Business Strategy of Tesco Plc: Environmental & Capability Analysis

This report provides a comprehensive analysis of Tesco Plc's business strategy, examining both the macro and micro environmental factors that influence its market position. It begins with a PESTLE analysis to assess the political, economic, social, technological, legal, and environmental factors impacting Tesco, followed by a stakeholder analysis to map out key stakeholders and their influence. The report then delves into Tesco's internal environment using SWOT and VRIO frameworks to evaluate its strengths, weaknesses, opportunities, threats, resources, and capabilities. Finally, Porter's Five Forces model is applied to analyze the competitive forces within Tesco's industry, including the bargaining power of buyers and suppliers, the threat of new entrants and substitutes, and the intensity of competitive rivalry. The report concludes by discussing strategic planning theories and models relevant to Tesco's strategic direction.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
Main Body.......................................................................................................................................1
P1. Appropriate models and frameworks to analyse the impact of macro environment........1
P2. Discuss the internal environment and capabilities using appropriate framework............4
P3. Discuss the Porter's five force model to analyse the competitive forces.........................5
P4. Discuss theories, models to interpret and devise strategic planning................................7
CONCLUSION................................................................................................................................9
References:.....................................................................................................................................10

INTRODUCTION
Strategy is the term that defines the actions that are taken in order to support the plans of
organisations for attaining their goals and objectives. In relation to this business strategy is
refereed as the long term action plan in order to attain the desired organisational output. The
effective business strategy framework helps the organisations in creating successful market
position in their specific market segment (Yuan and et. al ., 2020). The present report on
Business strategy will discuss the strategies of the “Tesco Plc”- Tesco is the multinational
supermarket chain based in UK. The company is the leading grocery and general merchandise
retailer of the UK. The present report will discuss the impact and influence of macro
environment on organisation and its business strategies. The report will also assess internal
environment and capabilities of the organisation. Further in the report porter's five force model is
discussed for the chosen organisation. In the end, models and theories are applied and discussed
to understand the strategic direction available to the organisation.
Main Body
P1. Appropriate models and frameworks to analyse the impact of macro environment
The strategic Context:
Vision: The Vision of Tesco is to become highly valued organisation for its customers,
community and to their loyal and committed workers and staff and their shareholders.
Mission: The main purpose of Tesco is to make the that matters better, together and to identify
the strategies that fits their business model and guarantee potential success.
Objectives: the aim of the Tesco is to stay the leading retail supermarket and to provide the
customers with good quality service and low cost products to main their their competitiveness
through low price strategy. The other objective of the Tesco is to maximize the sales to increase
the profit. Tesco also has an objective of developing the largest internet shopping site (Farrukh
and et. al., 2020).
Strategy is basically involves the setting of aims and objectives, identifying actions to
achieves those aims and objectives by mobilizing the resources. In business environment the
business strategy are developed by analysing the macro environment so that adequate strategy is
developed that can foster organisation's productivity.
PESTLE Analysis
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The PESTLE analysis of Tesco plc is used to recognise the influence of macro
environment factors on the business and its strategies of the Tesco plc.
Political factors: Tesco is the multinational organisation and work within different political
landscapes which bring a influence on the business of the Tesco. The failure of membership and
future trading relationship of UK and EU which is Brexit has disruptive results on the Tesco
supply chain strategy. This has also impacted the financial results and operations of Tesco. For
this Tesco has developed Brexit contingency plan to reduce the impact of Brexit on market and
their customers (Um and et. al., 2018).
Economic factors: the economic stability is very important for the Tesco for the smooth flow of
its operations, But, the impact of COVID-19 has impacted the economic conditions of the Tesco.
The low disposable income has caused the risk to the liquidity of the Tesco and has also
impacted the financial performance. This also affected the group funding strategy of the Tesco
due to to the decreased ability to continue the fund operations.
Social factors: the changes in the customers taste and eating habit has created a positive
influence on the Tesco's innovation strategy. The company to meet the customer trends in order
to stay competitive the effectively using the social factors and their changes by focusing on
innovation in their products and developing organic and healthy food and drinks.
Technological factors: the technology is growing at fast pace and Tesco need to keep pace with
technology to sustain in the market. This factor brings a positive influence to Tesco strategies
and its business by making their operations faster and more secure. With advanced technology
the technology security programme of the Tesco continues to enhance the information security
capabilities and infrastructure.
