FORUM ASSIGNMENT

Describe how environmental factors such as demographic, economic, socio-cultural and

technological forces affect the supermarket and hypermarket industries influence Tesco to
divest its business.

GSRM 7223 MARKETING MANAGEMENT

MASTER OF BUSINESS ADMINISTRATION

Prepared By

MURUGAN A/L MUNIANDY

UNU2200275

LECTURER: DR JAMALIAH MOHD.YUSOF

INTRODUCTION

Tesco Stores (Malaysia) Sdn. Bhd. was incorporated on November 29, 2001, with Sime
Darby Berhad and Tesco Plc UK. The hypermarket has been offering a wide range of low-
value products, its brands, electronic goods, clothing range, groceries, etc. Tesco has also
introduced Tesco Malaysia Clubcard and Grocery Home Shopping Service to its customers in
Malaysia. In March 2020, Tesco announced divesting its entire shareholding in Malaysia to
Thailand’s CP Group.

With the endemic-converted pandemic Covid -19, which poses a challenging economic
environment, this study will look into the marketing environmental factors, such as
demographic, economic, socio-cultural and technological forces affecting the supermarket
and hypermarket environment that led to Tesco having to divest its business in Malaysia.

Divestiture means an out-sale of all or substantially all the assets of the company or any of its
business undertakings, usually for cash or a combination of money and debt. This is used to
mobilise resources for core business by realising the value of non-core business assets. Tesco
has opted for divestiture in Malaysia, and we will examine the reasons here.

MARKETING ENVIRONMENTAL FACTORS

The external marketing environment is divided into the following:

DEMOGRAPHICS

Demographics are critical data that play a vital role in decision-making. The population, age,
and income groups point to a pivotal shift in the consumer market.

i) Population and Age

The latest distribution of the Malaysian population by age group and median age,can be seen
that the top age groups are between ages 15 to 64 years old. There has been a change in the
segment of shoppers who are the most productive age group compared to when Tesco entered
the hypermarket in 2002. So there has been a shift in the purchasing trend among Malaysians
from the hypermarket era.

“After enjoying seven years of profitability, Tesco Stores plunged into losses in the financial
year ended Feb 28, 2015 (FY 15), with a net loss of RM 289.02 million, on the back of
RM4.52 billion in revenue. It also posted losses in FY16.” (Article in The Edge Financial
Daily, on August 24, 2016).

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 ii) Income

The COVID-19 pandemic has majorly affected many Malaysians’ incomes. Last year, one in
three employees reported a salary reduction more significant than 30%. As of April 2021, the
unemployment rate stands at 4.6%. B40 and M40 households are also more vulnerable to
losing employment than T20 families. The pandemic is also causing many Malaysians to
move into the lower-income categories. People have started frequenting small convenience
stores compared to visiting hypermarkets due to the location and convenience.SOCIO-
CULTURAL FACTORS

The age group of people between 24 to 57 are the most significant market segment
contributors actively involved in shopping. Let us examine the deciding factors based on
which these people shop in retail malls such as TESCO.

i. Comfort

Malaysians want a relaxed and pleasing shopping experience while visiting the malls.
Comfortable seating areas, WIFI, large open spaces, interiors with warm colours and soft
background music in a mall give the customers a warm, cosy feeling while shopping.
TESCO Malaysia lacks on these. They don’t utilise their spaces well. They do not invest in
interiors or comfortable seating arrangements with free Wi-Fi.

ii. Wide range of products and brands

The diverse variety of goods and attractive display plays a significant role in bringing in more
customers. With increased media exposure, Malaysians now value quality more. To attract

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fashion-savvy customers, it is essential to have a diverse range of products and brands.
TESCO does not offer this variety to cater to customers young at heart.

iii. Hospitality services

Malaysians love resort-style retails and enjoy their hospitality during their shopping. This
hospitality is what gets loyal customers to come back again and again. Unlike AEON, which
has a reception area to assist their customers, TESCO does not have one.

iv. New Shopping Trends

Online shopping is the new shopping trend in these pandemic times. Even schoolchildren are
technology savvy, which has impacted the traditional way of shopping. Many vendors have
shifted to online sales like Lazada, Shoppee, etc. and Malaysians prefer to do online
shopping. It is hassle-free. There are various products to choose from, and the items arrive at
the doorstep in no time. Working-class women and mothers who are busy and have
purchasing power prefer online shopping. Notably, during this Covid-19 situation, online
grocery shopping has become “the” best way. This has changed the shopping culture in
Malaysia.

