Tesco Plc: A Comprehensive Analysis of its External and Internal Environment

This text is a report on Tesco Plc, a British multinational chain of general merchandise and grocery supplies. The report analyzes the external and internal environment of Tesco using various models such as PESTLE analysis, Porter's Five Forces analysis, VRIO analysis, Boston Matrix, and SWOT analysis. The report finds that political, economic, and social factors have had a moderate impact on the organization while legal and environmental factors have had a negative impact. The report also discusses Tesco's financial structure, business strategy, and the effectiveness of its strategies using the TOWS matrix and the SAFe model. The report concludes with recommendations for Tesco to focus on additional research.

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Executive Summary
In contemporary Business literature, Strategy has been defined as the major tool for replacing
the previous managerial activities of an organisation along with recent measures of
“administration” and “planification”. In addition, this strategic compliance within a business
organisation has therefore included relative measures regarding research and development
areas, technological advances, logistics and supply chain management, human resource
management and managerial approaches as well. Tesco Plc has been a reputed presence
within the British Multinational chain of general merchandise and grocery supplies. Within
the retail market of the UK, Tesco Plc has owned around 4,074 stores and developed a brand
value of 10.7 bn USD.
In order to analyse the external opportunities and threats, a PESTLE analysis has been
conducted. As for the external environment, it has been observed that political, economic and
social factors have left a moderate impact on the organisation. However, the legal and
environmental factors have laid a negative impact on the organisation. On the other hand, for
micro-external analysis, Porter’s Five force analysis has been conducted. This has helped to
analyse its position in the industry and identify the threats and opportunities for strategic
positioning. In addition, the vision and mission of the company has also added value to the
customers to gain advantage.
This report highlights the internal environment of “Tesco” which is important in maintaining
business growth in a highly competitive market. Analysis of the internal environment helps
organizations to find out their strength and weakness which is important for business success.
In the analysis of the internal environment “VRIO” analysis is done to analyze the valuable,
rare amenable and organised resources of the organizations that reflect on the business
performance. Financial structure of Tesco is considered as the most valuable resources of the
organization for their international expansion. Critique of “VRIO” analysis included in the
report.
“Boston Matrix” is adopted for the discussion of the company portfolio. Discussion about
the company portfolio is necessary to maintain business performance. It helps to identify the
strength and weaknesses of the company. Following the steps of “Boston Matrix” is
necessary to build a strong brand portfolio which is important to lead the organization in
proper direction. It also discussed about the four stage of the model which are Dogs, Cash
cow, Stars and Question mark. This report also highlights on the revenues and profits gained
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by the Tesco in recent years. It also discussed about the gross margin, net profits margin,
liquidity, cash flow, ROCE, and Gearing ratio.
The study, through SWOT analysis, highlights the organisations, strengths, opportunities,
threats and weaknesses. The SWOT is based on the models like PESTLE and Porter 5 forces;
hence, it aligns the determinants identified from those models. In addition to this, the study
through effective models like the Generic strategy of Porter and Ansoff Matrix highlights the
business strategy of the organisation. The main findings from the section include the
company's rapid expansion and competitive pricing. The report gathers that competitive
pricing has advantages and disadvantages for the organisation. Furthermore, the company
utilizes rapid expansion without proper research. Hence, these strategies both benefit and
challenge organisations.
In the concluding segment of the report, the report uses the TOWS matrix along with the
SAFe model to establish conclusions and recommendations. The matrix is necessary to focus
on the strategy's effectiveness. On the other hand, the SAFe model identifies the three major
factors that include suitability, acceptability and feasibility. Hence, the strategies are ranked
and scored. Lastly, the recommendations of the report are based on the suggestions that Tesco
requires to focus on additional research before expansions. Furthermore, rather than
launching existing products in new markets the company should focus on differentiation.
