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Market Overview
Our Flagship Business
Despite being involved in numerous ventures such as personal banking and electronics, our primary business is that of a food retailer. This sector account for 8% on the UK’s GDP [1] and is a red ocean environment (and one of the unhealthiest at that). The following graph represents the market share of both Tesco and it’s competitors.
Fierce competition, inefficient demand and over-capacity over the last year however are damaging the Big 4’s profitability. The main trends in the sector are as follows:
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The Rise of Discount Groceries
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German discounters ALDI and LIDL experienced strong growth and market shares
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The Big 4 all suffered a decline in sales (Morrison’s the most, ASDA the least)
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Damage Done By Price Wars
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The Big 4 cut prices to compete with the discounters
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Discounters reacted giving no competitive advantage and reducing barriers to entry
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ASDA and Sainsbury’s have cut prices again in January 2015
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We are expected to follow suit in the near future
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Changing Consumer Behaviour
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Visits to large out of town stores decreasing in favour of small convenience stores
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Online orders also increasing
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In 2014 25% of UK stores have had planning permission stalled or cancelled [2]
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Many have predicted that the supermarket industry has reached the saturation phase, and if this is too then there will be no significant profit margin in this sector for Tesco any more and we should consider moving into new markets!
Biofuel and UK's Biofuel Industry
The current total biofuel production capacity in the UK is more than 1.5 billion litres per year [3]. The market share of companies in the sector can be seen in Figure 5 (it should be noted that Tesco already owns a significant stake in Greenergy). It is predicted that the demand and production of biofuels, a more sustainable and less dangerous alternative to fossil fuels, will reach 13 billion litres by 2020, will be described in detail in section Logistics.
Figure 4. Supermarkets Market Share in 2014
Figure 5. Biofuel Production in the UK in 2012
Benefits of Biofuels
Biofuels are compounds that are synthesised through the geologically recent carbon fixation of biological material. This biomass can be converted into energy in one of 3 ways; through thermal conversion, chemical conversion and biochemical conversion. The resulting product is a fuel source that can be made available in solid, liquid or gas form and serves as a more environmentally friendly alternative to gasoline and diesel due to its non-reliance on fossil fuels.
While both bioethanol and biodiesel can be used as vehicular fuel in their purest forms, they are usually added in small proportions to established fuels in order to reduce the levels of particulates, carbon monoxide and hydrocarbons from exhaust fumes.
Biofuels have increased in popularity in recent years because of the volatility of oil prices and their potential ability to provide energy security in the future. In 2010 global production was 105 billion litres per annum [4] and it is predicted that by 2020 biofuel will make up to 10% of commercial fuel used. In order to meet Europe’s Renewable Energy Directive of 10% of all energy being obtained by renewable sources, the UK will need 6.5 billion litres of biofuel every year [5].
Criticisms of Biofuels
Despite the positives in the production and incorporation of biofuel there are two significant restrictions in the mass production of the energy source. The first of these is food security. With the global population expected to reach 9.7 billion by 2050 [6] there is increased pressure on how food production will be able to provide for the increasing population. One concern with this regarding the production of biofuel is that land is being taken away from food production in order to grow crops such as corn, sugar can and vegetable oil it’s production. One study shows that between 2006 and 2007, 25% of land used to produce corn for food is now designated to energy production [7]. This eventually leads to intense opposition of the process.
The second of these is the cost. Whilst cars and vehicles can run entirely on bioethanol and biodiesel these fuels sources are more expensive than traditional gasoline or diesel. According to the US Department of Energy a gallon of bioethanol and biodiesel cost $3.81 and $4.21 respectively compared to the £3.34 and $3.77 that gasoline and diesel sell for [8]. These increased prices limit the mass consumption of these sustainable fuels as consumers’ priorities in this market tend to be centralised on price, and the only way in which they can remain competitive is through governmental subsidies
REFERENCE:
[1] https://www.hillingdon.gov.uk/media.jsp?mediaid=24838&filetype=pdf
[2] http://www.theguardian.com/business/2014/jul/25/supermarkets-planning-permission-cancelled-new-stores-shopping-habits-change
[3] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/266090/ecofys-uk-biofuel-industry-overview-v1.5.pdf
[4] http://www.worldwatch.org/biofuels-make-comeback-despite-tough-economy
[5] http://www.vivergo.co.uk/biofuel
[6] http://www.telegraph.co.uk/news/earth/10348822/World-population-to-reach-9.7-billion-by-2050-new-study-predicts.html
[7] http://content.time.com/time/business/article/0,8599,1684910,00.html?iid=sphere-inline-sidebar
[8] http://www.afdc.energy.gov/fuels/prices.html
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