Comprehensive Business Analysis Report: Tesco's Competitive Landscape

This report presents a comprehensive business analysis of Tesco, evaluating its strategic position within the retail industry. It begins with an introduction outlining the objectives, overview of Tesco, its competitors (Sainsbury's and Morrison's), and the rationale for choosing Tesco for analysis. The report then delves into strategic analysis, including PESTLE and Porter's 5 Forces, to assess the macro and micro environmental factors impacting Tesco. A detailed financial analysis follows, examining profitability, liquidity, and shareholder ratios, along with market share analysis. The report also addresses the limitations of the strategic and financial models used. Furthermore, the report includes financial data modeling with past and future trend analysis. The report concludes with recommendations for strategic direction and strategy evaluation based on suitability, acceptability, and feasibility. Appendices provide supporting data, including ratio analysis, line charts, and trend analysis.

BUSINESS ANALYSIS

TABLE OF CONTENTS
1. INTRODUCTION.......................................................................................................................1
1.1 Objectives of the study..........................................................................................................1
1.2 Overview of 3 organisations.................................................................................................1
1.3 Rationale for choosing Tesco................................................................................................2
1.4 Current key issues.................................................................................................................3
2. STRATEGIC ANALYSIS...........................................................................................................5
2.1 Macro environmental analysis – PESTLE............................................................................5
2.2 Micro environmental analysis – Porter’s 5 forces.................................................................7
3.0 Financial analysis and benchmarking........................................................................................8
3.1 Profitability ratios.................................................................................................................9
3.2 Liquidity..............................................................................................................................10
3.3 Shareholders ratios..............................................................................................................12
3.4.1 Market share analysis.......................................................................................................13
3.4.2 Line capacity....................................................................................................................13
4.0 LIMITATIONS OF STRATEGIC ANALYSIS......................................................................14
4.1 PESTLE..............................................................................................................................14
4.2 Porter’s 5 forces..................................................................................................................15
4.3 Financial analysis................................................................................................................15
5. CONCLUSION..........................................................................................................................16
6. RECOMMENDATIONS...........................................................................................................17
6.1 Potential strategy direction..................................................................................................17
7.0 STRATEGY EVALUATION..................................................................................................19
7.1 Suitability............................................................................................................................19
7.2 Acceptability.......................................................................................................................20
7.3 Feasibility............................................................................................................................20
8.0 FINANCIAL DATA MODELLING.......................................................................................20
8.1 Past trend.............................................................................................................................20
8.2 Assumptions........................................................................................................................21

8.3 Future trend.........................................................................................................................21
8.4 Future trend analysis...........................................................................................................22
REFERENCES..............................................................................................................................26
APPENDICES...............................................................................................................................27
Appendix 1: Ratio analysis.......................................................................................................27
Appendix 2: Line chart.............................................................................................................29
Appendix 3: Trend analysis......................................................................................................30