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Table of Contents
1. Introduction............................................................................................................................8
1.1. Aim and objectives..........................................................................................................8
1.2. Definition of Strategy......................................................................................................8
1.3. Background of the company............................................................................................8
1.4. Evaluation of the Industry...............................................................................................9
2. External Environment............................................................................................................9
2.1. Macro-Environment Analysis..........................................................................................9
2.1.1. A Brief overview of PESTLE Analysis...................................................................10
2.1.2. Impact of PESTLE Analysis on Company.............................................................10
2.1.3. Critical Analysis of External macro environment...................................................12
2.2. Micro-environment Analysis.........................................................................................12
2.2.1. A brief overview of Porter’s Five Forces................................................................13
2.2.2. Porter’s Five Force Analysis on Tesco....................................................................13
2.2.3. Critical Analysis from theoretical perspectives......................................................14
3. Internal Environment...........................................................................................................14
3.1. Vision, Mission, Values and Cultures............................................................................14
3.1.1. Critical Analysis of Tesco’s Vision, Mission and Values........................................14
3.1.2. Critical Evaluation of Tesco’s Culture and Leadership..........................................15
3.2 Resources and VRIO......................................................................................................15
3.2.1 Definition of VRIO..................................................................................................15
3.2.2 Application of VRIO................................................................................................15
3.2.3 Critique....................................................................................................................16
3.3 Portfolio analysis............................................................................................................17
3.3.1 Boston matrix...........................................................................................................17
3.3.2 Application of Boston matrix...................................................................................17
3.3.3 Critique....................................................................................................................18
3.4 Financial performance....................................................................................................18
3.4.1 Revenues..................................................................................................................18
3.4.2 Profits.......................................................................................................................19
3.4.3 Gross margin............................................................................................................19
3.4.4 Net margin...............................................................................................................19
3.4.5 ROSE.......................................................................................................................19
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3.4.6 Liquidity...................................................................................................................20
3.4.7 Gearing ratio............................................................................................................20
3.4.8 P/E ratio...................................................................................................................20
5. Strategic Options Analysis...................................................................................................22
5.1 Definition of Business Strategy......................................................................................22
5.1.1 Definition of Model.................................................................................................22
5.1.2 Application of Model...............................................................................................23
5.1.3 Critical Analysis.......................................................................................................24
5.2 Strategic Directions and methods...................................................................................24
5.2.1 Definition of Ansoff.................................................................................................24
5.2.2 Definition of Methods..............................................................................................25
5.2.3 Application of model...............................................................................................25
5.2.4 Critical Analysis.......................................................................................................26
6. Conclusion and Recommendations......................................................................................27
6.1 TOWS.............................................................................................................................27
6.1.1 Application of Tows.................................................................................................27
6.1.2 Critical Analysis.......................................................................................................28
6.2. Definition of SAFe........................................................................................................28
6.2.1 Application of Model...............................................................................................29
6.2.2 Critical Analysis.......................................................................................................29
6.3 Conclusion......................................................................................................................29
6.4 Recommendations..........................................................................................................30
6.5 Balanced Scorecard........................................................................................................30
References................................................................................................................................32
Appendices...............................................................................................................................37
Appendix 1) Company History............................................................................................37
Appendix 2) PESTLE Analysis............................................................................................37
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List of Figures
Figure 1: Revenues generated by Tesco from different countries..............................................9
Figure 2: Profits of Tesco Plc...................................................................................................10
Figure 3: Liquidity ratio...........................................................................................................11
Figure 4: Balanced Scorecard..................................................................................................21
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List of Tables
Table 1: PESTLE analysis of the UK.......................................................................................11
Table 2: Porter’s Five Force Analysis......................................................................................13
Table 3: VRIO analysis............................................................................................................15
Table 4: Boston Matrix.............................................................................................................16
Table 5: SWOT Analysis..........................................................................................................20
Table 6: Porter’s Generic Strategy...........................................................................................22
Table 7: Ansoff Matrix.............................................................................................................25
Table 8: TOWS model..............................................................................................................27
Table 9: SAFe model................................................................................................................28
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1. Introduction
1.1. Aim and objectives
The aim of this following report is to analyse the probable strategic management approach
available to Tesco Plc in association with a critical evaluation of the company’s strategic
evaluation based on its internal and external environment and develop future
recommendations for further improvement. Hence, the following report has focused on
mitigating the following objectives-
 To critically evaluate the micro and macro external environment of Tesco Plc to
analyse the threats and opportunities for business operation
 To critically analyse the internal environment of Tesco Plc to analyse their strength
and weakness
 To assess the present strategic directions applied to the company in relation to its
external and environmental factors and their impact on the organisation
 To develop probable recommendations for a further improvement in business
operation and strategic direction of Tesco Plc
1.2. Definition of Strategy
As per the observations of Fuertes et al. (2020), strategy in business has been defined as the
detailed explanation of the “long-term goals and objectives of a company” along with its
adoption of measures and resource allocation in order to attain that objectives and measures.
On the contrary, as per the findings of Taouab and Issor (2019), Business strategy has also
been defined as a tool to provide alignment between the key challenges in both financial and
non-financial implementations.
Hence, based on the above academic definitions and interpretations regarding business
strategy, it can be stated that it includes the development of a clear set of goals, plans and
actions that help the business leaders to determine the direction of operation within a specific
market or an industry.
1.3. Background of the company
Tesco Plc, the leading Multinational retailer has its headquarters based in Hertfordshire, UK
and currently has been operating with more than 345,000 employees (tescoplc, 2022). The
company has been established in 1919 and has been operating with a wide range of products
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including clothes, furniture, grocery, toys, petrol, clothing, books, software, telecom and
internet services and electronics as well.
The company has also gained statutory revenue of around 61.3 billion Pounds in 2021 with
an increase of 6.0% (tescoplc, 2022). In addition, the operating profit of the company has also
amounted to around £2,560 million in 2021 with a rise of 65.5% (tescoplc, 2022). The key
growth period of Tesco sales has been observed since April 2019 (Statista, 2022). As per the
records, the boost in Tesco sales has increased the organisational growth ratio of the company
by 7.2% [Refer to Appendix 1]
1.4. Evaluation of the Industry
Tesco Plc has been associated with the Retail Sector. As observed from the statistics, the UK
retail sector holds an annual sales percentage of around 7.8% with total sales of 465.25
billion pounds (Statista, 2022). In addition, the sector has also held a 7.2% rise in growth in
the post-pandemic era (ons.gov, 2022). Among this huge industry, Tesco PLc has achieved
the leading position with a total market share of 27.3% within the retail sector (Statista,
2022).
