Strategic Analysis of Tesco: Market Share, VRIO, and PESTLE Report

This report provides a comprehensive strategic analysis of Tesco, a major UK supermarket chain. It begins with an introduction to strategic management and its importance, followed by a background on Tesco, including its market share and financial performance. The report delves into internal analysis using SWOT and VRIO frameworks, examining Tesco's strengths, weaknesses, opportunities, and threats, as well as its valuable, rare, inimitable, and organized resources. External analysis is conducted through PESTLE and Porter's Five Forces analyses, assessing political, economic, social, technological, environmental, and legal factors, along with competitive forces within the industry. The report also includes ratio analysis, key factors of success, and a value chain analysis to understand Tesco's operations. Finally, the report concludes with recommendations for Tesco and a list of references.

Strategic Management & Sustainability

TABLE OF CONTENTS
Strategic Management & Sustainability..........................................................................................1
INTRODUCTION...........................................................................................................................4
Background..................................................................................................................................4
Market share of Tesco..................................................................................................................4
Internal analysis...........................................................................................................................4
VRIO analysis..............................................................................................................................5
Patents..........................................................................................................................................5
Research and development..........................................................................................................6
Sales network...............................................................................................................................6
Benefits and limitations...............................................................................................................6
Pestle analysis..............................................................................................................................7
Porter's Five Forces......................................................................................................................8
Benefits and limitation.................................................................................................................9
Ratio analysis...............................................................................................................................9
Key factors of success................................................................................................................11
Value chain analysis..................................................................................................................11
CONCLUSION..............................................................................................................................11
Recommendations..........................................................................................................................11
REFERENCES..............................................................................................................................12
Books and journals ....................................................................................................................12

Illustration Index
Illustration 1: Ratio analysis..........................................................................................................10
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INTRODUCTION
Strategic management is the key to the successful functions of an organization in the
market (Becker, S.P., and Et al. 2016). The company function on the goals set under its strategy.
The report will cover the results and evaluation of various analysis about the retail giant Tesco.
We also conduct a ratio analysis of the company. This report includes the external and internal
analysis of Tesco and its competitive strategy.
Background
Tesco is a supermarket giant in UK with over 28% market share in 2015. The company
deals in wide range of products form groceries to insurance. It has many stores all around the
world serving millions of customers in week (Simon, 2014). And a rich business on the online
platform with superior customer satisfaction. Its motive is to provide high quality products to its
customers at the lowest price possible with a reasonable profit in its hands. Tesco is also the
leader in the food and grocery sector of UK. The total assets of the company decreased in the
from 50 million in 2013 to 43 million in 2016 which shows a decline in the financial strength of
the company, but it has increased to 45 million in 2017 which shows signs of growth from the
last year.
Market share of Tesco
Tesco is the leader in the sector if food groceries and with its wide range of products it
covers a large market of the country. It also covers the sales in the online market with a superior
marketing strategy then its competitors. The company's share has been on hike and low since
2014 with decrease of 0.8% from 2014 to 2015. After that, it saw a hike from 27.9% in 2015 to
28.2% in 2016. As of July 2017, the market share of Tesco is 27.8% in the market of UK. The
company has an average market share of 28% in the UK. It enjoys the highest share in the
market with a strong situation in the current environment.
Internal analysis
The internal analysis of a company can be best done through the SWOT analysis. The
SWOT of Tesco.
 Strength : Tesco is an international brand in the retail market. The company offers a wide
range of products all around the world. The company has reputation and brand value to
offer high quality products which gives it a large audience. The convenient mini stores
like Tesco express makes the shopping easier for the customers. The company has a
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viable cash flow. The balance sheet of the company is solid which provides a enduring
background.
 Weaknesses : Tesco has a high prices for the products in the market which cuts its
customers. The cost optimization strategy applied proved ineffective for the company.
