Tesco's Business Strategy: Macro, Internal, and Competitive Analysis

This report provides a comprehensive analysis of Tesco's business strategy. It begins with an introduction to strategic planning and its importance for business growth, followed by a detailed examination of Tesco's macro-environment using the PESTEL model, considering political, economic, social, technological, environmental, and legal factors. The report then analyzes Tesco's internal environment and capabilities, utilizing SWOT and VRIO models to assess strengths, weaknesses, opportunities, and threats, as well as the value, rarity, imitability, and organization of its resources. Furthermore, it applies Porter's Five Forces to evaluate competitive forces within the UK retail market, including the bargaining power of customers, threats of new entrants, supplier power, industrial rivalry, and the threat of substitution. Finally, the report outlines a strategic management plan, incorporating Bowman's strategy clock and other strategic theories to propose recommendations for Tesco's future business decisions. The report concludes with a summary of findings and a list of references.

Business Strategy

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................2
P1: Macro environmental analysis...............................................................................................2
P2: Analysing internal environment and capabilities..................................................................4
P3: Porter five force analysis for evaluating competitive forces.................................................5
P4: Strategic management plan...................................................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Strategic planning is defined as the approach to formulate, implement and evaluate the
business strategies and their impact on organizational performance (Bryson, Edwards and Van
Slyke, 2018). It is important for the business to assess both internal and external environment so
that decision making can be improved and growth objectives can be achieved. For this purpose it
is necessary for the organization to have complete knowledge and accurate assessment of its
competitors as well as factors affecting its business operations and decisions. The study will take
Tesco into consideration for analyzing its strategic planning and business environment analysis.
The report will discuss the analysis of internal capabilities of the organization and macro
environment factors using models such as PESTEL and VRIO. It will also include strategies for
achieving different business objectives.
MAIN BODY
P1: Macro environmental analysis
Tesco is among one of the leading merchandise retailer and multinational grocery store
which provides services in UK as well as other parts of the world. The company mission
statement is based on team work and quality which states that company provides better by
working together. Its key elements emphasise on improving lives and health of community by
providing distinguished quality of services and products. The vision statement of Tesco states
that all of its customers, shareholders, colleagues and communities must be served and satisfied
with loyalty and efficiency (Tesco mission and vision statement analysis, 2020). For working
with this vision and to accomplish business goals organisation must analyse external factors
affecting business decisions. The analysis of these macro factors is as follows:
Political: The political relations and stability influences the multinational company Tesco.
Uncertainties in regulation due to Brexit can affect the sales in both positive and negative way.
Some of the inventories of Tesco are also imported from outside the Europe and thus changing
political relations and import duties can directly affect the profitability (Wolf and Floyd, 2017).
Similarly the supermarket tax such as Tesco tax can also result in increasing price wars and
burden on organisation expenses.

Economic: After 2018 minimum wage act is increasing and thus the total cost spent by the
supermarket giant is also increasing by millions of pounds. Thus Tesco must focus on hiring a
strong work force which is highly skilled and trained so that related costs can be reduced. Further
rising borrowing cost also lower the profitability of the company. Amid the pandemic situations
of Covid 19 increasing unemployment rates has significantly affected disposable income of
buyers which will make it necessary for Tesco to enter more into low price strategies (George,
Walker and Monster, 2019).
Social: In last few years life expectancy rate has increased in UK. Thus Tesco must increase the
range of individual groups which must be taken into consideration for business. In this response
company must increase approaches like online shopping and home delivery so that more and
more customers who does not want to visit store can buy through internet. Similarly in products
also organisation must launch new organic products or food products specific to different type of
requirements of people. It will help Tesco to respond properly towards social changes and to
maintain its brand value.
Technological: The biggest change in technology has been already adopted by Tesco which is
online retailing and digital marketing. It has allowed company to operate easily worldwide
without any disruptions. However with increased operational challenges company must also
improve its supply change management system so that their efficiency can be increased. Apart
from the operations Tesco must also enhance use of artificial intelligence to predict the buying
behaviour of consumers. It will help to sustain the fierce competitive environment.
Environmental: As a result of increasing awareness about global climate change and
environment sustainability Tesco is also making efforts to reduce its energy consumption and
green house emission (Abdel-Basset, Mohamed and Smarandache, 2018). Strategies like waste
management and reduction will help to meet CSR goals of company so that a positive brand
perception can be created and operational waste can also be minimised to raise profitability.
Legal: Various laws related to employment force Tesco to maintain adequate wages and working
environment for its staff members. The financial services like loans and credit card provided by
company are also influenced by financial service act. For this company must also change its
policies and actions regularly. The changing agricultural policies can also affect the prices at