2. External Environment
In business, the external environment refers to the events and the conditions outside the
organisation that may significantly affect its ways of operation along with its goals. This
external environment of business has been divided into two distinct categories including the
Macro factors and the micro factors. These macro-externals factors that may influence the
opportunity and risks within its internal operation have included sectors such as political,
economic, social, technological, environmental and legal. These factors effectively influence
organisational goals, though cannot be controlled directly. On the other hand, the mico-
external factors have included the organisations as well as the people directly or indirectly
associated with the business.
2.1. Macro-Environment Analysis
In business, Macro-environment refers to the set of factors that is prevalent in the entire
industry or particular sector. This set of external situations has therefore included the
economic, social, technological, legal, political or environmental aspects of the respective
nation. Hence, the major elements of analysing the external macro environment have been the
national GDP, rate of inflation within the country, fiscal and monetary policy, rate of
education, population, legal obligations along with regulations. As per the observations of
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Johnson et al. (2008), these macro-environmental factors of business have a significant
influence over the micro-elements of the business environment. Hence, in order to analyse
these macro-elements within the external environment, various theoretical models and
frameworks have been established. Among these frameworks, PEST, PESTLE, SCEPTICAL
or SPECTACLE has been highly impactful.
2.1.1. A Brief overview of PESTLE Analysis
Among all the tools and frameworks available for analysing the external macro-
environmental factors of the business, PESTLE Analysis has been considered the most
effective. The term “PESTLE” has stood as an acronym for “Political aspects”, “Economic
aspects”, “Social Aspects”, “Technological Aspects”, “Legal aspects” and the “Environmental
aspects”. Most of the critics in existing business literature have considered PESTLE analysis
an extension of “PEST Analysis”. As per the findings of Campbell et al. (2011), the legal
aspects within the external environment including the regulations can also be considered
within the prevalent political factors. However, Johnson et al. (2008), along with their
business environment model have considered these to be distinct in order to include more
precision within the analysis.
2.1.2. Impact of PESTLE Analysis on Company
Factors Description Impact
P- Political  “Democratic and constitutional monarchy” within the
country
 Stable Political condition
 New requirements within FDI policies as per the
enactment of the NSI act
 A permanent seat within the UN has provided a strong
influence over global politics as well as economy
 A strong ally with powerful nations such as the USA
 The Brexit issue has posed a major challenge in the
process of supply chain management
 As of records, the country has faced around 62
incidents of terrorist attacks in 2020
Positive
E- Economic  In 2021, UK has generated the total GDP of 2.2 trillion Moderate
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British pounds rising from 2.04 billion pounds of 2020
(Statista, 2022)
 The UK retail sector has made a considerable
contribution of 5.2% to the total of the national GDP in
the country Sector to national GDP
 Rate of Inflation-9.1% (npr, 2022)
 Exchange rates- 1 GBP=1.1689 USD
 Labour market- Employment rate in the labour market
has increased to 75.9% from 74.8% in 2021 (Statista,
2022)
 25% Availability of credit (Statista, 2022)
 A standard 20% tax rate in the UK retail sector (gov,
2022)
 Rate of interests has amounted to around 1.25%
S- Social  Minimum wages of £9.5 per hour (acas, 2022)
 63.67% of the total population come under the age
group of 15 to 64 years (Statista, 2022)
 High multicultural country with a traditional approach
to lifestyle
 573,000 people immigrated to UK and 334,000
emigrated in 2021 (Statista, 2022)
Positive
T-
Technological
 Between 2021 to 2025, the UK media is supposed to
exhibit a total growth of 5.4% (Statista, 2022)
 Social Media penetration has amounted around 94.9%
(Statista, 2022)
 33% increase in R&D investment (gov, 2022)
 77% UK retailers have adopted active AI
implementation (Statista, 2019)
Positive
L- Legal  Strict implementation of the British Monopoly Act
1948
 Competition Act 1988, Chapter I and II have strictly
banned anti-competitive practices in business
Negative
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environment (trade.gov, 2022)
 Foreign Trade Policy in the UK provides no investment
or Trade barriers in terms of capital investment or profit
repatriation (trade.gov, 2022)
 Employment procedure strictly abides by the
Employment Rights Act 1996 including fair dsismissal,
paternity and maternity leave, redundancy and
minimum wage protocol (trade.gov, 2022)
E-
Environmental
 1.14 million metric ton plastic is recycled every year
within the UK (Statista, 2021)
 Carbon Footprint in the UK has amounted to around
400 million metric tons (Statista, 2021)
Moderate
Table 1: PESTLE analysis of the UK
2.1.3. Critical Analysis of External macro environment
As observed from the above analysis, it can be observed that the external micro-elements
may pose both threats and advantages to the operation of Tesco Plc. As for the political
factors, the stable government along with an attractive FDI policy has posed a positive impact
on the operation of Tesco. However, on the other hand, the Brexit issue along with repeated
terrorist attacks may create constraints on its operation. Hence, the political aspects of the
nation have left a moderate impact on the country.
On the contrary, the economic condition of the nation along with stable GDP increased
employment in the labour market and satisfactory rate of interest has created a positive
impact on the company. However, based an increased rate of inflation and a sheer 20% VAT
on the retail industry have impacted the overall contribution of the retail industry. As a result,
the contribution of the retail industry to the national GDP has decreased from 9.5% to 5.4%
in 2021. Similarly, the increased influence of social media and the popularity of AI with
increased R&D investment have provided Tesco with an advantage to ensure its growth.
