Tesco Business Strategy Report

This report analyzes Tesco's business strategy using various frameworks, including PESTEL, SWOT, Porter's Five Forces, and Ansoff Matrix. It examines the impact of the macro environment, internal capabilities, competitive forces, and strategic options for Tesco. The report also includes a strategic management plan with objectives, vision, mission, values, goals, and tactical actions.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. The impact and influence of the macro environment on Tesco and its strategies..........3
TASK 2............................................................................................................................................7
P2. Analyse the internal environmental and capabilities of a company by using appropriate
framework...............................................................................................................................7
TASK 3............................................................................................................................................9
P3. Applying Porter’s Five Forces model and evaluate the competitive forces.....................9
TASK 3..........................................................................................................................................11
P4. Applying various models, concepts and theories and produce a strategic management plan
..............................................................................................................................................11
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Strategy is a step by step action planned by individual or organisation to achieve their pre
set goals. When strategy is made according to the strengths and weakness of the company then it
becomes business strategy for them. For this report, Tesco Plc is taken for consideration which is
one of the largest retail chain in United Kingdom. It deals in various kind of business in
supermarket, hypermarket, convenience store etc. Different frameworks will be used in the
report to identify and analyse environment like pestle and porters five forces model. Other that
that internal analysis would also done with the help of SWOT framework so that effective
business strategy would be made. Along with this, different theories and models will also
explained by using it in strategic planning.
TASK 1
P1. The impact and influence of the macro environment on Tesco and its strategies.
Business environment is a combination of internal and external environment. There are
several forces which effect organisation directly or indirectly like suppliers, stakeholders,
government, suppliers, competitors etc.. It includes several factors like competitors, government,
customer, political, legal, economic and legal conditions. Business environment is unpredictable
as it keeps on changing according to the economic, culture changes and it effect its growth.
Business strategy is the framework which is prepared by company in order achieve its vision,
objective efficiently by optimising the available resource. (Bharadwaj and et. al., 2013).
To analyse the impact and influence that macro environment has on Tesco and its
business strategies, management department of company can use PESTEL analysis for it.
PESTEL ANALYSIS:
It is essential for company to cope up with the external factors as it is directly linked with
the performance of company because external environment can not be controlled or modify
according to business. To evaluate the environment, Tesco can use pestle analysis which is
explained below with the help of functional example,
 Political factor: This factor includes many time of factors like political stability, tax
rates, excise duties imposed by government etc. As after the news of Brexit, there has
been instability in the UK due to which company has not been able to perform with their
highest potential. As due to it, Tesco could not take any decision regarding expansion of

business, safety of human resources as new norms will affect the existing employment
contract etc. So it can be said that it is affecting Tesco business in a negative way. But on
the other hand, Tesco has good relations with the government of UK as they are
providing huge tax and jobs for their citizens resulting in growth of the country.
 Economical factor: This factor is essential for Tesco as economical condition of country
affects organisation's demand of products, cost prices, profits in a positive or negative
way. It includes growth rate, exchanges rate, fluctuations of currency etc. After the news
of Brexit, economy of UK has been shattered as bank of England has warned the country
that there are 25 % chances of recession in 2019. Along with this, expected growth rate
has also reduced to 1.2% (UK economy set for worst year since financial crisis, says
Bank of England. 2019) So all these ends up at reducing consumer disposable income
resulting in loss for Tesco.
 Sociological factor: It includes various kinds of aspects like attitude of people towards
life, standard of living, populations, age distribution etc. As world is facing from internet
boom, most of the customer are shifting towards the online platform instead of visiting
physically on stores. This reduces the sales of Tesco as number of footfalls in a day is
reducing. But on the other side, their has been increase in number of female workers in
the UK due to which family prefers to buy ready meal instead of cooking which made a
positive impact on the performance of Tesco as their sales will increase slightly (Women
and the Economy – Parliament.uk, 2019)
 Technological factor: Technology is important for company as it assist them to increase
the quality of products they provide to the final customers. It includes factors like
automation of process, R&D, advancement in technology etc. For example, the
management department of the company can develop any application technology where
people can purchase product by online mode. The company introduced RFID Technology
to increase in-store experience for customers. This system automatically counts stock and
remove it after sales. These all positively impact the business in the form of befits and
business strategy also because the firm will not invest in designing strategy for these kind
of work Legal factor: It include various legislation such as equality law, discrimination act,
health and safety law etc. Tesco has millions of customers and to satisfy their needs and

