Strategic Management

This report outlines the Tesco strategic direction in relation with various theoretical models and environment context. Some of the management tools and framework that are being used including Pestle, Porter, SWOT and VRIO.

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Strategic Management

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Executive Summary
This report outlines the Tesco strategic direction in relation with various theoretical models
and environment context. Some of the management tools and framework that are being used
including Pestle, Porter, SWOT and VRIO.
Tesco is one of the prominent corporations in the retail industry. The company strategy is
based on cost leadership and differentiation enabling company to attain distinct position in
the industry. The retail environment of Tesco is full of threats and opportunities and it is the
responsibility of management to identify those opportunities in order to attain competitive
advantage in the marketplace.

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Contents
Introduction..............................................................................................................................3
External Business Environment..............................................................................................3
Porter’s Five Forces Model.....................................................................................................4
Internal Business Environment..............................................................................................6
SWOT Analysis........................................................................................................................7
Conclusions...............................................................................................................................8
References.................................................................................................................................9

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Introduction
Tesco is one of the top food retailer operating globally in 13 countries and was established in
1919 by Jack Cohen. In relation with operations, the extended product portfolio of the
company includes selling of books, furniture, clothes, electronics, internet and financial
services and retailing of clothes. Tesco yearly revenue in the UK and Northern Ireland
calculated to about 45 billion British pounds in 2017-18 economic year (statista.com, 2018).
With regards to this, the market capitalisation of Tesco PLC is 29,43B and the company also
increase its number of stores to nearly 3,739 in 2017 (chinabrands.com, 2018).
In comparison with other retail groups (including Aldi, Asda, and Sainsbury), Tesco market
share in the UK stands out with 27.8% (statista.com, 2018b). The company strategy intended
to enhance consumer loyalty so as to develop the shopping experience for its consumers.
Tesco follows both cost leadership and differentiation strategy as the company drive to be
lowest cost operator in the industry in comparison with Morrison, Sainsbury and very close to
Asda. In addition, the company also differentiated itself from the rivals in area of delivery,
online sales, product range, club schemes and many more.
External Business Environment
The macro environment analysis of TESCO will be based on the PESTEL framework and it
is presented below –
 Political Environment - The rise of various political movements around the world
has created substantial uncertainty for several organisations and one of such
movement is Brexit. According to market intelligence firms, customers identify Tesco
as the brand most connected with Brexit. In short term, it is important for Tesco to
build new domestic suppliers relations to natively sourced products that are at-risk for
the highest post-Brexit tariffs.
 Economic Environment – Tesco sustainability and business life cycle are ultimately
impacted by the economy of various countries in which the company is operating. For
instance, Tesco sales dropped to 16 years with the 2008 recession, however, Tesco
manages to counter this by presenting a new discount range (dailymail.co.uk, 2008).

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In addition, it is also necessary for the company to emphasis on rate of unemployment
of each location as it was also found that Tesco plans to shed off nearly 1,700 jobs in
new management shake-ups.
 Social Factors – Nowadays, there is a tremendous shift with the changing pattern of
consumer shopping. For instance, many individuals are now preferring one-stop
shopping and they are more getting health conscious and almost £45 million a week is
paid on organic products considered the recently released 2019 Organic Market
Report (Ledsom, 2019). Such variations in retail environment required Tesco to come
up with new product line of more organic foods and with new strategies of marketing.
 Technological factors – In retail sectors, the advancement in technologies brings
various opportunities for Tesco and the company has maintained its strong position
such as by introducing RFID technology so as to raise overall experience benefitting
suppliers. The company also using various chatbots in its social media page for
enhancing consumer relationship and gain loyalty. Tesco also comes up with own
mobile payment platform named as PayQwiq and some 524 stores of the company are
accepting this mean of payment (Jahshan, 2017).
 Environmental factors – In relation with its CSR practices, Tesco aimed to use
renewable energy sources and therefore creating 100% of its own electricity by 2030.
Although, the organisation in past also have to face various allegations relating to
breaking some environment and safety laws and thus fined with £8 Million as a
failure to rehabilitate the issue of fuel delivery (Wood, 2017).
 Legal factors – These are one of the major important factors of macro environment
for corporation and it is essential for Tesco to encompass significant practices as the
company also has faced issues before in it. Around 17 employees filed lawsuit against
their superior for gender discrimination in 2016.
Porter’s Five Forces Model
The retail sector analysis is presented through Porter framework which results from industrial
group (IG) economics to originate five forces that identify the competitive concentration and,
thus, the attractiveness (or lack of it) of a sector in relation with its profitability. The
respective five forces are presented below –