Legal factors: failure in the compliance of the legal regulatory leads to the downfall in the
reputation of the Tesco. The government of UK has complied the minimum wage act for the
workers of the UK which has influence the company's cost strategy as due to this the labour cost
is increased and also the company can be penalised or sued for misleading its workers.
Environmental factors: the environment related restriction of government of UK on the
businesses to reduce the impact of their operations ion nature and to safeguard the environment
from damaging. This change in macro environment of Tesco has resulted in better development
of strategy such as waste management strategy which is helping Tesco in reducing the food
wastage (Navissi and et. al., 2017). The closed loop packaging strategy to reduce the
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environmental impact and to use sustainable resources that can be reused and recycled. This has
lead the Tesco towards sustainable development.
Stakeholders Analysis
Stakeholders are the individual or group of individuals that are involved in the projects
and actions of the organisation and have interest in the organisational operations because they
impact or get affected from organisational operations. The stakeholder analysis is the another
framework to analyse the macro environment as through this Tesco can map out and identify the
communication level of stakeholders within the firm in context of interest and influence level.
STEP 1: IDENTIFICATION OF KEY STAKEHOLDERS: The key stakeholders of the Tesco
are Customers, Colleagues, Suppliers, Wide Community and shareholders.
STEP 2: MAPPING OF STAKEHOLDERS:
Interest Level
Influence (power)
Level
LOW HIGH
LOW Suppliers Customers
HIGH Wide Community Employees,
shareholders
 Suppliers: the suppliers of Tesco are low power and less interested people, therefore they
require less communication but are monitored regularly. For example, Tesco maintain the
open communication with their suppliers and are also committed to have trusted
partnerships to deliver the value and quality to the customers. Tesco have strategy of
suppliers conferences to learn about their supply chain and to develop new supply chain
strategy by considering suppliers feedback (Kitsios and Kamariotou, 2019).
 Customers: the customers of the Tesco have high interest and low power and influence
which means they are required to informed about new products and also their they are
supportive for the Tesco. The company's customers are valued highly and also are part of
their vision. The Tesco customers are researched to understand their thinking about
company and to address their issues. Tesco also wants to serve their customers with high
quality, fresh and affordable food.
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 Wide community: the wide community includes the government and society regulators,
NGOs, trade Unions, media and community groups. These people have high influenece
and power in influencing the operations of the Tesco but shows less interest level as
communication periodically. The Tesco effectively engage with these stakeholders
through meeting, participation in working groups and survey.
 Employees, shareholders: these both are the key stakeholders of the Tesco as they have
high interest and high power within organisation and they also impact and get affected by
the operations and strategies of the Tesco. The voice of the employees of the Tesco
matters for which Tesco has colleagues contribution panel where feedback on specific
area of interest is listened and taken into account for future business strategy (Jansson,
2020). The investors and shareholders provide financial opportunity for the growth of
Tesco.
P2. Discuss the internal environment and capabilities using appropriate framework
In order to develop the strategy and to enhance the current strategies the internal
environment analysis is also important. To understand the strategic capabilities and the internal
resources of Tesco different frameworks are used and discussed underneath:
SWOT Analysis
Strengths Weaknesses
Market share: the Tesco high market share
from its competitors in the grocery market is
the biggest advantage and strength as this
create the dominance of the Tesco among its
competitor's (Chen and Wang, 2017).
Low price strategy: the low price strategy of
Tesco in order to serve the community and
customers with affordable and high quality
products is the strength that company holds in
the which also helped the company during
COVID-19 situation.
High reliance on UK market: the lack of
focus on international market due to high
dependency over the UK market for revenue
and sales is the weakness as this has decreased
the operational performance in some countries.
Low investment in R&D: the Tesco lacks in
Research and Development due to which
company enters new market inappropriately
and also some times develop a product that has
low ability to generate sales in market causing
loss to Tesco.
Opportunities Threats
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Growth of technology: the technological
advancements is the biggest opportunity to
innovate and expand its online grocery market
with easy and convenient shopping site for
customers to increase customer service and
leverage the trend.
High Unemployment rate: due to Covid-19
there is high unemployment in UK and other
countries being large size organisation and
operating in supermarket chain. Tesco has
huge opportunity to create employment in
order to fuel its growth by acquiring
government trust and support.
