Economies of scale is the benefits that larger business have over their smaller competitors. This could be financial, marketing, technical or suppliers and this can have an effect on any stakeholders of the business.
One benefit of economies of scale for Tesco is the buying power that they have. Because they are so large and have stored all over the world they bulk buy on extremely large amounts. This means that they will be able to get a discounted amount off their suppliers because the suppliers will be desperate for the business off Tesco and this will give them cheaper costs. This will benefit Tesco because they will have an option of lowering their selling price so they can undercut the competitor that do not have as big a benefits of economies of scale and draw people into the store buying other products. Or Tesco could keep the price of competitors and have a larger profit margin on each product. This will lead to Tesco having higher revenue which ever method that they choose giving them more profit if they can manage their costs in other departments. This allows them to grow even more and expand and benefit more from economies of scale which makes them even more likely to succeed.
Another benefit of economies of scale is the financial position of the company. Because they are such a large company with many different revenue streams and large revenue. This is god for Tesco because there are much more financially secure so if they are not doing well one month or one of the businesses is suffering the other streams f income will support these until they can either improve or get rid of the struggling business. This gives the benefit over small companies because if they are not doing well they only have one income stream to secure them and if this fails they struggle financially. Being more secure will lead to Tesco being able to take more risks when trying to grow as a business and this will improve economies of scale even more. Therefore if they are secure they are more likely to succeed because the business in in less of a financial issue if they are not doing as well for a short time.
One factor that may not be down to economies of scale is that Tesco may feel the fact of diseconomies of scale. Diseconomies of scale is the theory that a company can get too big and it can create issues for the company. Tesco may feel the effect of this with costs raising. Because they have companies all…