which Tesco is buying products from farmers. It not only affect the operating cost but can also
have impact on the organisational brand if company fails to meet these legal requirements.
P2: Analysing internal environment and capabilities
The internal environmental analysis of Tesco can be done by using following SWOT
analysis model.
Strength: Being an experienced and stable retailer Tesco’s good brand value and market position
is one of its key strength. Effective leadership and strategic planning has always saved
organisation to recover very effectively from its losses. In panic situations of Covid 19 also
Tesco just doubled its delivery capacity so that pandemic restrictions do not affect sales or
consumer needs can be meet (Teixeira and Junior, 2019). The highly innovative services and
great responsive services during the tough time strengthened the positioning of Tesco among its
customers. Thus the good problem solving and management abilities also act as one of the
crucial strength of the company which helps to not only retain customers but also to continuously
attract new buyers.
Weakness: In present scenario the biggest weakness of Tesco is product shortage due to panic
buying of customers. However to avoid any inconvenience to customers organisation is rationing
few essential items. There have been constant complaints about quality which indicates that
existing quality control measures are insufficient and company must pay quick attention to them.
Mismanagement in inventory, expired products and food quality and safety issues are acting as
key weak points for company which weakens its position among other competitors.
Opportunity: Technology advancements and pandemic imposed restrictions have encouraged
huge growth in online shopping. Thus Tesco has great opportunity to raise its profitability by
improving and expanding its online grocery stores. Company must also incorporate artificial
intelligence to predict better street level and consumer requirements (Mallon, 2019). To avoid
issues of food wastage and making inventory affordable Tesco must increase social supermarkets
which manages inventory at affordable costs.
Threat: Brexit will influence the import goods and thus supply chain of Tesco can be threatened.
The competitors has forced organisation to reduce its prices to great extent so that customers can
be retained. Economic recession due to pandemic is also one of the current significant threats

which may get fierce with time as well. Thus Tesco must prepare strategies to overcome these
challenges for maintaining its success.
For evaluating the internal capabilities of the organisation VRIO model can be considered as one
of the best approach.
VRIO analysis:
Valuable: The financial resources of Tesco are highly valuable as they help organisation to grab
new opportunities by making necessary investments. Organisation also offers huge range of food
products which also make them valuable resources as it make it differentiated from other
companies (Ojha, Patel and Sridharan, 2020). Workforce of Tesco is also trained and skilled and
thus employees can also be considered as valuable for the organisation.
Rare: The patents of Tesco are rare because they cannot be acquired easily by others. The
organisation also uses well developed programs for training and recruiting its staff members so
its employees can also be considered as rare resources. The highly effective distribution network
of Tesco is also considered as one of its key success factors.
Imitable: Financial resources are considered as imitate because company has acquired them
through long term profitability. Distribution network is also very expensive to imitate for Tesco
as it contributes greatly to efficiency of the organisation.
Organised resources: Financial resources are effectively organised by Tesco so that right
investment decisions can overcome competitive threats and can help to utilise opportunities.
However Tesco has not effectively organised its patents to their full extent. Company must
ensure that patent products are used before their expiry date so that sustainable competitive
advantage can be gained by the firm.
P3: Porter five force analysis for evaluating competitive forces
UK has plenty of retailers which give market a tough place for Tesco. In order to gain
competitive advantage it is necessary for Tesco to make itself aware of the capabilities of its
competitors (Akhmetshin and et.al., 2017). For this purpose Porter 5 forces can be used.

