Strategic Analysis of Tesco: Challenges, Competitors, and Strategies

This report provides a comprehensive strategic analysis of Tesco, a major global retailer. It begins with an introduction to strategic analysis and its application to Tesco, followed by an internal analysis examining Tesco's value chain, including retail, manufacturing, and banking segments. The report then delves into an external analysis, considering factors such as economic, political, social, technological, and environmental influences on Tesco's growth. A competitor analysis compares Tesco with key rivals like ASDA, Sainsbury's, and Morrison, utilizing Porter's Five Forces framework to assess the competitive landscape. The report identifies strategic issues and challenges faced by Tesco, offering recommendations based on the analysis, and concludes with a summary of the findings. The report highlights Tesco's strategic approaches, market position, and the impact of various internal and external factors on its performance and future strategies.

Strategic Analysis

Table of Contents
INTRODUCTION...........................................................................................................................1
1. Strategic analysis of Tesco......................................................................................................1
2. Internal Analysis of Tesco......................................................................................................1
3. External analysis of Tesco......................................................................................................3
4. Competitor analysis of Tesco..................................................................................................5
5. Strategic issues and challenges faced by Tesco......................................................................7
RECOMMENDATION...................................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Strategic analysis is the creation of the strategy for a business by making research on it. It
is the setting of the organization goals and objectives. Thus, in such respect the present research
study has been emphasizing on Tesco which is a grocery and general merchandise retailer
company and which was founded by Jack Cohen in the year 1919. It is the third largest retail
company in the world (Mohammad-Beigi, Nouri and Liaghati, 2015). It has many stores across
twelve countries. In this report, the main points involved are strategic analysis and competitor
analysis of the Tesco. Further, Internal and external analysis of the firm are discussed. Moreover,
strategic issues and challenges at Tesco are concerned.
1. Strategic analysis of Tesco
According to strategic aspects, Tesco started UK telecom division which created the new
era in internet service provider business including home phones and mobile services. According
to historical perspective, in the year 1992, the organization has launched the computers for
school scheme which provides computer in place of getting vouchers from people who have
purchased it from Tesco. The strategic approaches of the company helped it in achieving its long
term objectives and its constant stability in the market. The company has owned 80% stake in
Casino Leader price supermarkets in Poland in the year 2006. In 2007, the organization has
decided to transfer its online head office to Switzerland due to tax reasons (Mohan, 2015). This
led to the selling of CDs, DVDs, and electronic games without any VAT tax.
The company has contributed 1.87% of its pre-tax benefits to the charity organization and
taken the corporate social responsibility in the year 2006. Tesco was the first company which has
introduced 24-hour shopping experience which has increased its click and collect points in
thousands. The company has adopted business strategy which has changed whole retail industry
in the UK country. The main aim of adopting the business strategy is to regain the stakeholder's
trust and confidence.The company has developed Tesco Cup for young player's competition in
UK. The firm was charged by the UK office of Fair Trading as it is the part of price cartel. Tesco
have learned the lesson from it and maintain to deny any event in support of this price carter.
2. Internal Analysis of Tesco
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Value chain analysis of Tesco includes the framework that helps in recognizing the
business activities which gives competitive advantage to the business. Primary activity of the
organization includes Inbound logistics and outbound logistics. Inbound logistics are difficult
and supplies the product to 7817 Tesco stores. The major source of value creation of the
company is due to large scope of its operation (Sönmez and et.al., 2013). The economic scale can
be exploited at greater level if the company makes regular investments. The three large segments
of the company's operations are as follows:
1. Retail: The main business of Tesco is represented in this segment. The extensive scope of
the firm's retail operation is very wide. Following is the format in which the company
operates:
a)Metro: Wide range of food and small section of general section like greeting cards and cook
ware are sold by Metro stores.
b) Express: Delivery of Fresh food at home and work is done as soon as possible. It hasthe
smallest size among all stores.
c) Extra: The Tesco offers large products like clothing, home-ware, beauty services, electrical
equipments etc. It is the largest store which offers large products.
