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Sunday, 15 January 2012

Is it time for someone else to take Tesco's supermarket crown?

This week UK based supermarket giant Tesco announced a drop in sales over the Christmas period. This wiped off £4.9billion from its share price. Unfortunately for Tesco its UK rival Sainsbury's announced record Christmas sales. This is the first Christmas period since Sir Richard Broadbent was appointed chairman and Phil Clarke took over as chief executive. If you were in Sir Richard Broadbent and Phil Clarke's position how would you deal with this crisis. The solution could be more complicated than blaming the current financial crisis as rival UK supermarkets which are known to offer more expensive products than Tesco reported an increase in Christmas sales. For example Waitrose report a 3.8% increase in like for like sales in December 2011 compared to the same period in 2010.

Following Tesco's profit warning city traders are expecting a supermarket price war, this has resulted in share price drops for other UK supermarkets for example Morrisons Waitrose and Sainsbury’s. This share price drop is despite some businesses announcing good sales results and is a good example of the impact of competitive rivalry as described by Porter in his Five Forces Model. Porter's Five Forces Model is about the five key factors that influence an industry's performance.

The question for UK supermarkets is whether the share price drop is a temporary glitch or an indication of long term issues that need to be dealt with. Either way they need to decide what to do. Furthermore as Phil Clarke has announced that Tesco will be revising their UK business strategy, competitor supermarkets will need to ensure that their strategy includes flexibility to respond to Tesco's plans. This may be achieved through a combination of crisis management  scenario planning and strategic management. Crisis management will enable a business to deal with periods of intense difficulty or danger whilst strategic management is about deciding how to achieve your objectives during “business as usual” trading conditions. Scenario planning is about looking at possible situations that could interfere with your business and planning in advance how to deal with them so that you minimise disruption and business loss. An example may be a crop disaster or a supplier failure. 

As we all know this is a challenging time for businesses and world economies. In August 2011 heavy weight USA lost its triple AAA credit rating and this week France was on the list of European countries receiving a credit rating downgrade. The euro is struggling and the number of employees prepared to strike is on the increase. It will be interesting to see how supermarkets entice consumers dealing with rising costs and reduced income. Will Tesco be able to resuscitate their sustained 20 year period of growth? Or is it time for someone else to take the UK supermarket leader crown?

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