V.Existence of Mini-markets & their splurge of growth

Malaysians choose to do grocery shopping in mini-markets like 99SpeedMart, KK Mart, etc.,

due to the higher cost of living. With the recession due to Covid-19, lower-middle-class
Malaysians prefer going to the Mini-markets rather than places like TESCO. Due to Covid -
19, many have lost their jobs. They no longer buy household items in bulk anymore.
Travelling to hypermarkets like TESCO means spending on gas, tolls and sometimes
transportation because these hypermarkets are usually not close to residential areas.

ECONOMIC FACTORS

This refers to all the external economic factors that influence consumers’ buying habits,
which affects a corporation’s performance. Economic factors are not something within the
control of the business. Competition, unemployment, inflation, and currency exchange rates
directly impact a business.

In these Covid-19 times, unemployment is a vast influencing economic factor because it

decreases the demand for goods. Malaysia’s unemployment rate has always ranged in an
average of 3.40% for the past three years. A higher unemployment rate for sure reduces the

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spending capabilities of a household. Consumers switch to small local markets like Segi
Fresh, where consumers can get good bargains and purchase on a smaller scale. According to
“the Sun Daily business reports, people prefer doing weekly purchases rather than monthly or
bulk purchases. This switch of customers’ attention impacts the sales of Tesco Malaysia,
where for the financial year ended Feb 28, 2019, according to “the Sun Daily” business
report, Tesco Malaysia posted a net loss of RM44.29 million.

TECHNOLOGICAL FACTORS

Technology has influenced the development of several TESCO products. New technologies
are essential to benefit customers and the company. With new technologies, services can
become more personalised and shopping more convenient. The Efficient Consumer
Response (ECR) initiative launched provided the shift that is now apparent in retail
management.

Socially the world is becoming more technologically advanced because of the internet.
Customers are up to date and have good knowledge of products compared to yesteryears.
They know which food is healthy and which brand is good. TESCO has, Self check-out
machine.Radio-frequency identification (RFID).Tesco Malaysia’s Clubcard and Biz
Clubcard,Online Groceries (e-shop),E-wallet and Reload services,Tesco e-Voucher.

Tesco Malaysia is the only hypermarket to run its loyalty card, which returns money to
customers four times a day. Tesco Clubcard and Biz Clubcard were introduced to say thank
you to customers by giving money back to them.

TESCO SWOT ANALYSIS

A SWOT Analysis is a strategic plan used to evaluate an organisation's Strengths,

Weaknesses, opportunities, and threats. With the help of this SWOT Analysis, we will find
out the positives and negatives of TESCO.

a. Strengths

Tesco has a good brand image, is loyal to customers, gives good service to customers and
has a competitive advantage over its competitors in its financial position and market
leadership.

b. Weaknesses & Threats

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 Tesco remains heavily reliant on the UK market. Tesco needs to work on its online sales
operations on a global level. High competition is an ongoing threat to Tesco, mainly
driven by discount stores such as MYDIN, AEON Big stores, etc., who recently entered
the Malaysia market and gained significant market share during the recent recession. Due
to this, Tesco’s previous reputation as the leader in price competitiveness has diminished.
The impact of Brexit is a medium to the high threat. State legislative changes like GST
also will have an effect. New entrants to the grocery retail market like Speedmart, 99 are
also a threat.Most of the stores are not located closer to the customers. The product range
is limited—Target’s only premium class customer.

c. Opportunities

Online sales are a great opportunity. Online margins are very high, and investments are
not significant. Many technology trends in vogue are Grocery Home Shopping Service
such as Walmart grocery online, online malls like Lazada, Shoppe, etc. This will
influence TESCO to divest its business in Malaysia

Divestiture to Thailand CP Group – Overview.

Thai agribusiness conglomerate Charoen Pokphand (CP) Group has rebranded Tesco in
Thailand to Tesco Lotus after Tesco’s parent firm in the UK sold its business in Malaysia
and Thailand to the CP Group for $10.6 billion last year. A new brand Tesco Lotus
Express, a mini supermarket, has also been unveiled. Tesco Malaysia was renamed Lotus
Stores (Malaysia).

This divestiture marks the end of a 23-year presence of the British hypermarket chain in
Thailand. Out of over 2000 stores across the country, 400 are hypermarkets and Talad
Lotus, while 1600 are mini-supermarkets.

CONCLUSION

From the above analysis, it is clear that the most significant challenge for TESCO is
continuing its business in the country. The economic downturn and the competition has
made TESCO incapable of continuing its operations in Malaysia. A divestiture is an
essential means of creating value for companies in mergers, acquisitions, and
consolidation. Reasons why TESCO has divested its business in Malaysia, have been
discussed in the above article. It will help TESCO to restructure, raise cash and reduce
debt. However, we have also listed its strengths compared to its competitors. Although

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 TESCO is finally forced to close down in Malaysia, we cannot rule out the possibility that
TESCO will rise as a supermarket again.

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2020

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(PDF)

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