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Wednesday, 3 March 2010

Goliath of the market and the exodus of David

A commercial revolution has long been in motion in the international community. It has been and continues to be a snowballing effect on the world's material-based markets targeting retail consumer culture.

The revolution itself could be referred to as the "supermarket sweep". The role accomplished by the 'sweep' in everyday social conduct has expanded positively in correlation with its ever-growing world-wide importance to both the public and the private sector in which it operates.

In respect to the company divisions within the all-inclusive bracket of supermarkets in the private retail sector or tertiary sector services, I have earmarked just one of the major public names, albeit a vastly recognised and invincible member of the supermarket rally: Tesco.

Tesco plc, initially founded in 1909 by Jack Cohen after he sought to sell off surplus goods from a stall in London's East End, developed significantly following a rise in consumer demand and a reformation of convenience policies in commercial enterprises during the 50s and 60s.

As time progressed, so did the name, logo and reputation of Tesco. Nowadays you can't go far in an industrialised, densely populated urban area without spotting its plain but infamous chain-store logo - a simple read underlined with an unassuming dashed blue line. Neither can you escape its presence in the suburbs - decentralisation has been a helpful factor for its unstoppable expansion.

Tesco supermarkets' (includes five other chain distinctions) outward appearance and advertising campaigns may emphasis ease of convenience and minimalistic charm, with the frugal slogan "every little helps" applied, but in reality the case of the supermarket king of the UK is much more intimidating than it is affable.

Tesco plc rakes in an annual profit in excess of £3bn, making it the leading member of the "Big Four" supermarket chains (including J. Sainsbury's plc, Morrisons plc and Asda) with the largest number of stores nationwide at 3,729 (not including international ventures).

In comparison, Sainsbury's has only 792, Morissons 403 and Asda a diminutive 371. Just to put the lowest proportionate competitor's position into perspective, Tesco outweighs Asda 10x with 3,358 more stores to its name.

Other striking figures resulting from comparative analysis indicate a distinct gap between Tesco and its humbled rivals in terms of pre-tax profits (excluding operating costs): Tesco = 3.128bn, Sainsbury's = 673m, Morrisons = 670m and Asda = 638m (figures applicable to 2009 financial turnover as profit).

Reduction of operating income through tax can often hit companies hard, especially if their annual income is equivalent to the amount of stores within their retail scope - for Tesco this appears to be negative tax aspect is a cinch to avoid.

The reality of tax deduction for Tesco annual revenue is not below controversy. With only a 1.22% drop in profit (£3,128bn = £3,090bn) after tax in February 2009, Tesco plc isn't exactly mourning a cut off its profit. Therefore, the presence of alternative supermarkets in the UK is outwardly redundant.

If, however, you were to take into account the maximum monthly income of individual company stores, you would notice a considerable difference in profits. Tesco is actually bottom of the ladder with just £69,902 per store; Asda sits on top with £141, 509, followed by Morrisons with £138, 544 and Sainsbury's with £70,812.

Why then, if they aren't accumulating as much income individually as the others, are Tesco supermarkets as a company whole so profitable? There are essentially three main reasons:

1) because of store-hoarding (a continuing process) Tesco plc has the largest store capacity nationally
2) as a result of wider store coverage and optimised gains it can afford expensive ad campaigns and other areas of media representation that other companies cannot
3) due to the nature of expansion, not only has Tesco enlarged numbers, it has diversified its service. It now deals in entertainment retail, various forms of insurance and mobile and internet provider packages among many other service broadening tactics.

So, to put it bluntly, Tesco is now the official sponsor for UK supermarket conglomeration and is not going to be halted any time soon in its ominous expansion. In fact, globally, it is ranked in a laudable third place, behind Wal-Mart and Carrefour.

Tesco hasn't just made enemies with its obvious rivals; the evident sprawl of this particular supermarket sweep has also condemned smaller private businesses in the same market to the mere existence of a commercial cockroach, if not to complete eradication below the towering shadow of its supermarkets.

The less-than-epic struggle between Tesco and the little middlemen wages on, although as a currently dubious example being played out in Sheringham, Norfolk demonstrates, it might already be a battle won - by Tesco.

Essentially what it's down to is "greedy economics" - the pile 'em high instinct to cash-in and grab whatever's available for the taking. Tesco has come a long way and it's not looking to quit shoring up what is now the most successful supermarket chain in the country.

Somehow I doubt the dissident power of the tinier members of this expanding market to overthrow the inordinate gigantism of Tesco, aka Goliath. There's no stone strong enough to immobilise this commercial war machine now.

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