An economic analysis of Tesco

Introduction

The aim of this report is to analyse the economics of a firm in this case Tesco, which is one of the UK’s leading retailer. In order to effectively analyse the company a particular Tesco store located in Hackney, close to Hackney central station has been chosen, the following will be discussed and analysed in relation to the store:

  • Demand
  • Supply and production
  • Costs
  • Competition
  • 3 major economic problems
  • Solution /strategy to problems

Firms’ background (Tesco)

Tesco is the biggest retailer in Britain, where it employs more than 250,000. The third-largest retailer in the world, it made an underlying pre-tax profit of more than £2 billion ($3.5 billion) last year on sales of £37 billion. It is still growing at home, but is also expanding abroad, with investments in Poland, Thailand, South Korea, Ireland and Hungary

Demand

The store is located just opposite an underground station  this has a major effect on the demand mainly because there are various types of consumers who come into the store

  • The main factor is price as the company targets consumers who are price sensitive and price elastic

  • Tesco sells different types of product, which includes branded products such as Heinz and coca-cola, while the unbranded products are Tesco branded products such as Tesco baked beans and Tesco cola. This means they target price sensitive consumers who might not earn a lot, which makes income a key factor as well.

  • Branded products caters to those with personal taste where choice is important,so taste is important.

consumer income plays a major role in consumption of products at Tesco. For example consumer who would normally purchase a Tesco baked beans because they earn lower income, would do the opposite if there is an increase in income and purchase the branded baked beans, Heinz. due to the increase in income, this has lead to an increase in the quantity demanded which makes the demand curve shift to the right for branded product.

an increase in income which leads to the fall in demand of the unbranded products makes the product inferior ( Tesco baked beans).

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demand curve for branded product after income increase

 Due to consumers wanting to shop at times that are convenient for them, the store opens 24hours bringing the convenience of round the clock shopping to the public.

Supply and Production

Factors of production

  • the stores operation cost is widely dominated by fixed costs. due to the fact that they have been paid for and would not increase during store openings e.g. the store premises and equipments such as trolleys are all fixed

  • the variable cost is controlled, staffs can ...

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