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d) Superstore: It provides good quality of food and other products (Kwiatkowska, Parker and
Simaitis, 2013).
2. Manufacturing: Tesco sells its own branded products under basic value range products.
The company has launched the fictitious farm with 76 lines across seven brands to
maintain its budget. This step allows the supermarket chain to compete against German
discounters.
3. Banking: Tesco bank has 3000 employees which handles 7 million customers. It was
owned by Tesco PLC in the year 2008. Initially the organization has joint venture with
Royal bank of Scotland in 2008. The bank has trading profit of GBP 194 million.
The main source of Outbound logistics are the deliveries of flexibility and cost-
effectiveness. Several online options of product purchase and home delivery are available with
Tesco direct in selected locations. This includes the Delivery Saver plan which gives the offer of
unlimited free grocery for one month and free service of next day click plus collect plan. These
offers require the minimum spending of GBP 40 and GBP 4 under GBP 40.
Marketing and sales includes every little possible help. The organization provides the
best quality of products, products with competitive prices and choice of wide selection of the
product. The company has also tried to restore the stakeholders trust towards the brand to recover
the damaged brand image and poor supply treatment (Dudovskiy, 2016). The company has taken
help of online and offline sale channels to maintain its budget and increase its revenue.
Tesco has faced problem in providing the customer service of the highest standard due to
the choice of cost leadership business strategy. Cost reduction is the main concern on which the
firm strategy focuses. Hence, it is very difficult for the organization to provide less cost and the
exceptional customer service at the same time.
3. External analysis of Tesco
There are various factors like economic, political, legal, social, technological,
environmental, legislative etc. that affect the company's growth. Companies like Tesco are keen
observer of the political decision taken by the government. Performance of the company is
greatly influenced by global poltical factors like the stability of the country, acts of legislation
and tax rates (Kwiatkowska, Parker and Simaitis, 2013). Tesco demands increase in the publicity
and diversification of its workforce. It plays an important part in creating the employment
opportunities. China being the most profitable market for big firms, it has opened its door for the
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world and encourages the other Western companies. The cited organization has signed the
agreement in 2009 for the development of shopping malls in Anshan and Fushun by setting
different series of joint ventures. The company's international business segment are estimated to
the profit for one quarter if hypermarkets are opened in the end of 2018 in China's market.
Economic forces also affects greatly to the company as it directly influence the buying
behaviour of its consumers as they focus more on the costs, demands and profits. Therefore, the
organization must be well known with the changes in taxation or any other factor that affect the
finance of the company (Zott and Amit, 2013). The company is fully dependent on the UK
market though its business is growing exponentially in the international market. The key reason
for the success of company are diversification and internationalization. The organization focuses
more on advertising its value products rather than luxurious items because of decline in
household and disposal income levels.
Tesco has increased the sale of non-food items due to different social changes. Another
reason is that the customers in UK focus more on bulk shopping and one-stop shopping which
creates an urgent need for the organization to increase the number of non-food items. Social
condition of the user shifted their beliefs and attitude towards different demands for purchasing
products. Also, the customers are now more aware of their health issues therefore, their demand
towards the nutritional food is changing constantly (Rothaermel, 2015).
Technological factor has brought various new offers to the Tesco. Customers
convenience and ease of accessibility is increased through the introduction and development of
online shopping and self service checkout points by the company which in turn reduces the
labour costs. Moreover, in order to reduce the carbon footprints and achievement of the long
term objectives, the company has invested on energy efficient projects.