However, the strict implementation of the Competition Act 1988 and Employment Rights Act
1996 may create adversities in gaining profit. The prevalence of youth section in the national
population has also laid a positive impact on business.
2.2. Micro-environment Analysis
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The Micro-external environment on the contrary has focused upon the immediate areas of
business operation including decision-making and performance. As a result, the major micro-
elements of the external environment have included suppliers, consumers, customers,
employees, shareholders and retailers.
2.2.1. A brief overview of Porter’s Five Forces
In order to analyse the micro-external environment business, Porter’s Five Force Model has
been highly effective. This particular model helps to analyse the extent of competition and
rivalry within the industry. In addition, the following model has also been equally important
for analysing the threats and opportunities within the environment in terms of new entrants or
the bargaining power of both suppliers and the customers. As a result, this model has been
crucial to analyse the attractiveness of the industry. However, the following model has lacked
enough emphasis on the consideration of business strategies and technological factors.
2.2.2. Porter’s Five Force Analysis on Tesco
Forces Analysis Impact
Threat of
Substitutes
Threat of substitution for Tesco Plc is quite high as the
company has strong competitors within the market, including
Asda plc. Or Sainsbury.
High
Threat of New
Entrants
Threat of new entrants within the market for Tesco has been
quite lesser as it has held a huge share within the market. As
per records, Tesco has held a market share of around
27% within the UK retail sector.
Low
Bargaining Power
of the consumers
With too many competitors in the market, the bargaining
power of the customers has been moderate within the UK
retail sector.
Moderate
Bargaining power
of the Suppliers
The bargaining power of the suppliers has been relatively
lower.
Low
Competitive
Rivalry
Competitive rivalry for Tesco in this retail industry has been
quite high. The oligopolistic nature of the UK retail market
along with strong competitors such as Asda, and Sainsbury
has created a tough environment.
High
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Table 2: Porter’s Five Force Analysis
2.2.3. Critical Analysis from theoretical perspectives
The threat of substitutes for Tesco Plc has been quite high as the company has faced sheer
competition from its rivals such as Asda Plc or Sainsbury. As per the records, Tesco Plc has a
total asset of 10.807 billion pounds. On the other hand, for Asda Plc, total assets have been
around 7.1 billion. On the contrary, the total; assets of Sainsbury have been 6.7 billion GBP.
Thus, the threat of substitution has been high. On the other hand, the threat of new entrants
for Tesco has been relatively lower as it has included a 27% share within the market. Tesco
has faced tough competition within the UK retail sector.
As per records, there have been around 300,000 business organisations associated with UK
retail. In addition, big retailers with lucrative product range such as Asda ore Sainsbury has
created tough competition. As for the customer’s bargaining power, it has been moderate with
increased competition. However, the best quality has helped to keep their power moderate.
With incredible CSR policies, Tesco has been able to maintain a good relationship with its
5000 buyers. [Refer to Appendix 2]
3. Internal Environment
3.1. Vision, Mission, Values and Cultures
The vision of Tesco Plc has been to increase the scope of its business in order to deliver their
consumers stronger and sustainable products in order to enable a long-term relationship with
their customers. In addition, their vision has also included expanding their existing customer
base within both national and domestic markets (tescoplc, 2022). On the contrary, the
mission of Tesco Plc has been to include value for their consumers through their products and
services so that further loyalty can be enhanced for the customers.
Similar to the vision and mission statement, Tesco Plc has gain paid its primary focus on its
customers while developing its core values. As per the core values of the company, Tesco has
focused on understanding the requirements of their customers and analysing measures for
putting them to practice. On the contrary, working as a team, and trusting each other with an
enhanced execution of respect has also fallen under the core values of Tesco Plc.
3.1.1. Critical Analysis of Tesco’s Vision, Mission and Values
Based on the above discussion, it can be stated that the business principles of Tesco Plc have
majorly focused on the consumers. This approach of the organisation has been majorly
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beneficial as it has helped to retain their customer loyalty within the highly competitive
environment. In addition, their vision and mission statement including the consumers have
also helped them to increase their reputation within the market as a consumer-friendly brand.
3.1.2. Critical Evaluation of Tesco’s Culture and Leadership
In order to operate with their management, Tesco has adopted a democratic style of
leadership that has allowed Tesco to provide equal importance to both employees’ concerns
as well as organisational needs. In addition, this leadership approach has helped to inspire the
employees to increase their efforts to the maximum level.
3.2 Resources and VRIO
3.2.1 Definition of VRIO
“VRIO” analysis is one of the most important frameworks that help a business organization
identify their resources that can help them to take competitive advantage of the market.
“Tesco” requires the use of the “VRIO framework” for internal analysis of their organization
to identify their strength. “VRIO” theoretical approach can help organizations identify their
capacity and resources, which help to go ahead of time (Miethlich and Oldenburg, 2019). It
consists of four factors, which are Valuable, Rare, Initimatable, and Organized. It helps
identify the business challenges that resist them from business success.
3.2.2 Application of VRIO
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Valuable Rare Initimatable Organized
“Long-term
competitive
advantage” Yes
Yes Yes Yes
“Temporary
competitive
advantage”
Yes Yes Yes No
“Competitive
priority”
Yes Yes No
“Competitive
disadvantage”
Yes No
Table 3: VRIO analysis
Analysis
“Tesco” focuses more on taking long-term competitive advantage from the market. Local
food products and food recipes delivered by the organization to their customers are important
valuable resources that can help them to take long-term competitive advantage. The
organization builds a highly skilled workforce, which is beneficial for the organization to
achieve its long-term and short-term goal. “Distribution network of Tesco” is another
important valuable resource that is considered their competitive priority to fulfill the demands
of the market (Murcia et al. 2022). Growing numbers of a retail chain in the UK becomes
valuable competitive disadvantages in their business.
