Strategic Analysis of Tesco: PESTLE, SWOT, and Strategic Solutions

This report provides a comprehensive strategic analysis of Tesco, a leading multinational retail chain. It begins with an introduction to strategic analysis and its importance for business decision-making. The main body of the report analyzes Tesco's external environment using tools like PESTLE and Porter's Five Forces, examining the impact of political, economic, social, technological, environmental, and legal factors, as well as competitive threats. It then delves into Tesco's internal responses, including an overview of its operations, resource-based view, distinct capabilities, and a value chain analysis. The report further explores strategic solutions for Tesco, evaluates its current strategies, and concludes with a critical assessment of the company's overall approach. The analysis considers key competitors, industry life cycle stages, and the dynamics of the retail market, offering insights into Tesco's position and future prospects. The report uses tools like SWOT analysis to evaluate the internal strengths and weaknesses of Tesco and compare them with the external opportunities and threats.

STRATEGIC ANALYSIS

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1 Presenting key features of the external environment and their impact of Tesco
[1000].....................................................................................................................................3
Question 2 Presenting internal responses by organization Tesco..........................................7
SWOT Analysis....................................................................................................................10
Question 3 Explaining the appraisal of the strategic solutions which could be used by Tesco 12
Question 4 Presenting critical evaluation of the strategy of Tesco.....................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Strategic analysis can be defines as that process which involves researching the business
environment of a business within which it operates. For a company strategic analysis is of key
importance as this aids the management in formulation of strategic planning for the decision
making process and smooth working of the organisation. For the present report a strategic
analysis of Tesco a retail supermarket chain is done. This is British multinational groceries and
general merchandise supermarket chain. The company operated in supermarket and
hypermarkets with other diversification of business as well. At present Tesco is internationality
operating in 11 countries and its main competitors includes, Aldi, Asda, Sainsbury, Lidl,
Morrison's and others.
To conduct the strategic analysis of Tesco different tools and theories are applied which
includes, Pestle, Swot, value chains, VRIN, industry life cycle, porter five force and other
models to determine the internal as well as ancestral factors that effect the operations and
activities Tesco to great extent. Also, in the report there is description over the strategic solution
which can be used by Tesco to maintain the competitiveness in the market under a cut throat
competition. With this critical evaluation of the corporate strategies of Tesco is done and the
approaches of integration are presented.
MAIN BODY
Question 1 Presenting key features of the external environment and their impact of Tesco
Current market and competitor analysis:
Tesco is one of the leading supermarket chain in UK which offers groceries and different
merchandise to consumers under one roof. At present, it has total of 6800 outlets in UK as well
as in global markets and it currently operates in 11 different nations of world. The key
competitors of Tesco are, ASDA, Sainsbury, Morrison, Aldi and Lidl. Among these the former
three along with Tesco are called big four in UK while the latter tow are German grocers who
have paved their path in UK market recent times.
PESTLE ANALYSIS:
Element Description
Political factors A variety of political factors impacts Tesco
which includes factors like changes in political
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parties. This factor majorly impacts Tesco
because it operates in many countries. So there
are many changes within the political structure
of the countries and with these changes
company is impacted (Zahari and Romli,
2018).
Economic factors These are factors relating to the economic
conditions of the country like changes in
interest rates, exchange rates and many other
policies. Like if Tesco is taking loan at 2 %
interest and government lowers the interest rate
to 1.5 % then company can take more money
as loan.
Social factors These are the factors relating to the societal
changes which can impact the working of the
company. This mainly includes changes in the
taste and preference and expectations of the
consumers relating to the products and
services. It is very important to pay attention to
the taste and preferences of the consumers.
This is because of the reason that consumers
are treated the king of the market. If consumers
are not happy then they will not buy the
products of the company and it will suffer loss.
So it is very essential to take into consideration
the needs of consumers.