demands , company have to bring many products through importing. So after the Brexit,
it will affect the Tesco supply chain as laws related to import and export will change.
Apart from this, company has to change their contract between the vendors which will
slow down the process of Tesco thus results in slow sales for company (UK: Key Legal
Brexit Issues For Retailers, 2019).
 Environmental factor: This aspect covers issues related to society, changing weather,
climate change etc. UK society is suffering from obesity problem as number of patients
related to increase in weight is increasing with a significant number. So to cope up with
it, Prime minister of UK is planing to increase VAT tax on unhealthy foods so that
problems would be resolved. It would negatively impact the business of Tesco as increase
in tax will leads to higher price of product resulting in low sales for company (Is a fat tax
the only way to combat our growing epidemic of obesity,2019). Apart from this, Tesco is
regularly donating to the needy people and NGOs with the aim of betterment of society.

Stakeholder Analysis of Tesco
It is a process of systematic gathering and analysing qualitative information to monitor
whose interest should be taken into account when implementing and developing a program and
policy (Grant, 2013). The stakeholder analysis of this company is as following:
 Manage closely: Customers are the people who buy or purchase products and services
from shop or any retail store. They are the main stakeholder because company's aim is to
satisfy the needs and demands of customers so to profitability for them. Tesco should
regularly inform them regarding the product they are launching as it there is high brand
awareness in the market then chances of sales also increase to a certain level. Changes
done by Tesco directly impact the buying behaviour of customers as if prices of the
product increases due to Brexit, then their buying frequency would reduce which leads to
lower profitability for Tesco.
 Keep informed: Shareholders are those persons who invest in the business of the firm.
So all the activities conducted by Tesco should be properly disseminate to the
stakeholders. Tesco has not shared any information regarding the changes which they are
planning to bring due to Brexit issues. So shareholders are not happy with this resulting
in pulling of shares from Tesco which leads to decrease in price of shares (Share price
information. 2019)
 Monitor: It is body which design laws and legislations to operate the business of the
company at national and international level so that the firms did not face any problems
and difficulties. They have low interest and power in the working of Tesco but still they
should be inform about the activities they are doing. For instance, if Tesco is planning for
expansion in UK then they should convey it to the government as they are the one whose
assent is essential to avoid any legal issues.
 Keep satisfied: They include directors, owners and mangers of the company. In Tesco,
these people are responsible to design policies and strategies for the firm so the company
can achieve its organisational goals. So it can be said that they have high power as
employees are the one who satisfy the needs of customers through providing products.

TASK 2
P2. Analyse the internal environmental and capabilities of a company by using appropriate
framework
It is important for company to continuously analyse and evaluate the capabilities as it
assist them to perform with their higher potential which ends up in enhancing sales for them.
Besides this, it also strengths and weakness of the company should be identified as business
startegies are made accordingly. Tesco can opt swot analysis to do the same which is explained
below,
Strength weaknesses
 Tesco has 65,000 stores across the
world across 20 countries and
500,000+employee world wide.
 This company follow new technique
for packaging which make them
unique and different in the minds of
customer.
 The firm has its own private label
brand which gives high brand equity in
the market.
 Due to commercial scandal of Tesco in
2015, company image has been
negatively affected due to which brand
image of Tesco deteriorates to a certain
level (Kourdi, 2015).
 Tesco finance profit levels were
impacted through bad debt,credit card
arrears and household insurance claim..
Opportunity Threat
 Potential new market in developing
new country. Asia,the middle east and
Africa, and Latin America to account
for more than 70% of the worlds
grocery growth over the next five year.
 Tesco has announced the introduction
of jacks a low rival to ALDI & LIDL .
They have an opportunity to grow this
business and positions a low cost
 Inability of the new leadership to turn
over the business and to sustain cost
leadership competitive advantage.
 Changing the buying behaviour of the
consumer from online channel could
be a threat to the existing physical
infrastructure driven supply chain
model.