Bargaining power of customers: Availability of vast range of food retailers such as Sainsbury,
Lidl, Aldi gives customers higher power to negotiate with Tesco. As a result company is also
forced to indulge in fierce price wars. For managing this Tesco must emphasis on creating huge
customer segment which can streamline production and sales. Rapid product innovations can
also limit the bargaining on existing products and can be helpful for the company.
Threat of new entrant: UK supermarket segment has low threat of new competitors because
retails sector requires huge capital investment. However at present the new entrants are
encouraging innovation, fierce pricing wars and new value propositions (Rahdari and et.al.,
2020). For overcoming these challenges Tesco is required to regularly incorporate innovations its
services so that customers can be retained for long term. In addition to this organisation can
improve economies of scale so that prices per unit can be reduced and company can survive price
war emerging from this threat.
Supplier power: Tesco has more than 2000 suppliers in UK and thus suppliers of Tesco have
very low bargaining power. For enhancing profit margins Tesco make very hard negotiations. As
compare to its competitors like Sainsbury and Asda Tesco has better position in terms of supplier
power. However on negative side company is also accused by its competitors and suppliers for
bullying due to price wars. It influences supply chain negatively. Contrary to this competitor like
Walmart have better position that have third party manufacturers as supplier so that their power
can be reduced and company can have more profit margin.
Industrial rivalry: Existing competitor’s gives very high competition to Tesco and thus rivalry
force is very high in UK retain industry (Sansone and et.al., 2017). For example, to deal with
competition based on pricing Tesco also opened Jack stores and discounts schemes. However it
must also build sustainable differentiation in its product along with the collaboration with other
competitors so that its market size can be increased.
Tesco Sainsbury Walmart
Industrial rivalry Very low Low Low
Substitution threat Low Moderate Moderate
Supplier power Very low Moderate Low

Bargaining power of
customer
High High Moderate
New entrant threat Very Low Very Low Low
Substitution threat: This force is also very low for Tesco because company is already providing
variety of products and their substitutes. For making competitive performance better against this
force Tesco must try to enhance switching cost and must transform its operations as service
oriented instead of product oriented. It will help organisation to overcome the substitution threats
more effectively.
P4: Strategic management plan
In order to respond to several threats such as increased market competition, economic
recession and changing globalisation business approaches Tesco must improve its strategies.
These strategic changes must be observed not only at marketing level but also at operational and
planning level (Souza-Monteiro and Hooker, 2017). The key strategic theories which can support
Tesco in making its decisions are as follows:
Bowman strategy clock: This model helps organisation to analyse its marketing position in
comparison to its competitors. The eight strategic positions in the model are based on two
dimensions namely: price and perceived value. These dimensions are as follows:
Low added value and price: It is least suitable for Tesco as it will add least value and prices will
also be kept low. Low price helps to compete with suppliers but from profitability perspective it
cannot be considered as best strategy for Tesco.
Low price: This is suitable for companies which produce at large scale and only high volume
generation can be used to balance the profitability against low prices. This strategy can be
helpful for Tesco to withstand the increasing price wars among online retailers.
Hybrid: This strategy involves both product differentiations along with low prices. Thus good
value is added for consumers and they can be retained for long term. It is one of the best strategy
which can be used by Tesco to consistently grow (Ali and et.al., 2018).
.

Differentiation: For the products which are in stable or growth stage Tesco must use
differentiation strategy. It will allow company to emphasis on branding and product quality at
average cost. The extreme high quality products also force customers to even pay higher prices
for them (Kaushik and et.al., 2020). However in online retail industry where pricing is one of
the key challenges this strategy may not fit completely well.
Focused differentiation: In this positioning strategy organisation keeps prices very high for high
quality services. Tesco can use this strategy for some particular segments which enjoy premium
treatment. However for majority of customers preferring online retailing this strategy is not a
good option.
Risky high margins: For products which have high perceived value are charged with high prices.
This is one of the most risks involving strategy and Tesco must not shift to this because in long
term customers choose for low price options which give similar product and service attribute.
Monopoly pricing: This strategy is suitable for companies which have monopoly in market and
thus they do not have any competitive threat. Contrary to this Tesco or retail industry has
minimum monopoly in market and thus it can be almost impossible for the organisation to
choose this strategy.
Market share loss: In this position of bowman clock companies are not able to provide services
which are valued by customers and prices are also high. Thus for Tesco this strategy is not a
enviable position.
Porter generic strategies:
According to this model all organisations must compete on basis of three factors:
differentiation, cost leadership and focus. These strategies are evaluated as follows for Tesco:
Cost leadership: This strategy ensure that for highly competitive environment where customers
are highly cost conscious prices must be kept very low. It can also be done for increasing sales
volume among existing consumers. Cost leadership enhances the asset utilisation, experience
curve and economies of scale so that profits can be increased.