Economic factors should be taken care by the company while making its products in
order to benefit the society. Tesco has taken measures for reducing the waste produced in their
stores by developing the social conscience in customers and also promised to minimize its
carbon footprint by 50% by the year 2020 (Theißen and Spinler, 2014). In addition, legislation
factor also influences the performance of the company. The company has to take care the
government policies and legislation for their well functioning. Food Legislation
Commission(RFC) has introduced the code of practice which has stopped many current policies
such as price changes without any prior notice and demanding payments from suppliers. To help
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the customers to adopt these policies, the firm charges low costs on the fuel so that the customer
can spend more amount on grocery store (PESTLE ANALYSIS FOR TESCO DISCUSSES ITS
BUSINESS ENVIRONMENT,2014).
4. Competitor analysis of Tesco
The main competitor of Tesco are ASDA, Sainsbury's and Morrison in UK. From the
survey, Sainsbury's current market share is 17% and it has got third position among the other
supermarkets in UK. While ASDA and Tesco have 17.7% and 29.7% overall market share.
ASDA works with larger supermarkets which sells clothing, furnishing along with groceries.
Tesco and Morrison have different characteristics in the grocery firm. From last 25 years, the
organization is the grocery market leader in UK because of appropriate consideration on
competitive factors (Amaldoss, Desai and Shin, 2015). It has acquired 28% market share with
3000 stores present in UK itself. In order to fulfil different demand like supermarket,
hypermarket, superstores and convenience stores, the organization deliver different grocery
services.
However, Morrison is currently a market follower rather leader because of its low market
share; therefore it is more vulnerable to Tesco and Sainsbury's. The highest price of Morrison
company was at 286.6p per share and lowest price was 248.6p in 2013 which gives threat to
Tesco. On the other hand, better figure sales is given by Sainsbury's in the festive season. As a
result, the positive impact on the investors is increased towards Sainsburys which is a
challenging situation for Tesco. Morrison has provided the less variety of shopping products and
hence the investors has invested very less to the shopping malls (Barney and Hesterly, 2015). In
addition, Morrison has not developed its online services to the people while Tesco gives the
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online services along with the facility of home delievery which is its great advantage. The firm is
half decade behind with Tesco and Sansbury.
Further, competitive analysis of Tesco can be done by Porter's five forces and through
this, its impact on strategic approaches can also be ascertained. The framework of the firm's five
forces is used to determine the impacts of external factors on the industry. The porter's five
forces analysis of Tesco are as follows:
 Threat of substitute products or services is not appropriate as Tesco's products have high
demand. A wide range of products and services and the substitutes of its products are sold
by supermarket. The high range of product development by the company helped its
customers to get different variety of the product (Bian, Li, and Guo, 2016). Hence, Tesco
has huge competition in the same industry.
 Low bargaining power of Tesco supplier has created dissatisfaction among the customers.
There are hundreds of suppliers of the company but not a single supplier is switching cost
for the supermarket chain. The firm is using its bargaining power to give late payments to
the supplier to enhance its operational profits. These poor supplier treatment has attracted
media coverage which is damaging the brand image. Therefore, strategic position of the
business gets impacted accordingly.
 Bargaining power of buyers has led to the prices down. Buyers will move to Sainsbury if
goods in Tesco are more expensive. The supermarket has adopted the disciplined
approach for price settings. Discipline approach prevents them destroying the profit war
among each other.
 Rivalry among the existing organization in supermarket chain is dangerous. Major factors
affecting the competitive companies in food and grocery retail industries are the amount
of advertising expenditure and differentiation of products and services.
 Tesco and Sansbury has created the barriers in the path of new entrants as the customers
find it difficult to afford the new expensive product of the company. Existing
supermarkets are imposing barriers on new supermarkets chain either implicitly or
explicitly. The major advantage of the company is its economy of sales. It purchases the
items with much lower cost than the amount it pays to its suppliers (Knapp and
Kronenberg, 2016). The company make it possible by purchasing the product in large
volumes. On the other hand, the small supermarket chain pays large amount of expenses
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for relatively small volume of goods. Hence, the customers have bad experience with the
company's product.
