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Response of UK Retail Sector to Recession

Response of UK Retail Sector to Recession Samples


Tesco is one of the biggest retailers in UK. It caters to the needs of millions of people across the globe. In UK, Tesco operates through its more than 3000 stores with six different formats. It offers all kind of general grocery items of various brands under one roof. 

Company is facing several challenges since 2008 such as global recession, economic slowdown, high inflation, and high unemployment rate and increasing competition. Tesco has used and implemented various strategies to address these issues. This research focuses on the effectiveness of various measures taken by Tesco to reduce the impact of recession and improve its profitability. It will in detail analyze the pros and cons of strategies adopted by Tesco since 2008.

The research involves understanding various trends in the retail industry, analyzing performance of Tesco’s competitors but the major focus is given to evaluating and analyzing the effectiveness of various strategies adopted by Tesco since 2008. 

In order to fulfil these objectives in depth secondary data analysis is done along with collection of primary data through interview of customers of Tesco. The literature review discusses various trends of the retail industry, and then focuses on the strategies that were adopted by the Tesco to combat the challenges of recession, inflation and unemployment. LR part also tries to identify the works done by previous researchers on similar topic to identify the gaps and to address them in this research.

Primary data is collected from regular customers who are asked several questions to gain meaningful insights from them. Qualitative (Thematic) as well as quantitative data analysis is done to reach to the valid outcomes and provide good suggestions. 

The data analysis reveals that Tesco’s strategies were not customer centric and company lacked innovative measures to address its problems. These were the major reasons because of which company started losing market share to competitors. 

Appropriate recommendations for the organization are that it should design customer centric strategies, focus on domestic market, should bring innovations in its each and every process and steps and should harness the potential of e-commerce.


Recession is defined as two subsequent quarters of zero or negative growth in Gross Domestic Product (GDP). UK’s retail sector is the largest private sector employer with employing nearly 3 million people, and its size is £285 billion (Arch, 2010). Tesco is the biggest retailer in UK market with a market share of approximately 30% (Brooks, 2012). Research focuses on strategies adopted by Tesco during last 5 years facing challenges of recession, low growth, high inflation etc. Detailed analysis of the response of Tesco to these challenges is done.

During recession, it is likely that consumer behaviour changes, to some degree shopping habits also get affected. Customers tend to avoid major purchases and fulfil their basic necessities such as food; they visit discount stores instead of hypermarkets, supermarkets (Keppler, 2009). Inflation has also affected the consuming power; petrol prices, food inflation, clothing inflation are going up thus people have got less to spend.

For Tesco it has been period of uncertainty and ups and downs. In October 2010 it reported underlying profits up by 14% , in the first half of that year sales increased by 8% (Tesco: what the expert says, 2010), but in February, 2012 UK trading profits fell by 1% (Brooks, 2012). Apart from recession company is facing stiff competition from discount stores Aldi and Lidi (Barford, 2012). Tesco adopted various strategies to face these challenges some them succeeded in fulfilling in their objectives, some miserably failed.

Tesco’s turbulent performance can be attributed to various reasons such as neglecting its own label food ranges, company launched a new discount range in 2008 but the brand seemed confusing. Customers were not pleased with the products such as Creamfields cheese, Packers Vest tea and Daily washing up liquid as they were strangely named and erratically priced (Barford, 2012). In September 2011, it launched ‘Big Price Drop’ under which prices of 3000 everyday products were reduced but it backfired as it accentuated negative perceptions of the quality of products (Barfor, 2012). Company also re-launched Clubcard loyalty scheme which helped it in increasing its share. Tesco’s Clubcard provides the retailer much vital information about the customers’ behaviour and shopping pattern. Consumers got addicted to the Clubcard and free car parking which helped in increasing sales (English, 2010).
According to then chief executive Sir Terry Leahy, Tesco was facing problems because of the changed economic situations and less spending by consumers.

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1.2. Background on the relevant organisation/sector

Tesco plc is a multinational grocery and general merchandise retailer. It is world’s third largest retailer in terms of revenue and second largest in terms of profits (after Wal-mart). It has operations in 14 countries and is market leader (grocery) in UK with a market share of 30% (Global players of retailing, 2010). In UK, it has 2975 stores which are divided into six formats differentiated by size and products sold: Tesco Extra (out of the town hypermarkets), Tesco Superstores (large supermarkets), Tesco Metro (sized between superstores and express, located in the city), Tesco Express (neighborhood convenience stores), Tesco Homeplus (non-food store) and Dobbies (garden centers).

75% of Tesco’s revenue comes from UK during the fiscal year 2009 (Tesco, 2010). Though company has operations in 13 countries but majority of business comes from UK, this lack of geographic diversification can be seen as a weakness for the firm as any trouble or risks in UK market can significantly affect their profits. Tesco is leading retail sector in UK for 15 years (Mintel, 2010) but is now facing stiff competition from its competitors i.e. Asda, Sainsbury’s and Morrisons.

1.3. Relevance of the research for the chosen organisation

Tesco is the biggest retailer of UK and is under pressure due to the various challenges; in UK due to financial uncertainty consumers are spending less on premium products which is adversely affecting sales and margins (Keynote, 2010). Company is also facing tough competition from its direct competitors. ASDA is one of the main competitors which increased its market share from 16.6 to 16.8% during the fiscal year 2010/09. Similarly both Sainsbury’s and Morrisons have increased their market share by .3% through the same period (Euromonitor, 2010). Company is reacting to these problem by implementation of various strategies thus becomes a very good choice to understand the response of retail sector to the recession.
This research focuses on the effectiveness of various measures taken by Tesco to reduce the impact of recession and improve its profitability. It will in detail analyze the pros and cons of strategies adopted by Tesco since 2008.

1.4. Academic relevance of the research

This research will help to understand UK retail industry in a better manner. It involves analysis of impact of recession on the industry as a whole. 
It also involves study of consumer behaviour related to retail shopping how it changes during the recession and post recession, what are the key challenges for a retailer in such a scenario, how organizations react to it and what strategies in general they adopt.
Research on Tesco’s response to the challenges will help in understanding key success factors in retail industry. Earlier studies have focused on international business development of Tesco or on strategies in general but this study focuses on strategies during critical periods such as recession, high inflation, unemployment which greatly affect consumer behaviour.

1.5. Research Aim and Objectives

The main aim of the research is to evaluate the effectiveness of strategies used by Tesco in the difficult economic climate experienced by UK retailers since 2008. The specific objectives are:

  1. To study the changes in consumer behavior during and post recession period
  2. To study the trends and performances of Tesco’s competitors
  3. To study the various challenges Tesco is facing due to various factors (inflation, unemployment etc.)
  4. To evaluate the effectiveness of the various strategies used by Tesco since 2008 to maintain profitability and growth
  5. To identify strategies which could be beneficial for Tesco

This research focuses on the various strategies adopted by the Tesco in order to combat the challenges of recession, inflation and high rate of unemployment etc. The company adopted various strategies such as re-launched Clubcard Loyalty scheme, opened up discount stores and offered free parking to the customers, launched cheaper alternative products under private label, introduced cost cutting measures to improve the efficiency of stores and increase profitability (Datamonitor 2010).
This research evaluates the effectiveness of these strategies adopted by Tesco by collecting responses from the customers. The customers are selected as the respondents for this research as they are at the receiving end of these strategies and they are in better position to judge the effectiveness of various strategies adopted by the company. The customers are asked open ended questions to gain deeper insights about the various issues under research. Thematic analysis is done which uses intellect and knowledge of the researcher along with the responses generated to provide detailed interpretation and in identifying the key findings from the analysis.

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