1. INTRODUCTION
Business analysis is a process that is been adopted by the firm for enabling the change in an organization with defining the
needs and the recommending solutions which deliver the value to the stakeholders. It is the set of the tasks and the techniques that is
been used for performing the assessment of the financial and the operational activities of the business (Schaltegger, Lüdeke-Freund
and Hansen, 2016).
1.1 Objectives of the study
The report presents the analysis of the competitive position of Tesco against Sainsbury's and Morrison’s with appropriate
benchmark analysis. Furthermore, the study emphasizes on the comparative financial analysis in between the companies with the
application of the appropriate models that is pestle analysis. Moreover, the report also throws the deep insights towards the
disadvantages of the financial models with recommendations regarding where the company needs to make improvements.
1.2 Overview of 3 organisations
Basis Tesco Morrison’s Sainsbury
Date of incorporation 1932 3rd July, 1899 1869
Date of listed 22nd April 2015 1967 April,2018
Business divisions Entire world In UK UK
No of employees 450000(2019) 110000(2019) 186900 (2018)
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Current FYE revenue £ 63911 million £ 17262 million £ 28456 billion
Current position in the
market
Third leading retailer across the
globe
Fourth largest supermarket
chain in entire UK
Second largest supermarket
chain in UK
Logo
1.3 Rationale for choosing Tesco
As Tesco is the largest retailer operating its business across the globe will be analysed against its benchmark called as close
competitors of in the UK. The competitors are Sainsbury's and Morrison’s.
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1.4 Current key issues
Revenue of Tesco is decreasing over the years which means that company is not making effective marketing strategy in order
to meet its sales target. However, in the year 2017 the sales get increased from 54433 to 55917 because of the low prices and
facilitating quality products to its customers. Net profit of Tesco was resulted as negative which means a huge loss in the year 2017
because its interest expense increases and the cost of revenue also increases. It resulted as 138 to -40 which in turn hinders the growth
and reputation of the company. Profit before tax also get reduced in the year 2017 but increased with a greater amount in the year
2018 as the operating expense and the interest expense reduces.
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2. STRATEGIC ANALYSIS
2.1 Macro environmental analysis – PESTLE
Pestle analysis of Tesco
Political factors- As companies within retail industry operates its business at a global level so it is largely affected by several
political factors that includes political instability, legislations etc. In case there is political instability in any of the country in which it
operates then it affects the smooth functioning of the business (Burger and Luke, 2017). Continuous changes in the legislation creates
complexity for the company as it needs to adopt the changes on a frequent basis in order to remain stable across the globe. However,
the more stable the government, an organization could be able to perform its operations in a better way. At the time of Brexit, the
company suffers a huge amount of loss from its business operations, The Brexit resulted in increasing the cost of operations of
business organization. Foreign direct investment means when the investment is made by the company in a specific country in which it
is having the business interest. It provides an opportunity to the firm in relation to expanding its business and in taking the benefit of
currency exchange rate. However, threat is associated when the currency exchange rate of that country falls.
Economic factors- These are the factors that relates with the currency exchange rate, leverage cost, profits, prices and the
demand. As industry is facing the net loss in the year 2017 it is the major concern for its and has to take necessary measures regarding
increasing its sales. An entity must be aware of the changes if any occurs in the policies like changes in ten policy of taxation that
could affect accessibility of the finance (Basole and et.al., 2016). For gaining larger profits, retail industry must adopt the strategy
called as diversification and the internationalization in order to attain success in the future. Furthermore, because of the decreases in
the income of the consumers, Tesco has accounted for shifting its focus for advertising value brands instead of luxurious items. Gross
domestic product is also the major economic factor that is to be considered by the company, as GDP in UK is growing so it’s an
opportunity for retail industry to grow its business. Higher inflation rate is a threat for the industry as it reduces the purchasing power
of the people which is a big threat and on the other side at the time of lower rate of inflation people tend to buy more.
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Social factors- By doing analysis, it has assessed that retired people are more in UK as compared to children. This in turn
imposes issues in front of retail industry as ageing population eat less over others. Further, ageing generation prefers less to visit retail
stores in comparison to young. Along with this, attitude of the customers are also changing with the very high pace in terms of health
consciousness and eating hygienic food. All such aspects create issues for companies operating in retail sector. In CPI, fluctuated trend
has been identified during the past years. Now, CPI accounts for 2% which in turn closely influences purchasing power of customers.
Now, customers prefer to purchase products from the retailer which offers high discounts and benefits (UK inflation falls to lowest
value in two years, 2017).
Technological factors: In the current times, companies operating in retail sector is placing high level of emphasis on
automation. Now, focus or preferences of the customers also shifted on online shopping in comparison to visiting physical stores.
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Through this, it had developed it business on online platforms by facilitating its customers with online shopping. It has also created the
self-service points for checkout that has provided convenience and the ease for the customers which in turn also helped the
organization in reducing its labour cost (Melloni, Stacchezzini and Lai, 2016). Moreover, an enterprise has also made the investment
in the projects that are energy efficient in order to fulfil the long run objective for the purpose of reducing the carbon footprint. Along
with this, for a gaining competitive edge over others business units require to make focus on the adoption of profitable as well as
advanced technologies namely robots, artificial intelligence and drones.
Legal factors- In UK, firms is retail sector must comply with codes of ethics or practices introduced by Food Retailing
Commission. Further, business units also need to adhere with rules and regulations regarding health and safety, equality and
sustainability laws (Burger and Luke, 2017). All the firms need to follow these regulations for getting the desired level of outcome or
success.
Environmental factors- As with increase of the pressure on the organization relating to addressing the environmental issues or
to adopt different ways for operations that in turn benefits the society. The industry is also moving towards minimizing wastage that
has been produced in the stores with increasing the social conscience within the customers. As the company also deals in range of
foods so it has to take utmost care because in the winter season the food might become soggy which in turn results in a huge loss to
the company as their food range products gets detained and remains of no use. Recycling and disposal of wastage influences the
industry to operate its business with sustainability.
2.2 Micro environmental analysis – Porter’s 5 forces
Buyer power Retail industry is facing a high bargaining power of its buyer
because it is having large number of competitors with the buyer
can switch by paying a very low switching cost. This create a
huge threat for Industry as it directly puts pressure on its
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profitability in the long term.
Supplier power Under this type of industry the bargaining power of Industry
supplier is high. This is also a big threat for the company as it
decreases its profit margins within the overall market. Majorly all
the companies similar to Industry in this industry buys the raw
material from different suppliers which considers as the
opportunity for Industry. This develops the dominant position of
the supplier in the retail industry over the company.
New entrant threat This industry is having a huge threat relating to the entrant of the
new retailers as its competitor because retail market is main
source through which start-ups can enter into the market (Melloni,
Stacchezzini and Lai, 2016.). This puts pressure on the
organization regarding low cost, effective pricing strategy and
providing for new value to customers.
Substitute threat Threat of substitute is also high because it having large number of
competitors that includes other retail industry. This will result in
driving down the prices and entire profitability of an industry.
This resist the long run success of companies in this industry.
Rivalry Competitive rivalry of retail based industry is very high as there
are large number of companies UK that deals in retail market.
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2.3 Key performance indicators
In the context of Tesco, key performance indicators mainly include sales, profitability, market share etc. By comparing
performance in against to such indicators deviations taking place in the current performance identified.
3.0 Financial analysis and benchmarking
Ratio analysis is the financial metric that helps in measuring the performance of the company over the years. Over the three
years, the profit margins of the Tesco are decreasing so company must take corrective measures in order to improve its profitability
ratio by elimination the unprofitable activities and reducing the cost and the expenses. In comparison with its competitors its
performance its liquidity position is better but its leverage and profitability is not good.
3.1 Profitability ratios
Gross profit margin- This ratio depicts the profits earned by the company after meeting its cost of sales. It measures the
operational efficiency of the business operations. Overall the gross profit of Tesco at present are better than its competitors as the
resulted ratio of the company is higher than its rivalry. Over the years, the ratio of Tesco is progressing because its sales has been
increased.
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