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 Risk of Substitute Product – In grocery retail marketplace, substitute threat is low
for Tesco considering food products but medium for non-food items. Tesco offers
superior quality products at low costs in food retail market and the company also hold
convenience stores by incorporating express supplies in city centres. This makes
various barriers for substitutes in the marketplace. However, for non0food products,
substitute threat is high like clothing as consumers will change their interest towards
discounted prices and therefore, Tesco is also considered as a threat to the speciality
shops.
 Rivalry among existing firms – It is extremely high in retail sector as there is a
direct competition for Tesco from Asda, Sainsbury and Waitrose. As per the statistics
related to grocers market share in Great Britain (GB) from 2015 to 2019. The largest
share is hold by Tesco and Sainsbury's together at 42.7 per cent of the market
composed as of April 2019 (statista.com, 2019). Asda's share exceeded Sainsbury's in
march 2019. Such intense competition in the industry threatens Tesco market
leadership position.
 Threat of Rivals – Tesco direct and biggest competitors include Sainsbury, Asda and
Morrison as they hold for 80% of combined spending in the UK. It shows that threat
of rivals is high and gaining planning with the government authorities to source new
resources and develop new supermarket should be the Tesco strategy to build
necessary barriers to new entrants.
 Suppliers bargaining power – The Company has hundreds of suppliers and the
company also have a past of using its bargaining power to suspensing payments to
suppliers so as to enhance operational profit margins. Hence, there is low bargaining
power of suppliers because of the position and negotiation power of Tesco and other
retailers including Sainsbury and Asda.
 Buyers bargaining power – There is a high bargaining power considering
consumers due to constant increase in various retail stores allowing consumers to
easily switch to other retail offering quality products at affordable prices. Dawes and
Nenycz-Thiel (2014) stated that customers are inclined more towards the low prices
and with the accessibility of retail shopping online, the prices of the product can
effectively be matched and therefore, improve decision making.

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Internal Business Environment
Tesco strong consumer focused approach is considered as one of the key contributing factors
in its success. The company always keep its price low with enhancing delivery system and
avoiding wastages. Tesco also keeps price low by sourcing from emerging countries such as
India and China with picking non-food products. Tesco company website is another strategic
capability that allows consumers to purchase products more effectively. In addition, Tesco
supply chain system is built in such a way that effectively connect its stores with Tesco.com.
With regards to this, the IT technology of the company is also robust as Tesco was the first to
come up with RFID technology in its supply chain.
Another protuberant capability of Tesco is its robust financial assets and market brand image.
The club card initiative by the company was also rare allowing various sorts of loyalty
schemes to consumers. The various Tesco store set-ups are designed to match the diverse
shopping patterns of their customers.
Particulars Valuable Rare Imitable Organisation Impact on
competitive
advantage
IT
Tecnology
Yes No Yes Yes Temporary
Management
of Supply
Chain
Yes No No Yes Temporary
Club Card Yes Yes No Yes Permanent
Unique Store
Design
Yes Yes No Yes Permanent
Employees Yes Yes No Yes Permanent
Cost
Efficiency
Yes Yes Yes Yes Permanent

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SWOT Analysis
Tesco strategic position is being identified with the help SWOT framework. Tesco strengths
can be identified with its consistently strong financial performance as Tesco strokes forecast
with 28% increase in yearly profits (Butler, 2018). The company also have completed some
key acquisitions and strategic alliances such as Booker Group (a food wholesaler),
partnership with Euphorium Bakey in 2012 and many more. The company is also innovating
in terms of technology such as Tesco trails “shop-and-go’ app and cashier fewer stores.
In terms of weakness, Tesco has been accused several times in media for cutting of jobs for
restructuring of management and also cutting down overseas operations. For instance, Tesco
to cut 4500 jobs at 153 UK outlets in newest redundancies (Davies, 2019). The company also
has an opportunity to bring artificial intelligence in retail and there will also be major
opportunities comes with merger of Tesco and Booker. The popularity of multichannel
retailing also allows cutting back on opening physical stores and therefore offers biggest
price. Considering threat, the rising competition in retail is also the biggest barrier in the
growth of Tesco. In addition, with changing customer expectations towards organic food also
required Tesco to come up with new product line. All things derive Tesco strategic position
in the retail market.