Competition: the competitor's and their
acquisition and merger strategy is the real
threat to the market share of Tesco. for
example the ownership of Asda from Walmart
to billionaire Issa brothers has increased the
competition heavily.
Economic Recession: the growing recession
post- covid-19 has is causing financial
uncertainty to the Tesco and also due to this
the sales and revenue of the Tesco are
decreased (Ardley and McIntosh, 2019).
VRIO Analysis
Resources Valuable Rare Inimitable Organisable Competitive
advantage
Brand
recognition YES YES YES YES
Long term
competitive
advantage
Product
portfolio YES YES NO NO Competitive
advantage
Innovation
Capabilities YES YES NO NO
Temporary
competitive
advantage
Human
Resources YES NO NO NO Competitive
parity
Brand recognition: it is the highly competitive and sustainable capability of the Tesco. This
resource of the Tesco is valuable, rare, inimitable and organisable. Tesco is the leading
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organisation with outstanding brand recognition in UK and other countries in which company
operate.
Product portfolio: The product portfolio of the Tesco is valuable and rare providing the
company with competitive advantage as this helps the company in gaining customers and
reduces the threat of substitutes.
Innovation capabilities: the resource of Tesco is valuable and rare but can be imitated and is not
organised as per the organisation. This factor of Tesco also brings competitive advantage but is
required to be more effective in order to create the sustainable competitive advantage.
Human Resources: the Tesco value their colleagues, shareholders and other human resource
highly. As they are the value proposition of Tesco but are the resource of competitive parity.
P3. Discuss the Porter's five force model to analyse the competitive forces
Porter's five Force Model
The detailed porter's five force model is tool to analyse the competitive forces of the Tesco plc
and its impact on the Tesco operations and strategies. Tesco is the market leader in the
supermarket chain of the UK.
Bargaining power of buyers: Tesco serves their products and services to the million of
customers but for Tesco their customers are priority. The bargaining power of buyers in UK is
relatively low because the Tesco already serves the product under low cost strategy and also the
wide product portfolio of Tesco makes its unique. Therefore, Tesco has high profits and sales in
UK market (Cusumano, Gawer and Yoffie, 2019).
Bargaining power of suppliers: the company is leading organisation with highest market share
keeping it powerful among the suppliers. The bargaining power of suppliers is low because the
Tesco deals with 2500 suppliers in UK and more in other countries. In terms of price cut and
profit margin negotiation with suppliers is tough for the suppliers.
Threat of new entrants: In UK there is low threat of new entrants due to the economic
recession as the capital requirement to open an supermarket is very tough. This factors is not a
concern for Tesco as the company has its own core competencies in terms of pricing strategy,
financial position etc. this make the Tesco a leader of the UK retail market.
Threat of substitutes: currently with the growing number of small businesses in physical and on
online sites there is risk of substitutes to Tesco as customers are more browsing online sites for
products rather than physical stores. Though Tesco, sells the substitutes of its won product also
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which is advantage to the company but still there is small threat of substitutes to Tesco in UK
market (Adawiyah, 2021).
Competitive Rivalry: the competition in the UK market among the supermarket chain is huge.
Tesco is operating under the powerful competitor's that are giving the neck to neck competition
to the Tesco. Competitors like ASDA, Walmart, Aldi and Lidl are also giving price wars which
is impacting the pricing strategy of Tesco and all its profit margin. The company has to develop
new strategy to stay ahead in competition.
Ansoff Matrix
The Ansoff matrix is used to recognise the strategies that organisation can use to plan and
develop strategies for future. The matrix consist of four strategies that will help the Tesco to
grow and gain competitive advantage.
Market Penetration: In this Tesco should focus on gaining more sales using existing products
to an existing market by adding some discounts or offers to product, increasing promotional and
distributional efforts to attract the customers. Tesco is facing downfall in the sales after the
Covid-19 and to mitigate this problem and to maintain its market share the market penetration is
adequate strategy for the Tesco.
Product development: The strategy in which organisation focus on launching of new product
into existing market. With changing market conditions and customer preferences Tesco can
effectively use the product development strategy with proper research and development to
expand its product portfolio. Strategic partnership is also suitable way to execute this strategy
within the Tesco (Seifzadeh and Rowe, 2019).