“Strong financial structure of Tesco” is a rare resource that can help to take competitive
advantage of the market. In the “VRIO” analysis of “Tesco”, local food is not considered a
rare resource of the organization. Employees of the organization are considered rare resources
because they are highly skilled and well trained. The strong financial structure of the
company is considered as imitable resources because the company gained prolonged profits
over the years. It can help them in long-term competitive advantage though it is not
considered a competitive priority. The organization provides a better work environment,
which is an important organizational resource.
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3.2.3 Critique
VRIO analysis helps organizations identify their competitive disadvantage, which becomes a
major threat to the business. “Increasing in debt” with a growing network across the world is
one of the major barriers to business growth. According to the view of Ariyani and Daryanto
(2018), the financial structure of the retail chain is one of the most important resources that
help to expand business globally. Patents of products and services delivered by Tesco to their
customers are not well organized which creates complexity in business operations.
3.3 Portfolio analysis
3.3.1 Boston matrix
“Boston Matrix” is an appropriate model for analyzing organizational Portfolios. It is one of
the most important tools used for business and marketing strategy. Analyzing the brand
portfolio becomes crucial for “Tesco Plc” to identify the market segment whose demands can
be fulfilled with the capacity of the organization. No organization can fulfill all requirements
or demands of the market. In this scenario, they have to make a portfolio for targeting
potential customers.
3.3.2 Application of Boston matrix
Star
● High market growth
● High market share
Question mark
● To suggest an organization to reduce
the debt
● To convert the business into a Cash
cow
Cash Flow
● Cash generating
● High market share
Dog
● Cash neutral
● Requirement of Disinvestment
Table 4: Boston Matrix
Analysis
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“Tesco” needs huge disinvestment to decrease their debt with the growing expansion in
different countries. It is one of the most important factors to meet business success. More
disinvestment saves them from growing business debt, which may be a threat to their survival
in the retail industry (Ariwibowo et al. 2021). It helps to maintain their strong financial
structure, which is important for business growth and expansion. With the application of this
matrix, organizations can identify their products and services, which have less influence on
customers. “Dogs” of the matrix have identified the products, which are unattractive and
affect the reputation of the company.
“Cash cow” is considered the low-growth product of “Tesco” which has a low market share.
It can help the organization to earn more profits from their low-cost products, which are more
popular with customers. These kinds of products help to generate continuous profits in the
business. “Stars” are those products that have high growth and at the same time high market
share (Luo et al. 2021). High-growth products with high market share are necessary to
generate more profits.
3.3.3 Critique
“Boston matrix” is beneficial for the business to identify the areas that can provide growth
opportunities for the organization. As per the opinion of Zhang et al. (2021), in strategic
management of business products, “Life-cycle matrix” is important to deal with the criticism
of the “BCG matrix”. The five stages of the lifecycle of products are “product development,
introducing the product to market, growth, maturity, and decline”.
3.4 Financial performance
3.4.1 Revenues
In the 2021/22 financial year, “Tesco” generated revenues of 56.4 billion pounds, which
encouraged the organization to expand its business in different countries. Most of their
revenues come from the UK market because of their strong market share in the country’s
retail industry. They maintain the position of rank one in grocery market share in the UK.
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Figure 1: Revenues generated by Tesco from different countries
(Source: Zhang et al. 2021)
3.4.2 Profits
In the year of 2020, gross profit margin of Tesco is 7.07% and which decreases in 2021 and
becomes 6.85%. The turnover rate decreased from 64760 to 57887 between 2020 to 2021.
Gross profits of the organization per million pounds are 4580 in 2020 and 3965 in 2021.
Figure 2: Profits of Tesco Plc
(Source: MS-excel)
3.4.3 Gross margin
The gross margin of any products or services is calculated by subtracting all expenses (cost of
goods and direct expenses) from the net sales. In the case of “Tesco Plc”, gross profit margin
is 4580 per million pounds. Gross profit margin is calculated as the Gross profits divided by
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turnover and then multiple 100 with the result (PHAM et al. 2018). Turnover is called the net
sales of the organization in any particular market.
3.4.4 Net margin
The net profit margin of Tesco in 2020 is 1.50% and 10.62% in 2021. The net profit of the
organization is calculated by dividing the net profits by turnover and multiplying 100 with the
result. Net profits margin indicates how much net income or profits are gained by the
organization from their retail business.
3.4.5 ROSE
The “Return on capital employed (ROCE)” is the ratio that helps the organization to know
the profits gained from any particular capital investment (Mallick et al. 2020). It is one of the
most appropriate matrices used to measure the business operating profits.
3.4.6 Liquidity
In calculating liquidity, ratio Decisive Test ratio and Cash ratio are calculated. Current assets
are divided by the current liabilities for calculating the acid test ratio. ATR of Tesco in 2020 is
0.60 and in 2021 is 0.65. The cash ratio of Tesco is 0.19 in 2020 and 0.16 in 2021.