rival .
 Increased premium range products and
opportunity to grow online business
also has the opportunity to expand into
overseas markets that are growing .
 Increasing trend toward isolationism in
the American economy can lead to
similar reaction from other government
thus negatively impacting the
international sales.
Critical analysis of capabilities and weakness
As mentioned above, Tesco is one of the largest supermarket chain in UK and has more
than 65000 stores. But brand leveraging can also affect negatively as recently Tesco image
hampers as they found conducting price fluctuation according to the area they are serving.
Different stores of Tesco has different prices due to which customers becomes confused which
results in switching of customers to different brand (Do UK supermarkets vary prices by area?,
2019). Apart from this, Tesco has been found doing commercial scandal due to which their
image has been affected fatalistic. Many employees were resigning from their designation due to
which employee turnover ratio is increasing (Tesco accounting scandal 'compromised' staff and
sparked resignations, 2018)
Value Chain analysis

(Source : Value chain analysis, 2019)
It is a perpetual process in which company finds out various primary and secondary
activities and how it could add more value in the final product which could help company to
reduce their prices or obtain product differentiation. This model will assist Tesco to identify their
strengths and weakness and how they could use it to enhance productivity in the market.
Value chain analysis consists of two different types of activities are as follows: primary
and support activities. On one hand, primary activities involves inbound logistics, operations,
outbound logistics, marketing & sales and services. TESCO inbound logistics are complex and
involves the supply of hundreds of product categories to 7817 stores around an entire world
(Oestreicher-Singer and Zalmanson, 2013). The company used to make regular investment to
increase the capacity of logistics so that economies of scale can be exploited to the greater
extent.
Illustration 1: Value chain analysis

TESCO has their operations in retail, banking, manufacturing etc. Also, there out-bound
logistics that consists of flexibility and cost effectiveness of deliveries. Their supermarket chain
offers several home delivery option for purchases made from online platform of TESCO.
Tesco has acquired market leader position in the retail sector due to their offline and
online logistics. Company has different types of stores formats like Express, superstores etc
which assist them to cover more market and customer share. Along with this, 2018, Tesco has
saved 104 million dollar in logistics. So it can said that outbound logistics is the capabilities of
Tesco.
Marketing and sales are belongs to “Every little helps” which is the marketing message of
their supermarket chain and accordingly. TESCO marketing strategy attempts to associate brand
with competitive prices, wide selection of products and best quality /price balances. Services is
belongs to customer loyalty of frequent shopping experience on an average of weekly basis.
First factor in the support activities is human resources, company has more than
thousands of employees in various countries which makes the integration stronger. Besides this,
proper training is also provided to them so to enhance their competencies and skills which would
have positive effect on the performance of company. Other factor is firm infrastructure, as
mentioned above Tesco has more than 60000 stores in all over world, which makes the company
coverage area stronger and wider. Technology is also the factor which assist Tesco to perform
well that's why they have specific department named Tesco lab which continuously works in
innovating process used by company. Many innovation done by Tesco is bar scanner, push
button for bills, voice control to identify the product etc. (Tesco Labs: the drive for new
technology, 2019) Procurement refers to buying of raw material or final products which add their
value while delivering the product to the final customers. Company has recently partnered with
Carrefour for procurement with the aim of reducing the inventory cost to a certain level.
TASK 3
P3. Applying Porter’s Five Forces model and evaluate the competitive forces
Porter's Five Force Analysis
It is used to analyse industry and to examine the profitability in a given industry. Porters
five force model is used to understand how five competitive forces influence profitability and
assist in formulation of competitive strategies in long run (Pisano, 2015).

