Table of Contents
The LBS Portfolio Level 1 Project Resit Work
Tesco PLC is a multinational company with operations mostly in Europe. The giant international company deals in grocery and overall merchandise. It is headquartered in Welwyn Garden City, Hertfordshire, England, and is considered the third-largest retailer all over the world. The firm registers huge amounts of profits annually and is, therefore, ranked third in profitability. It registers huge amounts of revenue and is counted as the world’s ninth-biggest vendor in terms of revenues. With several outlets in over 12 countries all over Europe and Asia, TESCO enjoys about 28.4% grocery market share (Cooley and Leroy, 2016, p.82). The giant vendor has about 460,000 staff and well over 6,809 shops across the globe. It serves millions of customers weekly, through its multiple physical stores and online portals. Being a key player in the world retail industry, TESCO mainly deals in Groceries, Finance & Insurance and Telecoms
The monopoly position of TESCO in the retail industry can be found using the Herfindahl Hirschman Index (HHI) as illustrated below:
The HHI is basically a dimension for understanding the level of competition present in a given sector, industry or market industry. HHI also indicates how the market share is distributed through the companies encompassed in the index. It helps managers to plan strategically for their companies’ business dealings, and also to set prices accordingly for their goods and services (Chari and Kehoe 2006, p.13). TESCO’s HHI, for the specified period can be computed as follows:
HHI = MS12 + MS22 + MS32 + MS42 …+ MSn2
The HHI method is usually quite effective since it enables the assessment of the degree of spread of market share within an industry. Many illustrations can be provided but a good analogy should always demonstrate the extra data, which can be deduced from the HHI over the Concentration Ratio.
The rebased values of TESCO’s share prices between 1st April 2017 and 1st July 2017
NB: The rebased figure starting with 1st April = 100 or 1 (obtained by dividing all the values by the one on 1st April (Yahoo Finance 2017, p.1). The same is done for the FTSE).
|DATE||CLOSING SHARE PRICE||FTSE||NEW CLOSING SHARE PRICE||NEW FTSE|
|01 Jul 2017||167.35||166.46||88.54||88.53|
|30 Jun 2017||168.80||167.90||89.31||89.30|
|29 Jun 2017||172.00||171.08||91.01||91.00|
|28 Jun 2017||171.75||170.83||90.87||90.86|
|27 Jun 2017||168.83||167.93||89.33||89.32|
|26 Jun 2017||166.49||165.61||88.09||88.08|
|23 Jun 2017||166.55||165.66||88.12||88.11|
|22 Jun 2017||166.50||165.61||88.10||88.09|
|21 Jun 2017||167.90||167.00||88.84||88.83|
|20 Jun 2017||168.10||167.20||88.94||88.93|
|19 Jun 2017||171.05||170.14||90.50||90.49|
|16 Jun 2017||171.10||170.19||90.53||90.52|
|15 Jun 2017||179.95||178.99||95.21||95.20|
|14 Jun 2017||185.90||184.91||98.36||98.35|
|13 Jun 2017||185.30||184.31||98.04||98.03|
|12 Jun 2017||183.45||182.47||97.06||97.05|
|09 Jun 2017||180.75||179.78||95.63||95.62|
|08 Jun 2017||179.95||178.99||95.21||95.20|
|07 Jun 2017||178.40||177.45||94.4||94.39|
|06 Jun 2017||181.65||180.68||96.11||96.10|
|05 Jun 2017||182.20||181.23||96.4||96.39|
|02 Jun 2017||182.55||181.57||96.59||96.58|
|01 Jun 2017||183.65||182.67||97.17||97.16|
|31 May 2017||183.70||182.72||97.2||97.19|
|30 May 2017||185.35||184.36||98.07||98.06|
|26 May 2017||186.80||185.80||98.84||98.83|
|25 May 2017||186.75||185.75||98.81||98.80|
|24 May 2017||183.95||182.97||97.33||97.32|
|23 May 2017||182.60||181.62||96.61||96.60|
|22 May 2017||184.65||183.66||97.70||97.69|
|19 May 2017||182.50||181.53||96.56||96.55|
|18 May 2017||184.00||183.02||97.35||97.34|
|17 May 2017||182.30||181.33||96.46||96.45|
|16 May 2017||178.45||177.50||94.42||94.41|
|15 May 2017||178.15||177.20||94.63||94.62|
|12 May 2017||178.85||177.89||94.63||94.62|
|11 May 2017||180.35||179.39||95.42||95.41|
|10 May 2017||183.35||182.37||97.01||97.00|
|09 May 2017||181.05||180.08||95.79||95.78|
|08 May 2017||179.50||178.54||94.97||94.96|
|05 May 2017||179.45||178.49||94.95||94.94|
|04 May 2017||176.65||175.71||93.47||93.46|
|03 May 2017||176.75||175.81||93.52||93.51|
|02 May 2017||183.00||182.02||96.83||96.82|
|28 Apr 2017||183.25||182.27||96.96||96.95|
|27 Apr 2017||182.50||181.53||96.56||96.55|
|26 Apr 2017||180.50||179.54||95.5||95.49|
|25 Apr 2017||177.70||176.75||94.02||94.01|
|24 Apr 2017||176.95||176.00||93.62||93.61|
|21 Apr 2017||173.80||172.87||91.96||91.95|
|20 Apr 2017||174.20||173.27||92.17||92.15|
|19 Apr 2017||175.60||174.66||92.91||92.89|
|18 Apr 2017||176.20||175.26||93.23||93.22|
|13 Apr 2017||181.50||180.53||96.03||96.01|
|12 Apr 2017||184.40||183.41||97.57||97.56|
|11 Apr 2017||195.60||194.56||103.50||103.49|
|10 Apr 2017||194.20||193.16||102.75||102.75|
|07 Apr 2017||189.70||188.69||100.37||100.37|
|06 Apr 2017||185.20||184.21||97.99||97.98|
|05 Apr 2017||184.25||183.27||97.49||97.48|
|04 Apr 2017||184.70||183.71||97.72||97.72|
|03 Apr 2017||184.70||183.71||97.72||97.72|
|02 April 2017||185.60||184.61||98.2||98.19|
|01 April 2017||189.00||188.00||100.00||100.00|
A Graph Showing the Rebased (indexed) Share Price and FTSE
In the three month period, TESCO’s share prices have performed relatively well, compared to its competitors. A number of macro-economic factors like have led to the dwindling nature of TESCO’s share prices. Changing interest rates, inflation, consumer behavior and exchange rates have posed key economic risks for the retail industry in UK and Overseas. There are two main economic risks that the firms in the retail industry face today. According to Crafti, (2017, p.12), these are inflation and threat due to a decline in consumer trust. In the news this week, TESCO contacted the Bank of England’s monetary policy committee requesting them to reduce the interest rates almost immediately.