Figure 3: Liquidity ratio
(Source: MS-excel)
3.4.7 Gearing ratio
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The gearing ratio is also called the debt-equity ratio, which is calculated for business
performance. The debt to equity ratio of Tesco in 2021 is 2.71.
3.4.8 P/E ratio
It is calculated to know the profit against the capital per pound.
4. SWOT
Definition
The term SWOT defines “Strengths”, “Weaknesses”, “Opportunities” and “Threats”; hence
SWOT analysis is involved in assessing these particular four elements in business. This tool
is essential for devising a business strategy. It effectively uncovers blind spots and reveals the
major threats.
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Strength ● Biggest retailer in the UK- In the year 2021, the annual revenue
of the company is 57.8 Billion GBP.
● Market Share- the Company’s top position helps it dominate the
retail market with 27.9% of shares.
Weakness ● Operation Failure- Tesco had to exit the Japanese and American
markets as it failed to operate in these two countries.
● Poor performance in a few markets- Due to Tesco's rapid
expansion strategy the country failed to perform efficiently in a
few markets (Guo and Wang, 2019).
Opportunities ● Strategic Alliances- Strategic partnerships with reputable
organisations increase opportunities for Tesco.
● Emerging Markets- Even though Tesco's rapid expansion
strategy sabotaged a few markets; however, it provides profitable
markets as well.
Threat ● Brexit- Brexit has a massive impact on the UK’s economy; it has
raised costs and complicated legal matters.
● Supply Chain Issues- Pandemic and Brexit have a major impact
on the organisation's supply chain (Benzaghta et al. 2021). With
demand steadily rising, the company is unable to gather supplies.
Table 5: SWOT Analysis
(Source: Self-Developed)
Based on the internal and external analysis of the company, it is essential to mention that the
major threats to the company lie in its political and legal aspects. As the table explains due to
Brexit and Covid-19, the company is facing supply chain issues. On the other hand, the
strengths of the company are in competencies and resources (Islami et al. 2020). The brand
reputation along with its market position lifts the company from its competitors. The study
22

identifies that its expansion strategy is quite abrupt and slacks research; hence, it creates
challenges for the organisation.
5. Strategic Options Analysis
5.1 Definition of Business Strategy
It describes the course of action of the precise plans the organisation develops to achieve
objectives and goals. It is also known as the master plan organisation's management
implementation to ensure the market position and gain a competitive advantage (Krummel,
2022). Business strategy also contains clear directions reading business operations and
customer service. Through the business strategy, the organisation usually meets the desired
objectives including attracting performance and enhancing performance.
5.1.1 Definition of Model
The study intends to focus on “Porter’s Generic Strategy”. The generic strategy focuses on
the firm’s position in the industry. It is essential to understand an organisation can possess
two major competitive positions in the market that includes differentiation and low cost
(Cleberg, 2019). Hence, based on that the theory highlights the three significant strategies:
Cost Leadership: In this particular strategy, the organisation intends to become a “low-cost
producer” in the industry. The strategy is dependent on the market structure and it shows
dependency on factors like raw materials access, and proprietary technology
Differentiation: In this strategy, the focus of the organisation is on uniqueness. The
organisation develops differentiation strategies by focusing on two aspects, mainly consumer
demand and market review (Kalogiannidis and Mavratzas, 2020). Through this knowledge,
the organisations aim to develop a product that is unique and not present in the current
market.
Focus: The focus strategy emphasises the narrow competition in the industry. The
organisation using this strategy selects a segment within the market and tailors the strategy
according to it. It is necessary to mention that this strategy has two divisions: “Cost Focus”
and “Differentiation Focus”.
23

The organisation utilising “cost focus” strives for cost advantage in the chosen segment of
the industry. On the other hand, organisations utilising “differentiation focus” strives for
uniqueness in the specific market.
5.1.2 Application of Model
Cost Leadership Tesco has a cost leadership strategy; as the organisation lowers the
prices.
Differentiation Tesco uses differentiation in customer experience. It simplifies online
deliveries and orders for customers.
Cost Focus Tesco’s market segment is quite broad and it intends to focus on the
retail industry; hence, this strategy does not apply.
Differentiation
Focus
Tesco’s broad market segment leads the company to not limit itself to a
specific market.
Table 6: Porter’s Generic Strategy
(Source: Self-Developed)
Based on the model application of the organisation, the study identifies that Tesco’s strategic
choices are a combination of both “cost leadership” and “differentiation strategy”. The
study gathers that the prices of Tesco products are quite affordable in comparison to its
competitors. Furthermore, the company’s use of differentiation strategy is unique as it aims to
differentiate its customer experience and service (Soltani-Fesaghandis and Pooya, 2018). It is
essential to understand that Tesco’s brand reputation is quite dependent on the services it
provides. The company simplifies online services such as services and deliveries. It is
necessary to point out that Tesco utilises a similar strategy while marketing entry and
expansion; however, this strategy is appropriate for its domestic market. Hence the
organisation’s lack of research in the international market leads to failure.
5.1.3 Critical Analysis
Based on the review, the study gathers that the above theory stresses that businesses should
utilise one of the generic strategies from the above. Furthermore, arguments are present that
24

mention that strategies are “inherently incompatible”. The report analyses the use of two
different strategies by Tesco; especially the combination of the “cost leadership” and
“differentiation strategy”. The theory explains that organisations focusing on cost are unable
to focus on differentiation due to discrepancies in resources (Sukma et al. 2019). However,
Tesco is one of the contradictions to the theory; as it clearly combines two theories to form a
legit strategy.
