marketing Organic Foods at Tesco Essay

Have A Custom Example Essay Written

So the company's sheer size allows it to offer a broader range of goods, and likely at lower prices, than competitors can offer.

Tesco's size also gives it two other important strengths. First, the company has the best footprint. Tesco has more square footage than its competitors do nationwide, and it has stores in a variety of formats. This provides Tesco with superior access to customers, something that other companies have struggled to deal with. Tesco has smaller stores on high streets to access urban markers, and larger stores on the outskirts that help it to access larger suburban markets. All told, the footprint means that if Tesco's offering is of equivalent enticement to the competition, Tesco will be able to draw in more customers, because its stores are more likely to be closer and more conveniently situated. The company's size also means that it has advantages in terms of financial capabilities. According to the 2014 Annual Report, Tesco has ?2.1 billion in cash on its balance sheet, something that gives it considerable financial cushion. That allows the company to take risks, and make strategic investments where needed; Tesco has no meaningful financial constraints to increasing investment in the Tesco Organic line.

In terms of weaknesses, one that has emerged in recent years is that Tesco fits strategically in the middle of the grocery business. The private label Organic business combines two elements -- consumers who seek organic goods and are willing to pay a premium for them, and consumers who seek low prices. Tesco faces some competition in the high end, from companies like Waitrose, but ultimately most of its competition at present is coming from the low end, where Aldi, Asda, Iceland and others are winning market share by offering very low prices to consumers, leveraging the bargaining power of their very large international companies (Yeomans & Armstrong, 2015).

There are several opportunities for Tesco, however. The company still has the biggest market share, and that means two things. First, it means that there is a significant captive audience it can leverage. Tesco can place renewed emphasis on Tesco Organics and induce this captive audience to switch from basic product lines to the organic one. The second thing is that with its large footprint, Tesco is well-positioned to draw in new customers, if it can demonstrate that it has the ability ot meet their needs. Organics shoppers in particular likely are loyal to a small handful of stores, none of which even come close to the footprint that Tesco has in the marketplace. If Tesco can offer organic staples at lower prices, it can increase its share of the organics market. This is a significant opportunity because the organics market in the UK is growing. While the conventional grocery market has struggled with price wars, the organic market has continued to be a growth business, up 4% in 2014 to ?1.89 billion (Smithers, 2015); it is a niche market, but a growing one.

That said, there are also a number of threats in the market. First, Tesco's bargaining power does not necessarily best that of some of its main competitors. Asda, for example, is owned by Walmart, which has bargaining power vastly superior to that of Tesco. That company has stated a strategic objective of being a major player in organics, which puts Asda directly against Tesco in this initiative (Martin, 2014). Aldi is not as large as Tesco, but also has substantial bargaining power, enough to impact the organic private label market should it so desire.

A further threat specific to this line is the availability of organic food. Most food produced is not organic, so if three major grocers all try to increase their shares, they may run into supply constraints. While Tesco has the buying power to monopolize the market in any one organic product, so do Aldi and Asda. Supply constraints can also create a situation where Tesco's marketing creates demand that the company is unable to meet. Waitrose, while a much smaller competitor, is much stronger in the organic market. Its sales of organics increased in 2014, while Tesco's fell (Smithers, 2015), indicating that Tesco ultimately lose share to Waitrose in this market, perhaps a reflection that organic buyers prefer the overall offering of Waitrose, which is a somewhat posher presentation overall. So on a couple of different fronts, including market perceptions and supply constraints, competition is a threat to Tesco in its.....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Marketing Organic Foods At Tesco" (2015, November 26) Retrieved April 16, 2024, from
https://www.aceyourpaper.com/essays/marketing-organic-foods-tesco-2159360

Latest MLA Format (8th edition)

Copy Reference
"Marketing Organic Foods At Tesco" 26 November 2015. Web.16 April. 2024. <
https://www.aceyourpaper.com/essays/marketing-organic-foods-tesco-2159360>

Latest Chicago Format (16th edition)

Copy Reference
"Marketing Organic Foods At Tesco", 26 November 2015, Accessed.16 April. 2024,
https://www.aceyourpaper.com/essays/marketing-organic-foods-tesco-2159360
   

Open, View, and/or
Download this Document
order custom essay example