Figure 1. Tesco's Porter's Five Forces
(Dudovskiy, 2016)
5. Strategic issues and challenges faced by Tesco
There are several strategic issues which are faced by Tesco such as high competition
among customers, recession in economy, foreign branding of the company etc. The organization
has to survive in the competitive market to retain the business position in order to compete with
other organization. In non-food items it takes time to produce desired outcomes as it has to
introduce its range again and re-configure its space in big stores. Gaining customer's satisfaction
is a year long process though it uses more appealing branding and introduces new features like
restaurants and bakeries to the stores. Secondly, the company has to face the problems from its
competitors as they give various challenges to the company's existence. The industry has to work
hard for their survival in the market (Ahlvik and Pavlova, 2013). Lacking of clear management
strategy placed the question mark on the company about management's control of the business.
The strategic marketing problems of the company are as follows:
1. Perception of low quality of Tesco value brands: Low quality of organization brands
have severely affected the customer. As a result the customers are disillusioned with the
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service at the biggest retailer of the Britain. The brand of the product is tarnished and
hence the company has the lowest customer satisfaction metrics in the grocery firm
(Lewis, 2014).
2. Foreign brand: Tesco has expanded its services outside UK country. Promoting the new
brand in other countries requires lot of attention from the customers. As the company was
established newly in the market, it has to do hard work for promoting its product and
services among the people. It has to gain the trust, confidence and popularity from the
customer's to sell its new product.
3. Recession in economy: Due to economic recession of the Tesco, UK market has to face
bitter battle for price conscious customers (Hall, 2009). Growth rate of the industry
becomes half which is the worst figure in the past 15 years.
4. High competition among customers and resources: Competition among customers can
decrease the revenue of the company as the low level customers find it difficult to
purchase the expensive products. When two supermarkets sell the same product with
same price then it impacts directly to the business of the company. The easy availability
of the same product from the nearby supermarket will decrease the sale of Tesco's
product which will directly influence the company's revenue.
5. Unpredictability in the price of raw materials: The unpredictable increase in the price of
the raw materials has created the conflicts and disputes among the customers. The
organization's users are not able to afford the products of the company due to its high
rates (Hollebeek, Conduit and Brodie, 2016). The company is failed to achieve the
customer's satisfaction due to unpredictable increase in price of the products.
6. New and existing competition: The launching of new and better brand product which
gives high quality services with less price. This is the main competition which the
company is facing. The other thing which is major challenge to the company is the
competition from its collaborators which are trying to gain the customer's best
experience.
Tesco is little bit confused about its identity and management. Instead of lowering the
cost, price of the company needs to be more clear, predictable and transparent so that it can be
easier for the customer's predictions (Liang and Yu, 2015).
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RECOMMENDATION
It is recommended that the company has to follow the better strategic approaches in order
to achieve its long term goals and objectives. The company has to invest more on the customers
to support innovation growth and should adopt new strategies and approaches for economic
growth. Tesco should also develop dedicated program to help the customers to get easy access of
the products. Next recommendation is to implement new projects which helps in increasing the
capacity and performance of Tesco. The major recommendation is that the company has to adopt
strategic challenges and issues in order to learn the lesson from it which helps them to take better
decision for the welfare of itself and its customers (Hall, 2009). The company has to improve its
marketing strategies to achieve desired results which will help it in increasing its budget and
economic condition as well as customer satisfaction. It is also recommended that the company
has to create the new opportunities for its employees so that they can help in diversification of
the workplace.
CONCLUSION
From this report, it can be concluded that, strategic analysis of the Tesco help in
increasing the range of the product development and services. Its online services with the facility
of home delivery has made easy accessibility of the products to the customers. Internal and
external analysis of Tesco helped the company to know the external factors that are directly
affects the company. Pest analysis and porter's five forces provided the factors on which the
company has to give more attention in order to increase its reputation in the market. Strategic
issues mainly increases the competition among customers and economic recession has given the
idea to increase its performance. The company's outstanding performance and its high quality
services helped it in achieving the high revenue and customer's satisfaction.
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