German competitors like Asda and liba have much lesser price then Tesco. The close to
no knowledge of the choice of local customers in the international market makes it
difficult for the company to maximize sales (Shen, 2015).
 Opportunities : There is a wide chance for the company to expand its international market
on the Asian countries. The Asian markets are widely open in the supermarket chain due
to lesser competitors in the sector. Expansion in retail markets like India and China is
going to give it a big edge as the competition in these markets is really low.
 Threats : Tesco faces the largest threat from the German competitors on the market. The
German companies provide products at a much cheaper cost. The economic recession in
UK has made the consumers go for cheaper items available in the market. The popularity
of the cheap products provided by the German company, as the competitors have an
effective pricing technique and provide attractive offers to the customers.
VRIO analysis
 Value : The value added by the resources purchased is expensive to the company. But the
value is profitable and generates business.
 Rareness : The resources purchased are not at all rare. They are commonly available in
UK.
 Intimation : The intimation of the products is really easy as the products have several
substitutes.
 Organization : The resources procured by the company gives support to the organization
as they generate a large amount of business for the company.
Patents
Tesco has a number of patents under its name. It has taken patents for invention and
development in the many sectors (Martel, M.M., and Et al. 2017). Tesco has its roots in number
of businesses, and the list of patents taken by Tesco is much higher than its competitors.
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Research and development
Tesco has a research and development section in the company. This section is dedicated
to research work on the bioabsorbable products and manufacturing of challenging devices.
Sales network
Tesco has a very solid network in offline and online sales. The customer audience has a
wide approach. Tesco is a global retail chain of supermarkets, that gives it a superior sales
network to it. Its supermarket and mini stores in UK and other parts of the world which provides
it a high sales and revenue. The company has a total of 6809 business shops around the world.
460000 colleagues and 79 million of shopping trips in a week. It serves a million customer in 7
days and earn creates sales globally. Its online shop includes in the above figures with a
reasonable contribution to the sales of the company.
Benefits and limitations
The competitive strategy of the Tesco has a clear model of providing high quality of
product at the lowest price possible. This strategy has been effective for the company as the
company currently has the highest market share of 28.7% . Tesco earns a huge amount of
revenue through the sales in UK and other parts of the world.
Benefits :
 The company does not compromise with the quality of the product, the entities sold are of
high quality which earns superior satisfaction from the consumers.
 The products offered by Tesco in all its stores are durable and the built up of the entities
is well standardized by the company (Simon, 2014). Items below the standards are not
accepted.
Limitations :
 The consumers are looking for cheap products all around the world and they are willing
to compromise with the quality. This proves to be the greatest disadvantage to the
company.
 Tesco is providing items at low prices but competitors have a lower pricing policy to beat
the competition. The German companies are providing the products at a cheaper cost then
them.
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 The cost optimization strategy is not proper and it is failing in cutting the cost of the
products offered by the company, which is giving competitive advantage to the
competitors.
Pestle analysis
 Political factors : Tesco has its operations in the whole world, this global supermarket
chain has to deal with a number of government and political factors. The factors include
tax rates, acts of legislation and other political changes. The existence of the company
also depends on the stability of the operational country. International market rates and the
comparative rates in different countries. For instance the UK government launched FAT
tax on the food products to take care of the increasing medical issues in the country. The
revenue of Tesco had an adverse affect due to a large range of products falling under the
category. In 2014, Tesco launched a new range of health food items to over come this set
back.
 Economic factors : The economic factors effect the company a lot as they are
comfortable to leverage cost, demand, profit and prices (Salati, M., Et al. 2013). Tesco is
working at the international level, they should be aware of the policies that may hinder its
needs for finance. It may be operating in the global retail market but it still depends on
the UK market. If a country is hit by recession the buying power of the people decreases
to a ton, this effects the sales of the company to a big margin as the income to dispose
buy the consumers become really low. Tesco shifted to advertisement of the brand
products of the company instead of the luxury items during the recession period in UK.
