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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).
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 be made redundant if the store is experiencing a loss or excess staff, whereas if more staff is needed this could also be done by recruiting more staffs
Production in the long run
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Because the store is a big store economies of scale takes place , here by allowing their average cost of production per unit to fall.
- The store is able to buy equipment that would not be economical for small firms to purchase, as it would lie idle for a majority of the time. For example electrical point of sale.
- The store is able to buy in bulk which means they will normally receive a discount from the supplier. This has an economic advantage for Tesco as it keeps costs low and prices low.
COST
- Tesco’s operation cost is widely dominated by fixed costs.
- The stores total fixed cost will not change even if output changes. When demand is low in the store the fixed factors e.g. trolleys, tills are constant and when demand is high the fixed factors still remains constants.
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The store might open for an extra hour during the bank holidays etc, this affects the total cost of Tesco producing extra output. though the marginal cost is low as the total fixed cost is constant, the only cost is labour and this is low as staffs are paid a few extra pounds
- Tescos price elasticity is elastic, tesco consumers respond to increase or decrease in price of goods. When the there is a sale or reduction in price of a product the demand for the product is higher and when the price is increased the consumer’s look for substitute products. E.g. Pepsi and tesco cola.
COMPETITION
- The Tesco store is located in almost every area or strategic location but there are also various other stores around most of the areas tesco shops are located in but tesco’s main competition comes from other bigger retail shops like marks & Spencer and other big supermarkets like Asda’s, Sainsbury and morisson and few more other retail outlets.
- Tesco and stores like M n S both sell similar products meaning consumers can buy products from both stores but Tesco’s advantage over their rivals is price. Marks and Spencer products cost higher than tesco products. In terms of other supermarkets like Asda and Sainsbury they also sell similar products but it is the price that makes them different.
SOME MAJOR ECONOMIC PROBLEMS FOR THE STORE.
There are a number of economic problems that could affect Tesco stores in their different location, I will only be emphasising on two major problems.
Problem 1: long Queue at checkouts
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At the off peak times the checkouts are always very busy with queues going a very long way. At weekends especially the stores located in central areas are always very busy and crowded which means the check-outs are packed full of customers queuing, Tesco, trying to make the situation better has created fast express check-outs only for those customers with five to six shopping products. The problem is this is not working for the store, the fast express check outs are hardly used and can be seen empty while the check out tills have a very long queue.
- Another problem is the fact that with the long queues of customers waiting to be served, some check out tills can be seen empty and un used, mainly because the staffs around are not trained to use the till.
- This is an economic problem because it slows down the stores output rate, and also reduces demand as most customers get tired of standing in the queue and eventually exit the store to shop somewhere else, all this will lead to the demand curve shifting to the left.
Solution for problem 2: Staff training and more checkouts
- Staffs should be properly trained and giving a try out period, effectively monitoring how they interact with the customers and their knowledge of the store before they are recruited for the job.
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From my research of some of their stores, Tesco only sends their senior staff on training courses outside the organisation due to the believe that the junior staff only need in-house training and supervision. The training courses should be introduced to junior staffs as well as they have more contact with the customers.
- All Staffs should be able to use all of the technology available in the store; this will definitely prevent long queues at the checkouts.
- The fast express checkouts should be converted to multi purpose so that shoppers with big and heavy shopping can also make use of it.
Both solutions combined should take no more than five months to operate, and will increase staff efficiency and also increase demand. Converting the checkouts would add to the fixed cost but will produce more revenue, as demand will increase.
Problem 3: Availability of products
Some stores are located in a very busy area, which means lots of people shop at the store, the major problem here is most shelves are found to be empty after the rush hour, having been bought during the rush hour. People who shop after the rush hour, find it annoying as most of the items they want to buy are absent from the shelve, this is an economic problem for the store because their output has been decreased by having less items available after the rush hour.
Solution for this problem:
Fast tracking: This enables them to easily monitor products that are out of stuck and reduce its unavailability. This is done by employing some staffs to go around the shelves and take records of products that are not available on the shelf and reporting their findings to the store manager who can then get in contact with the store room or suppliers to get products needed.
The solution is an easy process and would not increase cost; this solution should be easily implemented in a short run, taking up to a month. If the solution is used, it would increase output and also demand, shifting the demand curve to the right.
Conclusion
Tesco being one of the largest retail stores in UK has several competitors both small and large stores. Which I have illustrated. It is inevitable for smaller stores to feel dominated by some of these bigger stores and in other to overcome these competition would have to consider want their customer needs are and make sure they are met. And also by stepping up the quality and price of product I also identified two major problems with possible solutions, if Tesco identifies this problems as an economic problem to the store and make use of the solutions, it will help the store economically and improve the services and profits of the store. All two solutions can also be easily implemented and would not cost the store major capital.
Reference
Worthington I. and Britton C. (2004) The Business Environment, 5th ed, FT PRENTICE
www.tesco.com/corporateinfo/
http://www.guardian.co.uk/business/2007/nov/01/supermarkets.viewpointcolumn