Technological factors This is also another important factor to be
taken care. Technology is a very fast changing
concept. Every minute there is advancement in
technology which if not followed will be
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dangerous for the company. Tesco is good at
updating to the latest technologies because
technological advancement helps the company
in easing and simplifying its work which saves
time and money of the company and increases
profits. Ans if company do not pay attention to
the technological changes then the technology
used by company will become obsolete and
will be of no use.
Environmental factors This is also a major factor while analysing the
impact of macro environment on the company.
This is because of the reason that if company
ignores the environmental issues then it will
lose its popularity and goodwill in the market
(Gómez - Romero, Ruiz and Martín - Bautista,
2016). As the consumers will not favour the
company which does not pay attention to its
environment. Another reason for giving
importance to environmental factor is that
company gets all its resources from the
environment so it has to give something useful
back to the environment which it gives in form
of Corporate Social Responsibility.
Legal factors The legal factors include all the laws and rules
and regulations which the company has to
follow. Since the company works in many
countries so it needs to follow the laws of
different countries and if it does not follow
then it has to face many consequences. Also, is
there is change in a law of one country then the
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company has to abide by that law in that
country and if that law is not applicable in
another countries then they have to comply
with other laws which are applicable to that
particular country. So adhering to so many
laws is sometimes very confusing and
challenging (Widya Yudha and Tjahjono,
2019).
PORTER FIVE FORCE:
Threat of new entrance:
The threat of new entrance in the retail sector means to bring in innovation and doing
thing that can put Tesco under pressure which includes lower pricing strategy, reduction of cost
and offering new value proposition to consumers. Tesco have handle the situation very
effectively and this can be stated with the example of entrance of new German grocer in UK,
Aldi an Lidl. For this Tesco have launched a separated budgeted chain Jack's to compete with
them.
Threat of substitutes:
With a launch of new product to meet the demand of consumer in different ways the
profitability over all industry gets suffered. The threat of substitution of Tesco is not too high as
the company is service oriented rather bring just product oriented. The company offers goods
and services to its consumers by understanding their core needs and which increases switching
cost for consumer which makes is hard for them to with to a newer product.
Buyers and suppliers bargaining power:
The buyers often demand different things with change in time. The wish to buy the best
product of their in affordable prices. This power of the consumer put a pressure of Tesco as well
and effects its profitability in long run. The bargaining power of the consumer of Tesco Plc is
high and this lead to them to seek more bargaining power of increased discount and offers. But
the effect of high bargaining power is also mitigate or reduced by Tesco by buying Large
consumer base and with rapid improvement and innovation in products.
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All of the compactness under retail sector Purchase their raw materials form different
suppliers. With these suppliers have made dominant position can decrease the profits margins of
Tesco. The suppliers with more power in consumer service sector uses their negotiation powers
to get high prises form companies in retail sector. With a high barging power of the suppliers
there is cut down in profits margins of Tesco. For this Tesco have taken steps through building
effective supply chain with multiple suppliers, Tesco indulges in experimenting with product
design bushing distinct materials in order to cope with the situation when the prices of raw
materiel go high, company can shift to another.
Level of competitive rivalry between competitors:
With a higher level of competition among the competitor and existing players in an
industry and when it becomes intense it directly drove down the prices and reduces the overall
profitability of the industry. Tesco belong to retail industry which is very competitive one but it
do not get a toll on overall long term profitability of the organization. This can be explained with
introduction of Jacks store with newer product with affordable prices to maintain the level of
products with increase in competition.
Industry life cycle:
The industry life cycle of organisation defines the sales over time under an industry.
There are different classes of industry life cycle which starts from introduction, growth, maturity
and then decline. Tesco belongs to the retail industry of UK and now it has gone international as
well. At present time Tesco is at the growth stage of the retail industry's life cycle. This means
Company have passed the introduction stage and now it have set a brand image of its own and
no it have researched the growth stage where it is continuing to grow and spreading its wings
beyond the national boundaries in internals trade and commerce.