Focus: Another strategy which can be used by Tesco is focus strategy in which company can
target a particular niche or customer segment. After that company can follow both differentiation
and cost leadership in other aspects of services.
Differentiation: Apart from price strategy Tesco can also gain competitive advantage by
providing superior services. Development of new products and strong customer relationship
increases customer loyalty. It also lowers bargaining power of suppliers. However with
differentiation strategy organisation must strictly use monopoly contracts, patents and copyrights
so that differentiators can be protected from competitors.
Strategic plan:
Tesco must use a proper strategic plan for achieving its goals and growth objectives:
Objectives:
The strategic plan aims at achieving following objectives.
 To increase sales by 10% in next 1 year
 To enhance quality of services by improving customer retention rate by increase of 15%
 To maintain adequate supply chain during pandemic situations and to overcome
situations like stock shortage or panic buying
 To sustain market share without influencing price wars in retail industry.
Strategies:
 Tesco must closely conduct market analysis so that it can understand the strategies of its
competitors and timely actions can be taken to increase sales.
 Company has less presence on social media which can act as strong tool for marketing.
Thus Tesco must try to strengthen its online retailing by using social media marketing as
well because these tools have wide approach to audience (Bryson, Edwards and Van
Slyke, 2018).
 Suitable training programs must also be implemented by organisation so that quality
related issues can be resolved.

 The ineffective inventory management is one of the reason that organisation has to face
poor quality of products because huge stock get expired without being utilised. For
avoiding such situations Tesco must integrate technology and artificial intelligence to
make predictions about needs and customer behaviour.
 There must be close monitoring of customer needs and issues. At present quality
concerns are not taken that much seriously by the company so that there is high
dissatisfaction among existing customers. Tesco must resolve this issue by improving
quality and by providing attractive discount offers or benefits to loyal customers.
 As compare to other competitor Tesco does not have much differentiation in product ands
services. Thus for attracting new customers or niches company must innovate its service
delivery mechanism (Kaushik and et.al., 2020). For instance artificial intelligence or
automatic billing counters can be few of the innovations which can be incorporated by
Tesco in its operations and planning processes.
 For improving the efficiency of workforce organisation must also regularly give them
training and motivation.
Risk factors:
The economic recession obtained after pandemic is one of the biggest risk which has not
only affected the purchasing power of consumers but also the organisational supply chain.
Changing regulations due to Brexit, data privacy and technology and political factors can also
emerge as one of the threat for organisation.
Performance indicators:
Customer loyalty is one of the success criteria for the success and growth of organisation.
The continuous growth can be measured by parameters such as sales records and market share.
However Tesco must consider consumer feedback, retention rate, employee satisfaction and
quality concerns which are observed by quality assurance team of the company.
CONCLUSION
It can be concluded from the above analysis that in order to stand out in the fierce
competitive market Tesco must regularly improve its strategic planning. It has been also

analysed that retail industry is undergoing a big change with the advent of e-commerce and
technology. Thus for maintaining continuous growth organisations must respond quickly in
accordance with the business environment changes. It can also be concluded that companies
must also enhance the internal capabilities as per situational demands so that customer
expectations can be meet and service quality can be improved.

REFERENCES
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Online
Tesco mission and vision statement analysis, 2020. [Online]. Accessed through <https://mission-
statement.com/tesco/> .