 Social factor : The perception of people towards the products change with the change in
the social conditions of a country or area. Tesco started to sell more non food products in
its stores after the research showed that the customers are willing to buy stock items in
one store models and people have become more aware about their health and the choice
of food has changed thus.
 Technological factors : The technological advancement provides the company with new
opportunities. Tesco was provided a whole a new possibility with the introduction of
online shopping. The new platform for shopping gave the company a cheaper platform
for sales and convenience to the consumers with easy access to all the products. Cost of
labor was reduced by the self check out points for customer. To reduce carbon foot print
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the company invested in power efficiency projects to satisfy its long term requirement for
energy.
 Environmental factors : The environment is highly effected by the company's
operations in the world. The governments are forcing the companies to adapt
environment friendly techniques and spread environment saving awareness. Tesco is
taking various steps to work for the environment, it has worked to control its carbon foot
print and reduce it to 50% by 2020 (Dinnie, 2015).
 Legal factors : Changes made by the government in legal policies influence the working
of Tesco directly. The amendments made by the government in the regulations impact the
revenue and sales of the companies.
Porter's Five Forces
 Threat of new entrant : the threat from a new entrant in the retail supermarket industry
is low to Tesco.
 Threat of rivalry : The UK food retail industry is packed with competitors. The food
retail market is highly competitive in nature due to the existence of food giants in the
industry. The biggest threat is faced by Tesco from Asda, Sainsbury's and other
equivalent competitors. These competitors are providing the products at a lower cost in
case of Asda, and Sainbury's products are known for its supreme quality in the market.
The competitors also have influential pricing policy as not in the case of Tesco.
 Threat of substitute : The company is faces a major threat from the major competitors in
the market. As the German competitors are offering the same kind of product at a cheaper
price than Tesco therefore the sales of the company may fall. The people find a substitute
to the products which are highly prices or not accessible. This threat is increasing with
the discount stores opening in the UK region.
 Buyers bargaining power : The bargaining power of the buyers is effectively high. The
buyers compare the products in the market and go for the cheapest product available with
the similar credentials. The products are available to the buyers with cheap prices in other
stores.
 Suppliers bargaining power : The power of supplier is quite low in the UK retail
industry. The suppliers are afraid to lose their contracts with the big supermarket chains.
They are inclined to supply to the big businesses such as Tesco, Sainbury's and Asda
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making their place really strong in the negotiations and the deals are made at low prices
with the suppliers.
Benefits and limitation
From the above two analysis it is concluded that in the current environment Tesco has
following benefits and limitations.
Benefits :
 Tesco has a brand value and it can use it to get new band of customers with a new pricing
policy.
 The company has an online platform which gives it a fare edge over its competitors.
 Tesco is a global firm and it can expand its business in the areas with more open market.
 The change in the social factors favor Tesco as the company provides the non food items
in under the same facility which is popular among the population.
 Industry has low supplier's bargaining power which facilitates Tesco as they can buy the
products at low costs and sale with a reasonable profit.
Limitations :
 It operates at global level making it which needs to take care of all the countries policies
which makes it difficult to operate business.
 The exchange rates among the countries is a big issue for it. As the change on exchange
rate can lead to big losses.
 The competitors of Tesco are offering a cheaper price and with more attractive offers
than it and it can effect its market position adversely.
Ratio analysis
The ratio analysis lets the company know the current financial position, its profit earning
to its revenue generated and its debt paying capacity. Here we calculate three ratios with the help
of financial statements of the company (Kurokawa, D. and Et al. 2015).
Ratios to be calculated :
1. Profitability ratio
2. Liquidity ratio
3. Capital gearing ratio
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The current ratio depicts the company's capacity to pay short and long term debts. The
current ratio of Tesco is showing a increasing trend which concludes that the company's can
return its debts on time.
The Quick ratio depicts the company's ability to pay short term debts. The quick ratio is
in a strong position which concludes that the company is in a place to return its short term debts
successfully.