In addition another limitation the study identifies in this model involves a lack of particularity
in the strategies. Despite being called generic, the strategies are vastly rigid; it makes them
irrelevant in real situations. It is essential to mention that “Bowman’s strategy clock” is
developed to critique the theory of Porter’s. The strategy clock highlights the hybrid
strategies that include combining two different strategies (Aiello et al. 2020). Tesco’s
strategies are a clear definition that contrasts the implications of the theory. The organisation
rather than differentiating the products focuses on differentiating the service. It is essential to
understand that apart from product quality, customer service is also one of the segments that
define a company’s position in the market.
5.2 Strategic Directions and methods
Strategic direction signifies the plan that the organisation implements to progress and achieve
its vision. It ensures communication between management and employees and enhances the
performance of the business. Strategic directions influence the organisation’s planning and
decisions.
5.2.1 Definition of Ansoff
Ansoff matrix is a framework that organisations use to analyse the growth opportunities in
the market. In addition, stakeholders use this strategy to evaluate the risks associated with
different strategies. The matrix is divided into two major segments that include products and
markets. It is essential to mention that the matrix evaluates the growth strategies in both new
markets and products and existing markets and products.
5.2.2 Definition of Methods
The matrix has four major divisions and it includes
25

Market Penetration: This strategy contains minimum risks; furthermore while applying this
strategy the organisation sells existing products in familiar markets (Cleberg, 2019). The
objectives of the strategy mainly include increasing marketing, decreasing prices and
acquiring competitors.
Market Development: The strategy also contains minimum risks as it does not involve
investment or focus on R&D. The focus of the strategy is to promote existing products in new
markets. The other rules of the strategy include catering to a different demographic, regional
expansion and internal expansion.
Product Development: This particular strategy is effective for organisations that intend to
focus on a particular market or audience (Kalogiannidis and Mavratzas, 2020). The objectives
of the strategy include investment in product development or R&D, acquiring rights for sale
and purchase, and creating products that are unique in the market.
Diversification: This strategy contains the highest risk out of all. However, despite the risk,
the effective implementation of the strategy results in major rewards. It reduces an
organisation's dependency on a particular market or a single product (Pérez-Mesa et al.
2021). There are divisions in the strategy that involves “related diversification”and
“unrelated diversification”.
5.2.3 Application of model
26

Market penetration The “market penetration strategy” of Tesco involves advertisements,
changing and competitive pricing. In addition, to increase revenue the
company arranges frequent sales and discounts.
Market Development The market development strategy of the company involves selling
existing products in the new market. The organisation’s rapid
expansion is based on this particular strategy.
Product Development Tesco uses this strategy quite carefully. Hence the introduction of new
products in the market is down after thorough analysis. The company
diversified its market by introducing electronics and bank loans.
Diversification Despite the risk, the study identifies Tesco has used this strategy to
diversify and expand. In the beginning, the company diversified by
expanding to non-food items such as home ware products. Later it
branched out to banking services and electronics.
Table 7: Ansoff Matrix
(Source: Self-developed)
Based on the overall analysis, the study can mention that Tesco focuses on diversification,
market development and penetration. However, the report discovered limited use of product
development strategies by the organisation. The study briefs earlier that Tesco develops
products after careful consideration; hence, it follows customer preference. Recently,
environment-friendly and green products are highly preferable; Tesco's focus on
sustainability has immensely increased. Through the application of the model, the study can
mention that Tesco follows a rapid expansion strategy (Kusi-Sarpong et al. 2022). The
company penetrates the market with its existing product; hence it has seen several failures as
well. One of the major strategic weaknesses of the organisation is that it fails to properly
research the market before entering. Contrastingly, advantages include the company's
diversification strategy. Despite the risk, the organisation broadens its scope and enters
different markets expertly.
5.2.4 Critical Analysis
27

The strategic frameworks like others contain flaws and limitations that the study intends to
highlight. Foremost, the framework is quite simple; hence, it fails to capture major details
like competitors or market position. The framework fails to emphasise the role of competitors
in different markets. Furthermore, while measuring the risks, it fails to highlight the rewards
at the same time for every factor (Guo and Wang, 2019). Applying the model to Tesco’s
strategies, the study identifies that the theory is ineffective to describe the rewards of each
strategy appropriately. The lack of stress on competitors leads to failure in analysing Tesco’s
position in the different markets as well. It is essential to mention that penetrating the new
markets with existing products before analysing competitors is not an effective method.
The study identifies that the model does not present an analysis of the “cost-best” for each
strategy. While choosing an effective strategy, the organisation remains in confusion
regarding the benefit of each strategy. The theory highlights the risks and the methods;
however, it lacks the benefits of comparison in each strategy.
6. Conclusion and Recommendations
6.1 TOWS
The purpose of the TOWS matrix is to increase the advantage in external opportunities and
reduce threats. TOWS symbolises “Threats, Opportunities, Weakness and Strength”; the
analysis helps the organisation to build strategies based on external and internal arenas.
6.1.1 Application of Tows
Strength Weakness
Opportunity
● Reduction in
taxes provides a
competitive
advantage.