Question 2 Presenting internal responses by organization Tesco
Overview of operation of Tesco
The company was founded in 1919 by Jack Cohen which is a biggest retail chain majorly
in groceries and merchandising store. Tesco usually operates in more than 14 countries all over
the globe and serves a million of customers every day. The company generally has four different
types of store formats which are Metro, Extra, Superstore and Express and now it has also started
with online groceries store. The operations of Tesco in UK is the largest with 3400 stores and
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300,000 employees working there to provide better products and services to consumers (Tesco
PLC, 2019).
The activities which Tesco does really well:
Resource based view- this analysis helps the company in understanding and analysing the
strategic capabilities which leads the company to have competitive advantage. The resource
based view of Tesco involves tangible and intangible resources. The tangible resources include
all the financial and physical resources which company uses and which are visible to others
(Abushova, Burova and Suloeva, 2016). On the other hand intangible resources are those which
cannot be seen or touched like for example the brand image and goodwill of the company,
experience of company in international market.
Distinct capabilities of Tesco- the skill or core competency refers to as the skills at which the
company excels at and through which it can get competitive advantage. The core capability of
Tesco is the customer focused strategy which it uses and also another is the use of club cards
which it uses as reward schemes in order to understand the needs and preferences of consumers.
Value chain analysis: the value chain analysis is tool which divides different activities into
primary and support activities and analyse their contribution in creating value to the final
product.
Primary activities
Activities Description
Inbound logistics It is very difficult for company to manage
inbound logistics because it involves many
suppliers for its hundreds of product category.
Operations It includes both the products and services
provided by the company. Analyses of
operation is important for Tesco to improve its
productivity and maximizing efficiency.
Outbound logistics It includes activities involved while delivering
the products till the final consumers. It
involves activities like scheduling,
warehousing, material handling, order
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processing, delivering and transporting and
many others.
Marketing and sales In this stage Tesco will start marketing its
products and services in order to increase the
sales of the company (Guarnieri, e Silva and
Levino, 2016). For this it uses activities like
advertising, sales promotion, and many other
options.
Services It includes the pre- sale and post- sale services
which the company provides to its consumers.
In this competitive world it is very crucial to
provide after sale service to the consumers if
the company wants to retain the consumers for
long (Newburry, Deephouse and Gardberg,
2019).
Secondary activities
Elements Description
Firm infrastructure It involves the variety of activities like the
management of the company, its ability to
handle legal matters, accounting etc.
Human resource management This department of company deals with
evaluation of many aspects relating to HR like
recruiting, performance evaluation, rewarding
and other related factors (Lu, Shi and Huang,
2018).
Technology development It includes the technological advancement in
the production system so that the production
becomes easy.
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Procurement It is the stage which indicates a variety of ways
in which all the resources and raw materials are
procured. In order to optimize its inbound and
outbound logistics Tesco needs to consider its
procurement.
SWOT Analysis
It is an effective tool which helps in examining the strengths, weakness, opportunity and
threat of different company (Phadermrod, Crowder, and Wills, 2019). This helps company in
evaluating the various factors which helps in developing strategic plan.
Strengths: The major strength of the company is that it has one of the leading market
share in the company which helps in higher operational efficiency and productivity (Phadermrod,
Crowder, and Wills, 2019). Tesco plc. offers large number of products and services across the
world and relatively have good competitive position in the market which in turn results in higher
profit. It is a globally recognized brand which offers wide range of services with high quality
goods at an economical price. It also has good brand recognition and goodwill in the eyes of
customers.
Weakness: The major weakness of Tesco is that it has low cost strategy which results in
reduced profit margins (Bohari, Hin and Fuad, 2017). It also has poor operational performance
in the various specific market which results in lower operational performance and productivity of
the company. Another major weakness of the company is that Tesco failed its operations in
Japan and UK. Tesco plc is widely dependent on UK and Europe for its sales and has not spent
enough resources to explore the company in different developed countries.