Market development: the strategy that aims to enter new market with existing products. Using
this strategy Tesco can gain advantage of leveraging opportunities of new market in new
geographical location. This strategy is helpful to Tesco in gaining potential customers of new
market and also to leverage its current technology in new market.
Diversification: In this strategy the the organisations enters new market with new product. For
Tesco this is risk oriented strategy as the for successful implementation of diversification of both
product and market a systematic research is required. This strategy will help the Tesco to
increase its revenue and also to have internationalization.
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From the above four strategy the most suitable strategy for Tesco is recommended to use
product development strategy as this will help the company to increase its product portfolio. This
will also help in meeting the customer trends in order to stay competitive and generate brand
loyalty among customers by making them feel that their wants and neds are recognised by Tesco.
This strategy will also provide Tesco with competitive advantage an dis also considered as the
long term growth strategy (Davids and Van Belle, 2017).
P4. Discuss theories, models to interpret and devise strategic planning
Porter's generic model
In order to understand and interpret the organisations market position its profitability is
compared with the average industry profitability. The above average profitability of the Tesco
provide the company with sustainable competitive advantage. To understand the competitive
scope and advantage of the Tesco porter;s generic strategies are discussed below:
 Cost Leadership: Tesco is the leading organisation of the UK supermarket industry and
possess the cost leadership with its low cost pricing strategy for all its products by
maintaining its quality. The company is the low cost producer of the retail industry of UK
and also exploit all opportunities to to lower the cost such as proprietary technology etc
(Fontana, Sastre-Merino and Baca, 2017).
 Differentiation: Tesco has differentiation in the name of its brand as the company has
strong brand image which helps to create the long term value among the shareholders,
customers and employees. For this company use differentiation strategy to differentiate
product and services, distribution channel etc.
 Cost focus: this strategy has very narrow competitive scope in the retail industry of UK.
The cost focus strategy aims to seek to cost advantage in particular target market. This
mostly for the luxurious product. In this Tesco can target the customers that buy the high
priced luxurious products of Tesco.
 Cost differentiation: in this the firms seeks a differentiation in the specific target
market. For Tesco this strategy is least favourable as Tesco is the supermarket chain and
product are mostly develop for mass population.
From the above strategies it is analysed that Tesco is effectively using the Cost leadership
strategy to stay competitive and perform more than average profitability. Therefore, Tesco is
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considered as the best performer in UK supermarket industry and also Tesco has highest market
share in UK.
The Hybrid strategy
In hybrid strategy the organisation try to seek differentiation and low price
simultaneously relative to the competitor's. This strategy is the suitable strategy for Tesco to fuel
its growth as company already has low price relative to competitor's and differentiation together
with this will provide a company a strategic planning. The success of this strategy will help the
Tesco in achieving margins to reinvestment in new product development and also help in
delivering other enhanced benefits in greater volume (Teixeira and et. al., 2019).
Vertical integration: using this strategy Tesco can contour its operations by undertaking
the direct ownership of several levels of the production process despite of relying on the external
suppliers. The Tesco is suggested to use vertical integration strategy by acquiring its own retail
locations and suppliers rather than outsourcing. This will also help the Tesco to in low cost
production process and overall prices of product can be reduced and profits can be increased.
But there is disadvantage associated with this strategy which high investment of the capital at the
initial stage which means a involvement of steep initial cost.
Horizontal integration: Tesco effectively use this strategy as the company believes in
the acquisition and mergers for the growth and is also dependent over the acquisitions for the
expansion. This strategy allows the firms to have acquisition with the business operating in the
same industry at the same level of value chain. This strategy is the competitive strategy of the
Tesco as through this economies of scale is generated, power over suppliers and distributors is
increased and also product differentiation is occurred which also helps the Tesco to expand their
market approach of enter new geographical location (Arredondo and Tanco, 2019).
CONCLUSION
From the above report it is concluded that the external environment of Tesco is full of
competition and also the strategies used by Tesco to mitigate the the external threats are highly
defensive. Its is concluded d that Tesco strategy to boost its productivity and to grab market
opportunities are useful in sustainable development also help in gaining competitive advantage.
It is concluded that for Tesco product development is most suitable strategy as this will diversify
the huge product portfolio of the company and also aid in staying ahead of the competition.
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