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Conclusions
In the limelight of above discussion, it is evident to conclude that Tesco group is a great
strategist and therefore, attain huge success in retail market with matching relevant consumer
expectations. However, the future of retail is full of challenges required Tesco to work with
change in technology and digital media.

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References
Butler, B. (2018) Tesco beats forecast with 28% rise in annual profits [ONLINE] Available
from: https://www.theguardian.com/business/2018/apr/11/tesco-reports-28-rise-in-profits-for-
last-quarter [Accessed 03/10/2019].
chinabrands.com. (2018) How Is Tesco? Step By Step Sell On Tesco Website [ONLINE]
Available from: https://www.chinabrands.com/dropshipping/article-how-is-tesco-step-by-
step-sell-on-tesco-website-15136.html [Accessed 03/10/2019].
dailymail.co.uk. (2008) Recession hits Tesco: Grocery giant's sales fall to lowest figure in 16
years as shoppers turn to budget rivals [ONLINE] Available from:
https://www.dailymail.co.uk/news/article-1091079/Recession-hits-Tesco-Grocery-giants-
sales-fall-lowest-figure-16-years-shoppers-turn-budget-supermarkets.html [Accessed
03/10/2019].
Davies, R. (2019) Tesco to cut 4,500 jobs at 153 UK outlets in latest redundancies
[ONLINE] Available from: https://www.theguardian.com/business/2019/aug/05/tesco-cut-
jobs-latest-redundancies-counter-staff [Accessed 03/10/2019].
Dawes, J. and Nenycz-Thiel, M. (2014) Comparing retailer purchase patterns and brand
metrics for in-store and online grocery purchasing. Journal of Marketing Management, 30(3-
4), pp.364-382.
Jahshan, E. (2017) Tesco unveils digital wallet payment app Pay+ to replace PayQwiq
[ONLINE] Available from: https://www.retailgazette.co.uk/blog/2017/09/tesco-pay-
launched-replaces-payqwiq/ [Accessed 03/10/2019].
Ledsom, A. (2019) New Report: UK Consumers Want More Organic Everything [ONLINE]
Available from: https://www.forbes.com/sites/alexledsom/2019/02/16/new-report-uk-
consumers-want-more-organic-everything/#2d5e888a68f0 [Accessed 03/10/2019].
Ledsom, A. (2019) New Report: UK Consumers Want More Organic Everything [ONLINE]
Available from: https://www.forbes.com/sites/alexledsom/2019/02/16/new-report-uk-
consumers-want-more-organic-everything/#1086347868f0 [Accessed 03/10/2019].
statista.com. (2018) Annual revenue of Tesco Group in the United Kingdom (UK) from
financial year 2015 to 2018* (in million GBP) [ONLINE] Available from:

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https://www.statista.com/statistics/490931/tesco-group-finance-revenue-united-kingdom-uk/
[Accessed 03/10/2019].
statista.com. (2018b) Market share of grocery stores in Great Britain from August 2012 to
August 2018 [ONLINE] Available from: https://www.statista.com/statistics/300656/grocery-
market-share-in-great-britain-year-on-year-comparison/ [Accessed 03/10/2019].
statista.com. (2019) Market share of grocery stores in Great Britain from January 2015 to
September 2019 [ONLINE] Available from:
https://www.statista.com/statistics/280208/grocery-market-share-in-the-united-kingdom-uk/
[Accessed 03/10/2019].
Wood, Z. (2017) Tesco fined £8m for fuel leak at petrol station in Lancashire [ONLINE]
Available from: https://www.theguardian.com/business/2017/jun/16/tesco-fined-8m-fuel-
leak-petrol-station-lancashire-supermarket-haslingden [Accessed 03/10/2019].