Opportunity: Tesco plc. have strategic alliance to be build to various international and
developed markets in order to develop their market share and competitive position. There is a
wide range of significant opportunities to grow business online which results in higher market
share and selling products all across the globe. This helps in higher profitability and productivity.
There are various merging market where Tesco plc. has the capability to explore. There is also
an increase opportunity to expand their business in financial service industry (Bull and et.al.,
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2016). This further helps in enhancing the effectiveness of the market strategy. It also has an
opportunity to build a strategic alliance which results in further growth and expansion.
Threat: There are various economic recession which eventually leads to fall in the
demand of the company and it also adversely affect the operational efficiency of the business.
Impose of government regulations results in lower productivity which adversely affect the
smooth functioning of the business. Increase in the number of large number of competitors is a
major challenge and a threat to the company (Gürel, and Tat, 2017). Increase in number of
competitors who are offering similar products at a competitive price results in lower profitability
and market share.
VIRN analysis
VIRN (Valuable, Rare, Imitable and Non- Substitutable) analysis helps in analysing the
competitive position of the company which eventually helps in determining the various factors
which affect the operational performance of the company (Knott, 2015). It is a strategic alliance
tool as it helps in effectively understanding the resources of the company.
Valuable: Resources that bring value and aids to competitive advantage which helps in
smooth functioning and attainment of goals and objectives (Vargas-Hernández, and Garcia,
2019). It helps in determining that all the resources of the company are easily available.
Rare: this factor helps company in analysing the rare resources which are not readily
available to the competitors (Nemanich, 2019). This helps in maintaining a competitive position
by using resources which cannot be obtained by its competitors.
Imitable: There are various resource organization have and they are also important for
organization to gain competitive advantage over competitors in market place. The resources like
name of organization, raw material used by organization, logo that are used by company to
perform business in target market. The resource which are difficult to imitate are the positive for
the growth of company because these resources are only available to one company and other
companies can not use this resources in their business. For example the logo and copyrights of
company are not imitable and no other organization can copy logo of company with taking
permission.
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Non- Substitutable: This helps in analysing those resources which cannot be substituted
which results in higher competitive advantage for the company. It helps in critically evaluating
the substitute of the resources (Albrecht, Holland and Peters, 2016). In case of lack of any
particular resources which helps in critically evaluating the various operational standards.
Question 3 Explaining the appraisal of the strategic solutions which could be used by Tesco
Porters generic strategies- Porter has suggested four different types of strategies which helps
companies in getting a competitive advantage in the market. Company uses these techniques in
order to penetrate in the market. It involves the following four strategies-
Cost leadership- this is the best and most common type of strategy which the company
can use in order to get a competitive advantage over its competitors. In this company can use two
practices that one to charge low price and increase the market share and other one is to reduce
the cost of the company and to increase the profits (Behl, Singh and Venkatesh, 2016). This is a
good strategy if the company wants to penetrate in the market for long run. This is because of the
reason is that is customer will get low priced products then it will help company in getting a
large customer base.
Differentiation- it is a strategy within which the company tries to differentiate from its
competitors by adding some special attributes or by adding a new product in the market. The
products are made with certain special characteristic or features which are to be distinct and
attractive to the consumers (Thonnard, Vervier and Dacier, 2016).
Focus strategy- this strategy suggests that company must focus on a particular market
and for this it can take help of lowering the cost so that it can penetrate in a particular niche
market and can become the leader of that market with help of cost reduction.
Combination of strategies- with the help of this strategy the company can use any
combination of the above three strategy. This choosing of competition is dependent totally on the
prevailing market conditions and situations. With thorough analysis of the market, the company
can decide to choose any combination in order to have a competitive advantage.
Strategic lock in- it is a strategy within which the company tries to make its customers stick to
the products and services of the company and not to switch them with the competitors. This is
done by applying some switching cost to the products which the customers have to incur if they
switch or changes with the competitors' product. This helps the company because the consumer
will not switch over to the competitors if they have to pay a cost.
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