Threat of new entry- It refers to new entry of organisation in to the retail sector. There
are less chances of new player in the market as it requires high scale of economies in the starting
which makes the business more risky for the owner. Apart from this, there are various
regulations in retail sector related to tax rates, price of the product, quantity of it etc. which
makes the business tough in starting. So it can be said that threat of new entry is low in nature.
Bargaining power of suppliers.-All most all the companies existing in the retail market
tends to buy products from different suppliers. The retail buyers have to maintain a kind of
healthy relationship with suppliers in order to maintain the competitive price in the industry.
Thus the bargaining power of suppliers is low because of number of suppliers in the market and
switching cost. Tesco can increase the efficiency by putting more emphasis on building better
supply chain and by experimenting with product design (Scholes, 2015).
Bargaining power of customer-There is availability of substitute provided by other retail
stores which increases the bargaining power of customers and in order to maintain customer
company needs to come up with different strategies for example providing discounts and offers.
If number of customers are high in market in comparison of the number of companies then the
power remains at the end of customers. For instance, if Tesco increases their prices for any
product then customer will switch it to other cheaper company resulting in low sales in future.
Rivalry among the existing firms-Organisation have a high competitive rivalry with
major industry such as Asda, Sainsbury and Waitrose. It is hard for Tesco to compete with the
big players as they have constantly change their prices and strategy according to the competitors.
Rivalry between companies in the retail sector is high in nature. Organisation can build
sustainable environment and can also collaborate with competitors in order to compete in market.
Threat of substitute- There is no substituent for the food provided by Tesco as it is
important to consume food for living. But there could be substitute for way of selling the product
as online platform could be substitute for Tesco or the small shops around the corner. So it is
concluded that threat of substitute is moderate in nature.
Ansoff Matrix
It is important for every company to make their strategies according to the strengths
present in the organisation as then only they can perform with their actual potential. To evaluate
different types of strategies, Ansoff matrix is used which is explained below with functional
examples,

Market penetration : It is a growth strategy where firm seeks to sell existing product
into existing market with the purpose of maximising overall market share. Tesco perfected its
long term growth strategy based on four key parts. The openings on other locations are supported
by their purpose of growth in the core UK, expansion of international retail industry ,strong non-
food and food services & outstanding customer services, Tesco uses competitive pricing
strategies, advertising and the other sales promotions to sell existing products & services to
existing markets (Smith, 2013).
Market development : This strategy is adopted by the firm when they decides to sell
their existing product into the new market. The purpose of Tesco is to expand with new product
dimension, distribution channels, & other strategies with the purpose of attracting customers to
build a new market (Verbeke, 2013).
Product development: Under this strategy company manufacture and offer new products
to its customers in existing market segments. This strategy is appropriate for enterprise when
company’s strengths are related to specific group of customers rather than the product. By
develop a new product company can take benefits of its strengths. This strategy is riskier as there
are chances of product failure in the market.
Diversification: Under this strategy, firm diversify its business activities by developing
new products for new markets. This is one of the most riskier strategy from all four strategies.
Benefits of this strategy is that it provides new market and customers to company which help
company to sustain in market for long run.
Tesco can use diversification strategies to expand its business in various countries and
increase the profit or enhance productivity (Wang and Verma, 2012).
TASK 3
P4. Applying various models, concepts and theories and produce a strategic management plan
Porters Generic Model:
This is the model which can be used to select a suitable path which would help the
organisation to achieve the competitive advantage so that they are able to achieve the objective
of maximising the profit. This model was introduced by Michael Porter in the year of 1980. With
the help of this model, Managers of TESCO can easily formulate a strategic management plan
which will be helpful for them in gaining competitive advantage in the marketplace (AmiT and

Zott, 2012). The given firm which is name as TESCO can use any strategy from the following
discussed three strategies which are given as under:
 Cost leadership: According to this strategy, the business firm can fabricate some
products and provide them to the customers at a reasonable cost which would help them
to attract more customers. This strategy is used to encourage the firm so as to enter in a
new market along with a optimistic strategy so that good brand image and goodwill can
be created and can be maintained in a significant manner.
 Differentiation: It includes formation of strategies which allows the firm to manufacture
the new products which are different in nature and characteristics of substitutes. With this
strategy, managers would be able to manufacture different products by differentiating it
from other product. For this, Management of Tesco have to make unique products with
special features so that customer will be more attracted towards the offerings of
organisation. (Bharadwaj and et. al., 2013).
 Focus: It is generally categorised in two parts like cost focus and differentiation focus.
◦ Cost focus - It is related with functions of organisation in which the managers of firm
have to make focus on the cost of product which are delivered by them in the
marketplace.
◦ Differentiation focus - It is a strategy which helps the organisation in making
different product along with adding unique features in it.
Through using such strategy, managers of Tesco will be able in defeating their
competitors in the marketplace. So according to their capabilities and weakness, Tesco should
use diversification strategy as it would help them to acquire more market share in the UK.
The other model that can be used by the organisation to determine the strategic position is:
BCG Matrix :
Tesco is a retail firm having more than 7800 outlets worldwide. Tesco can use the BCG
matrix for determining the profitability and future of various businesses running under the brand
of Tesco. BCG matrix includes 4 elements which are dogs, cash cows, star and question mark
which are discussed below in the context of Tesco:
Star: These has the potential to create new growth opportunities for the business firms.
These stars converts into cash cows when the market becomes mature and stabilised. These
needs more investment then the cash cows. The star for Tesco is the Tesco bank. The banking

