Tesco Plc Business Analysis

Business Analysis Project

TABLE OF CONTENTS
1. INTRODUCTION.......................................................................................................................1
2. STRATEGIC ANALYSIS...........................................................................................................3
2.1 PESTLE Analysis.............................................................................................................3
2.2 Industry Analysis by conducting Porter’s five forces model (modified).........................5
3. FINANCIAL ANALYSIS...........................................................................................................8
3.1 Financial performance......................................................................................................8
3.2 Industry Specific Performance.......................................................................................12
4. Limitations of Analysis..............................................................................................................14
4.1 Limitations of Strategic Analysis...................................................................................14
4.2 Limitations of Financial Analysis..................................................................................15
5. Conclusion.................................................................................................................................15
6. Recommendation.......................................................................................................................16
7. Strategy Evaluation....................................................................................................................18
8. Financial Data Modelling..........................................................................................................20
9. References..................................................................................................................................27
Figure 1: Industry Specific Performance.......................................................................................13
Figure 2: Market share of three companies Source: statista.com..................................................14
Figure 3: Trend analysis of Tesco Plc related to current ratio ......................................................23
Figure 4: Trend analysis of Tesco Plc related to NP margin ........................................................24
Figure 5: Trend analysis of Tesco Plc related to GP margin ........................................................25
Figure 6: Trend analysis of Tesco Plc related to ROCE................................................................26
Table 1: Rationale............................................................................................................................2
Table 2: Ratio analysis of Tesco Plc................................................................................................9
Table 3: Ratio analysis of Morrison’s Plc........................................................................................9
Table 4: Ratio analysis of Sainsbury Plc.......................................................................................10
Table 5: Tesco Plc Trend analysis.................................................................................................18

1. INTRODUCTION
Purpose of project
The main purpose of conducting project is to analyse the business strategy of Tesco Plc.
Furthermore, comparison will be made with other two companies such as Morrisons Plc and
Sainsbury Plc which are listed on LSE (London Stock Exchange). By analysing strategic model
of company so that stakeholders may be able to invest in it.
Background of organisation
Tesco Plc is one of the biggest retail multinational organisations headquartered in UK. It
was founded in 1919 by Jack Cohen. Company has effectively diversified its business and
satisfies customers by providing quality products and enhanced services.
Rationale
Tesco Plc's competitive advantage will be compared and benchmarked with two UK
based organisations engaged in retail business i.e. Morrisons Plc and Sainsbury Plc. Tesco Plc
has competitive advantage as it satisfies customers up to a large extent and will be able to attain
good quantum of market share in the future course of action.
Tesco Plc Morrisons Plc Sainsbury Plc
Listing (London Stock
Exchange)
TSCO MRW SBRY
Target customers Middle and High
income customers. All
age group of people
are provided goods.
Experiential target
positioning is used
especially in beauty
products.
Upper Middle and
High income
consumers. Making
core supermarkets
strong enough by
supplying products at
competitive price.
Middle class and High
income group
customers. Its target
customers are family
unit particularly
mothers so that better
quality food products
may be provided.
Benefits Cost advantage Affordable items Making available
items at right place at
right time.

Customer Value Maximum satisfaction Competitive price
range
Quality products at
low prices

Table 1: Rationale
Key issues
The main issue faced by Tesco Plc is grocery inflation which has transformed from
negative to positive and this will weaken Pound Sterling implying that more of the gains will be
entertained by suppliers of UK. The prices would have to be cut down leading to lower profits
and thus, inculcating problems in stores.
Illustration 1: UK Customer Satisfaction Index (Retail food sector) Source:
thetravelconvention.com
It can be analysed that has 79 of customer satisfaction. However, other two companies
such as Morrisons Plc has 82 share and Sainsbury Plc has 81 which are more than growth of
Tesco Plc. Hence, issues need to be resolved so that firm may attain higher growth in retail
industry.
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2. STRATEGIC ANALYSIS
2.1 PESTLE Analysis Political: The factors such as tax rate, legislation and political disruption prevails as
business operates in around 12 nations. Import duty has immediate effect on Tesco as it
purchases inventory from countries such as China and East Asia. This may affect business as
political instability has greater influence. Economic: The economic factors also affect business as economic policies of various
nations are different. Labour cost is a vital factor because annual wage bill is expanding over
4.5 GBP billion and 4.4 % wage rate is maximised for employees having age of 25 years.
Hence, cost has been increased. Furthermore, borrowing cost should be increased in the UK.
Diversification in international market is required as it will overall profit in an effective
manner. Social: Consumer behaviour has been changing now and then affecting Tesco Plc. up to a
large extent. Fast delivery and one-stop shopping is demanded by customers and
organisation is required to fulfil these demands to ensure that consumers attain maximum
satisfaction level. Obesity is a crucial issue by which people are more focused on individual
health. Thus, demand should be met by providing organic food (Mackey, Barney and
Dotson, 2017). Technological: Technology up-gradation is required to be produced more with greater
efficiency. Tesco Plc has faced issues in the past relating to pathetic customer experience
and so, to regain trust, technological advancement is to be implemented. It has initiated
RFID technology for enhancing customer experience which is used to count inventory and
to automatically remove it after sales has occurred. PayQwid is also developed by
organisation to pay bills through mobile app. Legal: The factors in relation to legal scenario is that company should focus on issues so
that it may legally carry out operations (Farooq, 2018). This is evident from the fact that in
2016, around 17 employees took actions against employer based on gender and age
discrimination. They were irritated with lower benefits for overtime work and shift of
holidays as well. It must abide by the guidelines imparted by Food Retailing Commission
(FRC).
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 Environmental: Issues related to environment must be taken into account so that business
may not harm the society. Tesco Plc has initiated that van drivers will use the shortest
possible routes to effectively save fuel. Unwanted plastic bags would be gathered and
recycled.
Attractiveness to Business Environment
PESTLE Opportunity or Threat
(Low, Moderate and High)
Political
 Political disruption
 Tax rate in foreign
 Political instability
High Opportunity
Economic
 Labour cost
 Borrowing cost
 Diversification in international market
High Opportunity
Social
 Consumer behaviour
 Obesity in people
 Organic food
High Opportunity
Technological
 RFID technology
 Mobile app for payments
High Opportunity
Legal
 Gender discrimination
 Food Retailing Commission (FRC)
 Adequate wages for overtime
High Opportunity
Environmental
 Van drivers
 Unwanted plastic bags
High Opportunity
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 Recycling
Table 2: Summary of PESTLE Analysis
2.2 Industry Analysis by conducting Porter’s five forces model (modified)
Porter's five forces model is quite effective in analysing competition and position of
company in the industry. The model in relation to Tesco Plc is listed as below:
Threat of new entrants
These are the barriers to entry as if market is performing well, more competitors will be
attracted to enter in market and earn profits. Hence, cut-throat competition can be seen leading to
entry barriers to new firms. The factors include existing loyalty of Tesco Plc, more fixed cost,
complying with government regulations and high requirement of capital.
New entrants Threats
Entry barriers High
Requirement of capital High
Threat of new entrants is low making it more profitable for retail sector and industry is
more attractive.
Bargaining power of suppliers
This is one of the main factors that can lead to affect operations of business as it is
heavily reliant on suppliers to provide raw materials. Tesco Plc is engaged in retail market and
requires materials from suppliers and if they demand more prices, then costs will be injected for
company. It prevails when very few of them are present in the industry. Buyers' need those
products which cannot be made without taking raw materials from suppliers (Morrison, 2016).
Bargaining power of suppliers Power of suppliers
Limited suppliers High
Cost of switching High
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