Comprehensive Strategic Analysis of Tesco PLC - Business Report

This report presents a strategic analysis of Tesco PLC, a prominent UK-based multinational grocery retailer. It begins with an introduction to strategic management and background information on Tesco, followed by a detailed examination of the company's external business environment using strategic analysis tools. The analysis includes a PESTLE analysis, evaluating political, economic, social, technological, legal, and environmental factors impacting Tesco; a SWOT analysis, identifying the company's strengths, weaknesses, opportunities, and threats; Michael Porter's Five Forces model, assessing the competitive intensity of the retail industry; and a value chain analysis, examining Tesco's primary and support activities. The report concludes with recommendations based on the analysis, emphasizing the importance of strategic analysis for long-term sustainability and competitive advantage.

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Executive summary
The given report throws light on the Strategic Analysis of a company named Tesco PLC.
Tesco PLC is a company based in the United Kingdom and it is very important for the firm to
see to it that the business factors present in the external environment are in the favor of the
enterprise. The report follows a systematic format whereby it introduces the topic followed
by a brief introduction and background information on the company. The next part of the
report uses various strategic analysis tools. The strategic analysis tool used with reference to
the firm is pestle Analysis, SWOT Analysis, Michael Porters Five Forces and the Value chain
analysis. Certain recommendations and conclusions have also been provided.

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Table of Contents
Introduction................................................................................................................................3
About the company....................................................................................................................3
Strategic Analysis.......................................................................................................................4
PESTLE Analysis.......................................................................................................................5
SWOT Analysis.......................................................................................................................10
Five Forces Model....................................................................................................................13
Value Chain Analysis of Tesco................................................................................................15
Importance of Strategic Analysis.............................................................................................19
Conclusion and Recommendations..........................................................................................20
References................................................................................................................................21

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Introduction
Strategic Management can be defined as the management of the long term strategies
of the business organization which may help a firm to achieve success. Strategic management
forms an essential part of all organizations and it should be seen to it that all companies
indulge in the given process to ensure that they are able to perform as well as its competitors.
The given report will be discussing the strategic analysis of one such organization named
Tesco PLC. Tesco has been in business for a long period time and is one of the largest
grocery retailers present in the United Kingdom. The report aims to strategically analyze the
external business environment of Tesco using various strategic management tools (Barney
2014). The tools used for the given analysis are PESTLE Analysis, SWOT Analysis,
Michael Porter`s Five Forces and Value Chain Analysis. The given analysis will be done
using various theoretical concepts with practical implications to the Tesco Supermarket.
Strategic Management is an important part of any organization and it is extremely important
for any business environment to conduct an effective strategic analysis as it helps the firm to
determine the path for success and prepares the business for the various components of the
business environment.
About the company
Tesco plc, commonly trading as Tesco is a British multinational grocery retailer
which has its headquarters in Hertfordshire, England. The giant retailer is the third largest
retailer in the globe by profits and is the ninth largest in position in terms of revenues
(Tesco.com. 2018). The retailer has stores across various countries like Asia, Europe,
Thailand and others. The company was found by Jack Cohen in 1919, as a market stall. The
company has diversified geographically since 1990s and has spread its business into various
sectors like books, clothing, furniture, electronic, petrol, software and other areas like
financial, telecom and internet services. Tesco further increased its value proposition by
offering Tesco Valued items and the Tesco fine range (Bettis et al. 2014). This improvement
in its offering witnessed the store growing from 500 stores to 2500 in the late 21st century.
The company is listed in the London Stock Exchange and has a market capitalization of
approximately $ 21 billion as of 2016.

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Figure 1: The increase in number of Tesco Stores (Source: Tesco.com. 2018).
The given chart is a reflection of the increase in the number of Tesco Stores in the
United Kingdom from a period of 2011 to 2017. In 2017, the total number of Tesco stores is
approximately 3739. The portfolio of the offerings comprise of beverages, food items,
clothing, home appliances, financial services and telecom (Eden and Ackermann 2013). The
company is home to around 7000 stores globally and it operates in six different store formats
whereby the customers are offered a large range of products This can be explained better by
the fact that the large supermarkets offers larger food products as compared to the Extra
stores whereas the extra stores sell more of non-food items (Zott and Amit 2013). The
primary revenue generation of Tesco comes from UK, followed by other European and Asian
countries. According to Ginter, Duncan and Swayne (2018), the discounted stores are being
able to gain more market share as he customers have started to prefer these discounters like
Aldi in place of large stores like Tesco.
However recently Tesco has been facing problems with respect to its profit estimation
whereby the company has overstated its profits by £250m due to irregular movements in
income and the revenue it generates from its multinational companies that supply the firm`s
products.