(SO)
● The organisation is the
largest in the retail sector
of the UK
● Sales of organic food and
sustainable products are
steadily increasing.
(WO)
● The organisation is
struggling with massive
debts of 22 billion
GBP.
● Declining sales can be
reversed by increasing
28

organic food.
Threats
● Group profit of
the organisation
decreased by 1.4
billion GBP.
(ST)
● Tesco’s competitive
pricing
● Tesco’s online marketing
(WT)
● Tesco’s negative brand
reputation due to
scandals.
● Radio market
expansion
Table 8: TOWS model
(Source: Self-Developed)
Based on the analysis, it is essential to mention that Tesco’s strengths and opportunities lie in
market share and customer service. On the other hand, the weaknesses that can turn into
opportunities include reducing a company's massive debt and increasing sales of organic and
sustainable products (Islami et al. 2020). Similarly, threats that can turn into strengths include
a company's competitive pricing. Usually, this pricing strategy results in loss; however, Tesco
can utilise it to gain an advantage. The threats and weaknesses include its impact on the brand
image during scandals and rapid expansion strategy. This resulted in Tesco retreating from
major international markets.
6.1.2 Critical Analysis
The matrix is effective in brainstorming strategic ideas for reorganisation or selecting a
preferable strategy. However, it contains a few limitations that hamper the strategy selection
process. The TOWS matrix is extremely unmanageable if there is too much information in
SWOT. Furthermore, the matrix does not highlight strategic advantages through the analysis.
6.2. Definition of SAFe
This model focuses on formulating an ideal business strategy. The model has three segments
“Suitability, Acceptability and Feasibility”. Suitability defines whether the strategy is
capable of achieving the objectives of the organisation; Acceptability focuses on measuring
the return, risk and stakeholder value from the specific strategy (Benzaghta et al. 2021).
29

Lastly, Feasibility defines whether the business has sufficient resources and abilities to
implement the specific strategy.
6.2.1 Application of Model
Strategies Suitability Acceptability Feasibility Total grade
Competitive Pricing 3 3 4 10
Rapid Expansion 2 2 3 7
Diversification 4 3 4 11
Table 9: SAFe model
(Source: Self-Developed)
Through the analysis, the research identifies a few strategies the company utilises frequently
and that include diversification, rapid expansion and competitive pricing. Hence, based on the
semantics of the strategy the scores are determined. The competitive pricing is suitable,
acceptable and feasible for the organisation and so is diversification. However, rapid
expansion despite being frequently utilised creates obstacles rather than benefits Tesco.
6.2.2 Critical Analysis
The major limitation of the model is its accuracy. The model intended to predict the
efficiency of the strategy; however, in a few scenarios, it fails to do so. Tesco’s rapid
expansion strategy creates problems for the company; however, it also increases the scope to
identify profitable markets. Hence, despite the low score, the tragedy in some ways was
effective.
6.3 Conclusion
In conclusion, Tesco despite a few challenges in strategic management is leading the retail
industry in the United Kingdom. However, this study is significant as it determines the
factors that are increasing challenges for the organisation. The paper identifies the major
30

strategy that makes the organisation different from its competitors including its “low-cost
strategy”, and “rapid business expansion”.
6.4 Recommendations
● Tesco should focus on international expansion strategies; hence, include additional
research.
● The company should increase investment in product development and R&D; it will
help the organisation enhance its differentiation strategy.
● The company requires additional research on the customer base of the international
market.
● The company’s strategic partnership will help the organisation reduce debts.
6.5 Balanced Scorecard
Figure 4: Balanced Scorecard
(Source: Monte, 2021)
The organisation's competitive pricing and diversification helps the organisation to enter the
international market and maintain its position in the domestic circle (Pérez-Mesa et al. 2021).
31

In addition, the research identifies that its high-quality customer service boosts the brand
reputation of the company. The company’s strategic partnership helps the organisation reduce
debts.
32

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Appendices
Appendix 1) Company History
Name: Tesco PLc
Established: 1919
Headquarters:Hertfordshire, UK
Employees: 345,000
Asset: 10.807 billion pounds
Revenue: 61.3 billion Pounds
Appendix 2) PESTLE Analysis
Factors Description Impact
P- Political  Low rate of corruption
 Attractive FDI policies
Positive
E- Economic  In 2021, UK has generated the total GDP of 2.2 trillion
British pounds rising from 2.04 billion ponds of 2020
(Statista, 2022)
 The UK retail sector has made a considerable
contribution of 5.2% to the total of the national GDP in
the country Sector to national GDP
 Rate of Inflation-9.1% (npr, 2022)
Moderate
S- Social  63.67% of the total population come under the age
group of 15 to 64 years (Statista, 2022)
 High multicultural country with a traditional approach
to lifestyle
Positive
T-
Technological
 33% increase in R&D investment (gov, 2022)
 77% UK retailers have adopted active AI
implementation (Statista, 2019)
Positive
L- Legal  Strict implementation of the British Monopoly Act
1948
 Competition Act 1988, Chapter I and II have strictly
banned anti-competitive practices in the business
environment (trade.gov, 2022)
Negative
E-
Environmental
 1.14 million metric ton plastic is recycled every year
within the UK (Statista, 2021)
 Carbon Footprint in the UK has amounted to around
400 million metric tons (Statista, 2021)
Moderate
38