Inflation in the stores of Tesco rose to o.8. The demand for most of the supermarket’s non-food items (like electrical appliances, electronics and fashion stuff) goods have been declining in the recent months as the food prices keep going higher, compared to the previous year. There seems to be a great outlook for Christmas now. Many households are looking forward to a great now, and the forthcoming three weeks shall be of intense trading. According to Greene (2015, p. 129), it is not easy to make projections now, given the nature of the sleek consumer outlook. The inflation is going to have a toll in people’s demand. With the current state of price volatility in the retail industry, TESCO may not easily predict the pattern of consumption accurately during this peak season
Updated statistics from Footfall (a retail research group) reveal that TESCO’s figures have significantly declined 3.5% on a year ago. Retail analyst James Anstead, however, believes TESCO’s figures were not “a cause for worry since the current environment is too difficult and there is stiff market rivalry from other competitors. According to the British Retail Consortium, there has been a mild increment in the company’s sales since April 2017 even though substantial discounts were being given (Messala 2017, p.11). The general UK retail sales rose 1.2% on as compared to the last year’s figures. It was attributed (by the Industry Association) to the falling consumer trust on interest rates, coupled with the volatility in financial markets.
On a good note, TESCO’s international sales hit 21.4% in the previous months (with stable exchange rates). Many of its shops are thriving well overseas, especially in China, Hungary and Turkey. TESCO’s total sale in the UK summed up to 7.6% in the given three months, while the industry average was 4.1%. It is a much improved performance compared to the biggest competitor Morrisons (3.7%) in the same period.
Interpreting a Regression
A=1, B=2, C =3, D=4, E=5, F=6, G=7, H=8, I=9, J=10, K=11, L=12, M = 13, N=14, O=15, P=16, Q=17, R=18, S=19, T=20, U=21, V=22, W=23, X=24, Y=25, Z=26
Taking first two letters of my first name and the first two letters of my family name; Ahmad Mohammed becomes 1, 8, 13, 15
Completing the expression Cost = Fixed Cost + Variable Cost;
C = FC + bq
Fixed cost (FC) is all the numbers added together = (1 + 8 + 13 + 15) = 37. Since b is the last of the four values
C = 37 + 15q
Revenue = pq
p is the sum of the third and last of the four values added together i.e. (13+15) =28
For example R = 28q
Calculating the Breakeven Point
To calculate the breakeven point, the following formula will be used:
Fixed Costs ÷ (Price – Variable Costs) = Breakeven Point in Units
FC = 37,
Price = 28,
Variable Costs = bq = 15q
BEP = 37/ (28 – 15q) units
So [C = FC + bq]: [C = 37+15q]
The sig figure for FC is the first and second values of the four multiplied together and divided by 1000. i.e., sig. fig. for FC = 1 × 8 ÷ 1000 = 0.008
The sig figure for b is the third and last values of the four multiplied together and divided by 1000. i.e. the sig. fig. for b = 13× 15 ÷ 1000 = 0.195
These significant figures show that the coefficients are different from zero.
- Chari, V.V., and Kehoe, P. (2006). Modern Macroeconomics in Practice: How Theory Is Shaping Policy. Journal of Economic Perspectives, 20(4):3–28.
- Cooley, T., and Leroy, S. 2016. Identification and Estimation of Money Demand. American Economic Review, 71:82–204.
- Crafti, S 2017, ‘Winning design moored in UK, Tesco’s niche, 25 August, Business Day, p. 12.
- Greene, W 2015, ‘The Analysis of Share Prices’, Journal of Political Economy 77, pp. 128-195.
- Messala, S 2017, Factors that affect the profitability of firms, Economics 20 September, Business Day, p. 11.
- Parkin, M. (2014). Macroeconomics. 11th ed. Essex: Pearson.
- Yahoo Finance 2017, Tesco PLC (TSCO.L). LSE – LSE Delayed price. Yahoo Finance 8 December, Business Day, p. 1.