Critical analysis of the influence of discount retailers on Tesco plc in the UK

Book excerpt: Project Report from the year 2015 in the subject Business economics - Operations Research, grade: Distinction, , language: English, abstract: The UK’s grocery retail sector is one of the most competitive and fierce in retail. Over the last decade, the UK’s grocery retailing landscape has transformed radically, especially emergence of the Germany and Scandinavia deep discount retailers such as Aldi and Lidl in early 1990s. Hard discount retailer have very distinctive approach than UK’s traditional grocery retail such as Tesco, Sainsbury, Walmart-Asda and Morrison and were lead onto UK by these Traditional retailer which enjoyed high profit margins at the time and they recognised the Gap in the market in terms price and spatial gap in terms of the most deprive area in UK’s towns and cities. By 2015, Germany discount retails have grown record level which followed a period of gradual increase number of store and most favourable trading characteristics even given recession and global financial crises between 2007 and 2009 (Thompson et al., 2010). Having reached record sales, by end of 2014, Aldi and Lidl’s sales have grown by 22.6% and 15.1% and 4.8% and 3.6% market share respectively. On the other side, big four traditional retail Tesco lost sales 1.2%, J Sainsbury 0.7% and Asda and Morrison both 1.6% as well as 1.2% market share in combine (FT, 2015:1). The success of German discount retails has become main concern in UK’s traditional retails. Aim of this paper is to investigation the impact of discount retailers on traditional retailers in UK because German discounters not only direct impact on traditional retailers’ market share, also put pressure on increasing operational efficiency and or decreasing prices (Harvard Business Review, 2006 and van Heerde et al. 2008) which lead this paper’s second aim to analyse should existing traditional retailers develop new flexible business model like Walmart (Jia, 2007). Having successful business strategy, it still begs a question what is the future of this German discounter, third aim of this research paper is to investigate can they (German discounter) be able to beat big four UK’s traditional retailers like what Walmart did in US (Jia, 2007) and Ryanair did British airways (Ruddick, 2014). Due to having time and words limitation, this paper will only focus Tesco in terms of UK’s traditional retailer and German discounter Aldi.