Gross profit ratio shows the profitability of the firm. It is the amount of every pound of
profit earned on the revenue of the company. Tesco's gross profit ratio is really low which shows
that the company is not earning enough profit.
Net profit ratio shows the amount of every pound earned of net profit on the net sales
made by Tesco. The ratio is really low which shows that company is earning really low profit
and even loss.
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Illustration 1: Ratio analysis

The Debt equity ratio shows the amount of debt to that of the equity shares. Debt is more
than the equity in the company but not double, this provides that the companies condition is
stable.
Key factors of success
The key features for success is its high quality products which it avails the consumers at
low prices. The brand image of Tesco helps it attract new customers in the market. The number
of mini stores and supermarkets helps it to get to a larger audience (Shen, 2015). And the online
business platform gives it a big competitive advantage against its competitors.
Value chain analysis
 Inbound logistics : Tesco operates globally which increases its area of operations. The
company makes regular investment in the logistics to exploit economies.
 Outbound logistics : Flexibility and cost-effectiveness of deliveries provide main sorces
to value of outbound logistics. The company offers home delivery to the buyers of the
online business.
 Marketing and sales : the company focuses on providing the consumers with high quality
of product which is the main marketing strategy and it generates sale to the company.
 Services : Tesco provides its customers with superior services to attain brand loyalty and
the customers are attracted to the store. It serves a million customers in week.
CONCLUSION
The report shows the clear picture of Tesco's position on the market. The company has a
market share of 28% and is the leading retail store in UK. It does not have a solid pricing policy
which is giving advantage to its competitors. The ratio analysis concludes that the over all
condition of Tesco is stable but it needs to earn more profit in the coming years.
Recommendations
Tesco needs to work on its pricing strategy to keep its customers satisfied and retain its
market share. It should expand in the Asian countries to maximize sales. It needs to maximize its
profit earning in the future.
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REFERENCES
Books and journals
Dinnie, K., 2015. Nation branding: Concepts, issues, practice. Routledge.
Becker, S.P., and Et al. 2016. The internal, external, and diagnostic validity of sluggish
cognitive tempo: A meta-analysis and critical review. Journal of the American Academy of Child
& Adolescent Psychiatry, 55(3), pp.163-178.
Becker, S.P., Et al. 2016. The internal, external, and diagnostic validity of sluggish
cognitive tempo: A meta-analysis and critical review. Journal of the American Academy of Child
& Adolescent Psychiatry, 55(3), pp.163-178.
Kurokawa, D. and Et al. 2015. Muscle Activity Pattern of the Shoulder External Rotators
Differs in Adduction and Abduction: an Analysis Using Positron Emission Tomography. CYRIC
annual report, 2014, pp.88-90.
Martel, M.M., and Et al. 2017. A general psychopathology factor (P factor) in children:
Structural model analysis and external validation through familial risk and child global executive
function. Journal of abnormal psychology, 126(1), p.137.
Salati, M., Et al. 2013. The use of the Thoracic Morbidity and Mortality system for the
internal analysis of performance: a case-matched temporal audit. European Journal of Cardio-
Thoracic Surgery, 45(5), pp.859-863.
Shen, W., Et al. 2015. Reliable quantitative SERS analysis facilitated by core–shell
nanoparticles with embedded internal standards. Angewandte Chemie International
Edition, 54(25), pp.7308-7312.
Simon, A., Yaya, L.H.P., Karapetrovic, S. and Casadesús, M., 2014. An empirical
analysis of the integration of internal and external management system audits. Journal of cleaner
production, 66, pp.499-506.
Online
Tesco PLC. 2017. [Online]. Available through <http://financials.morningstar.com/balance-
sheet/bs.html?t=TSCDY&region=usa&culture=en-US> [Accessed on 22 August 2017].
Vrio frame work. 2017. [Online]. Available
through<https://www.strategicmanagementinsight.com/tools/vrio.html> [Accessed on 22
August 2017].
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