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Strategic Analysis
Strategic Analysis can be described as the process of conducting a research on the
business environment of an organization. This business environment may refer to the external
business environment of a business or the internal one. This analysis is generally done in
order to form a strategy for the organization. The primary usage of a strategy is to derive
advantage from a path whereby there is a least resistance in order to achieve the
organizational goals. The strategic analysis is generally done in order to determine the future
of the organization in case of a major change in an organization (Hill, Jones and Schilling
2014). There are various strategic tools present in the environment such as PESTLE Analysis,
SWOT analysis, Five Forces model, Value Chain Analysis and others.
Given below are certain reasons why Strategic Analysis should be undertaken:
 To survive for a long term, the company needs to plan for a sustainable future.
 Strategic analysis also goes a long way to demonstrate the viability and relevance of
an organization. This way the credibility of the firm increases thereby increasing the
chances of receiving funding for the future.
 Analyzing the external environment of the business goes a long way in helping the
company to take a whole organization approach (Martinsuo 2013). It goes a long way
in analyzing how different trend s might have an impact on the firm.
 It helps to maintain an external focus and it become easier for the organization to
focus on opportunities and threats to which the organization might be focused on
(Lasserre 2017).
 It helps the organization to understand if the strategy which it plans to undertake is
appropriate and relevant.
 It makes the organizational goals smarter and helps the firm to function in a tech
savvy manner.
PESTLE Analysis
PESTLE Analysis can be described as a strategic tool which is used by the companies
in order to track the external environment in which they have been operating in (Morschett,
Schramm-Klein and Zentes 2015). This is generally used when a company plans to launch a

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new project, product or a service. PESTLE can be described as a mnemonic which stands for
the following; P for Political, E for Economic, S for Social, T for Technological, L for Legal
and E for Environmental.
The PESTLE Analysis provides the company with a strategic view of the business
environment from various dimensions so that they can keep a track on the external factors
while contemplating an idea or execution of a plan (Rothaermel 2015).
The framework has undergone various alterations over the last few years and certain
features like E for ethics have been added to instill the demographic aspect. All the aspects of
the PESTLE Analysis are very crucial for the organization and understanding of the market
provides the firm with a competitive advantage and helps the firm to achieve its goals. Each
of these factors has different industries relative factors and thus the company should form its
plan separately.
Figure 2: PESTLE Analysis of Tesco (As created by the author)
Political
The political factors tend to determine the impact of a government on the given
economy or the particular industry. The government often imposes new tax or duties which

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then tamper the company`s revenue generating structure. The primary political factors
include policies such as tax policies, fiscal policies, trade tariffs and others. If the government
chooses to change these then the business environment may be affected.
As China got the access to promote a free glow of goods and services of all
companies in the Western region Tesco was able to expand its operations and this made the
company the most profitable market back in the year 2016. However due to the controversial
issue of over estimating its profits, the company has come in bad light. As the economic
activity of various countries is not doing well, governments encourage the companies who
tend to create employment opportunities for the different firms. Thus, this aspect has greatly
helped Tesco as the company creates employment opportunities for the general public
(Wheelen et al. 2017). The policies introduced by the government also impact Tesco`s
operations. With the Brexit move, Tesco might be affected severely with its operations
spreading to different countries.
Economic
The economic factors include factors which determine the economy`s performance
and the factors which may have a direct impact on company along with some long term
impacts. For instance, a rise in the inflation rate of an economy would have an impact on the
price of the products and services (Merat and Bo 2013). Along with that, it may also have an
impact on the purchasing power of the consumers and may change the demand or supply
models of the firm`s offering (Team 2013).
The economic factors tend to form a major concern for Tesco as it tends to determine
the purchases as made by the customers. Although various countries have been undergoing a
recession phase, Tesco was the one who was least affected due to its reasonable offerings and
Tesco Valued products (Johnson 2016). However, the lurking financial uncertainty will have
an impact on the customer choice and they will spend less on the premium products. A
positive side of this can be that the grocery section is able to successfully achieve its targets.
A major area of concern for Tesco is that it is heavily dependent on the UK market and due to
this the economic condition of UK impacts the firm.
Social
The social factors conduct an analysis of the social environment of the external
marker and analyze the cultural trends that impact the firm`s offering like the demographics,