industry has potential to grow in future due to which it can be estimated that Tesco bank can
attain high market share in the future.
Cash cows: These are the main source of business for an organisation because of the high
market share owned by the firm. The Cash cows for the Tesco is the fresh meat section whose
demand is high in the Tesco stores. The performance of the fresh meat section is gradually
decreasing which is improved by implementing the new strategy. The fresh meat section of
Tesco is matured in the industry due to which this section is earning huge amount of revenue for
the firm.
Dogs: This includes the products or business units whose performance is not upto the
mark i.e. not satisfactory because of the low return on investment done. In Tesco, the dogs refers
to the mobile segment. This section had showed some improvements but still the debt is
increasing in this segment. It is because of high competition and slow growth potential.
Question mark: These are the products having low revenue due to which the profit of the
organisation is also low. Future of such products is uncertain however the developing market
environment can leads to stability in such products. Tesco lard is considered as a question mark
for the Tesco as these are creating revenue for the firm but their demand is not high in the market

Strategic management plan
It is type of activities in which company set their priorities, goals, missions etc according
to the competencies so that company can align their activities with it. The company can use
diversification strategy and manufacture a new product “ organic coffee in various flavours” and
it can decide to produce this product in China market because there is high demand of these kind
of products in the marketplace (Blackburn, Hart and Wainwright, T., 2013).
Aim- To grow the scale of operations of business and satisfying the needs of customers
by providing diversified product range.
Objectives-For this company should make SMART objective, they are as following: To increase 20% sales of the new product in to new market within 2 years.
Organisational structure: Tesco follow hierarchical organisational structure which
reflect the large size of the business. There are 11 members in Tesco executive Committee which
help to operate the business according to the diversification strategy.
Vision: To manufacture better quality products and be a leader in grocery industry.
Mission :To provide better quality products and services to its customers to provide
satisfaction to them and maintain their loyalty.
Values: To be a champion for the customers to help them by providing them good
products so that they can enjoy a better quality of life and an easier way of life.
Goals:To serve customers a little better every day.
Strategies and tactics: Tesco can use diversification strategy in order to gain success and
more profit by exploring its business through a new product and a new market for the business
growth. Tesco can use penetration or low pricing to make their diversify strategy successful as it
would assist them to attract customers from vast range resulting in better customer acquisition.
(Fox, 2012).
Valid strategic directions and tactical actions
 Tesco should try to open more stores in those area where there is no supermarket as yet.
They can easily open more stores as they have enough technology and money which
could help them to operate their business. It would assist them to cover more market area
due to which chances of enhancement in sales and profitability will increase.
 Factors which forces customer to switch their brand preferences is quality and price of
the product. So, Tesco should try to reduce their prices of product through increasing

efficiency of logistics. Moreover, they should contact new vendors to acquire raw
materials as good quality of product will attract more customer to their stores.
CONCLUSION
From the above mentioned information, it can be concluded that it is very essential for
every organization to carry out analysis of its external environment as this help in identifying all
the factors which affect the strategies and decision making process of companies. Various tools
such as PESTLE analysis and stakeholder analysis are discussed which can be used by enterprise
to examine the major factors exist in business environment and which have a great impact on
company's operations. Analysis of internal capabilities of firm is also important for an enterprise.
Also, there was discussion about the strategic directions available for an organisation and in this
report, diversification strategy was selected.

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