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population analytics, cultural trends (Slack 2015). For instance, the Western countries
generally have a high demand during the holiday season.
The primary target market of Tesco tends to form the social segment of it. In UK, the
retired people are more in population which is a disadvantage for the supermarket as they
tend to purchase less as when compared to the Baby Boom generation.
The second relevant aspect in the given scenario is that the baby boomer generation
prefers to shop online. This has considerably affected the supermarkets. Another point to
consider is that the consumer aspect in this regard has been changing considerably which then
leads to a change in the offerings made by the supermarket (Jarzabkowski and Kaplan 2015).
They have to accommodate a healthy range of food items. Customers have a preference
towards one stop shopping and hence, Tesco has increased its non food items.
Figure 3: The market share of Tesco in the UK Supermarket Industry (Source: Bull et al.
2016).
Technological
The technological factors comprise of the automation, research and development and
other related market components which tend to have an impact on the firm’s operations and
market favorability.

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This aspect of the PESTLE analyses the technological impact which often has a direct impact
on the supply chain, operations and purchasing (Kalkan and Bozkurt 2013). The use of
internet has affected the supermarket concept and this reflects that the supermarkets have to
now go online in order to achieve success in the global market. With the help of information
technology, companies are now offering loyalty programs to the consumers to prevent them
from changing their buyers. Online retail shopping has gained considerable popularity due to
the increased access to broadband internet in the UK. It has been highlighted by Keynote
(2010) that the number of broadband users in the country is 15.5 million which accounts for
70% of the overall market.
Figure 4: The Tesco Technological Update (Source: Wood, Wrigley and Coe 2016).
Legal
The legal factors refer to the external factors which comprise of the laws in a business and
those legislations which the firm has to abide by. These refer to the laws related to duties or
taxes or may also be related to property and labor relations. The GST and VAT percentages
affect the profitability of the firm. Various laws related to the Low Pay commission and
minimum wages act also result in the increase of the wages of the firm which further increase
the costs.

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Environmental
The environmental factors comprise of the resource utilization and other related issues
that concern a business because of the activities they indulge in, it may also relate to certain
climatic and environmental effects on the operations of the business (Williamson et al. 2013).
As the customers have increasingly become conscious about their environmental
concerns, Tesco needs to engage in a friendly, green packaging. The reusable concept has to
be implemented; another impact of the given move has been that the use of plastic bags has
been decreased. This serves to be a good point for Tesco as their costs decrease and they also
receives subsidies from the government (Stead and Stead 2013). Tesco has updated its
offering and updates carbon footprint data on its products. The Greener Living scheme by
Tesco gives information to the customers about environmental issues.
Therefore, from the given analysis it can be stated that, the competition and external
environment factors are very fierce for Tesco (Bryce 2017). It needs to update with the
change and expand its operations virtually. Furthermore, adopting the greener techniques will
keep it in the government’s good books.
SWOT Analysis
The second strategic tool which will be discussed is the SWOT Analysis. The SWOT
Analysis is a strategic tool which helps the firm to identify its strengths, weaknesses,
opportunities and threat, the strengths and the weaknesses aspect are generally related to the
internal environment of the firm whereas the opportunities and threats are related to the
external aspect. Given below is the SWOT Analysis of Tesco:
Strengths
A strength can be described as an internal quality of the business which helps the firm
to attain competitive advantage in the external environment (Wright, Paroutis and Blettner
2013).Tesco`s strength lies in the following:
 The company is one of most profitable an largest supermarkets known for its retail
excellence and customer service
 The company has significant cash reserves in the market and various properties
around the globe. This helps the firm to survive in all cycles of the economy.

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 The retailer has a strong history in the United Kingdom which gives it credibility and
assurance.
 The store has been able to successful adapt to the various cultural and social needs of
the different host countries (Alkhafaji and Nelson 2013).
 The firm has updated its technology and created cost efficiencies.
Figure 5: SWOT Analysis of Tesco (As created by the author).
Weaknesses
A weakness can be described as an internal weak point of the firm which may affect
its performance in the external environment
The weaknesses of Tesco are as follows:
 The firm has not been performing well in terms of its certain subsidies. The credit
crisis has not yet left Tesco and it has not been successful in rebounding yet.
 The competitive pressure on Tesco has increased considerably as Tesco tends to
engage in various price wars which tend to have a negative impact on the performance
of the firm (Grant 2016).