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STRATEGIC MANAGEMENT ANALYSIS- TESCO PLC, UK

Table of Contents

Introduction .................................................................................................................................... 1

Task A: Market Environment analysis of Tesco, UK ........................................................................ 2

Macro environment analysis ....................................................................................................... 2

Micro environment analysis ........................................................................................................ 4

Critical Success Factors................................................................................................................ 5

TASK B - Resource and Capability Analysis ..................................................................................... 6

Marketing mix ............................................................................................................................. 6

Porter’s Value chain analysis of Tesco ........................................................................................ 8

Task C: Strategic fit analysis of Tesco............................................................................................ 10

Reference ...................................................................................................................................... 12

Introduction

Strategic management analysis aids in understanding the organizations current market strategy

and position and its effectiveness in utilizing its capabilities to enhance its value for achieving

the competitive advantage in the industry, observes Freeman (2010). This work has been

prepared to conduct strategic fit analysis of Tesco and the scope of this work lies in identifying

internal strength and the external opportunities of Tesco and its competitive position. For this

purpose, analysis of the marketing environment and resource of Tesco is assessed. Also, the

strategic fit analysis describes the strengths and weakness of Tesco.

Tesco is a multinational retailer having its headquarters at UK. It was established in 1919 by

Jack Cohen. The company holds the 28.6% market share in UK industry and has maintained its

brand position by adopting latest strategies’ for attracting its huge customer base (Tesco,

2014). Tesco employs around 5 lakh work forces with 6351 stores in UK and around the world.

The company was able to acquire greater level of customer satisfaction by implementing

effective strategies that developed its competitive advantages, reports Mintel (2010). Tesco is

one of the ‘Big four’ retailers of UK, apart from Asda, Morrisons and Sainsbury’s. Tesco

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manufactures variety of products which includes clothes, electronic goods, etc and is also into

banking and monetary services and sustains high quality. But suring 2014, Tesco market share

fell from 28.6 % to 28.4 %, shows The Telegraph (2015).This was majorly due to the profit

overstatement by the retailer and the growth of discounters like Aldi and Lidl and the

advancement in the online retailers (Tesco, 2014).

The strategic management analysis of Tesco is carried out in three steps. In the first step the

analysis of the marketing environment is done by evaluating the macro environment with

PESTLE analysis and the micro environment with Porter’s five forces. The resource and the

capability analysis are conducted by taking Marketing mix and Porter’s value chain analysis. And

towards the end, threshold and unique resources of Tesco, UK and its core capabilities and

competencies are highlighted. In the last step the strengths and weakness along with the

opportunities’ and threats are evaluated.

Task A: Market Environment analysis of Tesco, UK

For analyzing the market environments of Tesco, PESTEL analysis and Porter’s five force analysis

have been conducted.

Macro environment analysis- PESTLE analysis of Tesco

Political factors

Tesco provides jobs to disabled individuals, students and elderly employees with minimum

wage as a part of employment legislation and as a result, these groups of employees show high

degree of loyalty towards the company when compared to the normal employees, including

those left from the organization. With the help of job guarantee scheme, Tesco has been able

to provide jobs for more than 2000 disabled and unemployed individuals (Makos, 2014).

Economic factors

High unemployment rate in the UK economy has been the most crucial factor which has

affected the performance of Tesco. Unemployment in the economy has further reduced the

demand for Tesco products and thus has adversely affected the demand for producing such

items. Stratista (2015b) observed that, Tesco has not been able to control the influence of these

economic factors on organizational performance and these factors generate deep effect on the

marketing mix and overall performance of the company. The overall performance of Tesco is

mainly dependent on its performance in the UK market and it has almost 29% of UK market

share (Ghani, 2012). Delay in the company’s performance in UK food market has chances for

adversely affecting its overall future performance.

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Figure 1: Sales of Tesco in UK in 2014-15

Source: (Statista, 2015a)

Social and cultural factors

Due to the social changes, most of the customers in UK prefer bulk shopping and one-stop

shopping. So, Tesco concentrates more on the sales of non- food goods also. Due to the

changes in demographic factors like increase in women workers, increase in population, etc,

Tesco provides value added products and services for its customers (Tesco, 2014). In the

present world, customers have grown health conscious and from this realization, Tesco started

the sale of organic products through its stores. Tesco is the first company, which allows

payment in both cash and cheques at its checkout.

Technological factors

The major macro environment variable that influence the creation of several products of Tesco

are its technological factors. Tesco uses many technologies like wireless devices, self- checkout

machines, intelligent scale, Radio Frequency Identification (RFID), Electronic shelf labeling, etc.

The utilization of Electronic Funds Transfer Systems (EFTS), Electronic Point of Sale (EPS) and

electronic scanners helps the company to improve stock activities and effectiveness of

distribution (Tesco, 2014).

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Environmental factors

As a part of Corporate Social Responsibility, Tesco decided to reduce carbon footprint by 50%

by 2020. By enhancing social conscience among customers, Tesco has been successful in

reducing wastes in its stores (Makos, 2014). But on the other hand, the UK Government charges

fat tax for fatty and processed foods advertisements of and this has affected the fatty and

processed foods sales at Tesco and also its customers-suppliers relationship.

Legislative factors

Many policies and legislation of government makes direct impact of Tesco’s performance. For

example, Food Retail Commission (FRC) banned many practices of retailers including ban of

alteration of product prices without pre-informing the suppliers. Tesco introduces many

promotion offers and reduction in fuel prices for facilitating these policies of government

(Ghani, 2012).

Micro environment analysis- Porter’s Five Force Analysis on Tesco

This model is mainly used for examining the competition within the organization and the

development of business strategy. It is mainly used for analyzing the micro environment of the

organizations, states Freeman (2010).

Threat of substitutes

Tesco offers quality food products at reasonable price for its customers, so, threats from

substitutes like organic shops, small convenience stores etc does not affect the performance of

the company (Martin, 2014). But Tesco faces fairly high threat of substitute for non-food items

like cloths. During the economic recession, customers preferred discounted products and it

generated threat for the company.

Threat of new entry

As per The Telegraph (2015), the major food retail industries in UK are Tesco, Morrison’s, Asda,

etc and these companies have high brand image in the UK market. Beating the brand image of

these companies and setting up of new company with huge investment in UK market is a

difficult task. So, threat of new entry is very low for Tesco.

Degree of rivalry

Tesco currently faces high degree of competition from its rivals including Sainsbury’s, Asda,

Waitrose, Morrison’s, etc. Competitions are mainly obserbed in the products, price, marketing

activities etc of the retailer (Makos, 2014). Even though, there are many competitors, Tesco

has been able to maintain high market share in the UK market as depicted below:

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Figure 2: Market share of grocery stores in UK

Source: (Makos, 2014)

Bargaining power of buyers

As per Euromonitor (2012), customers’ bargaining power in Tesco is very high. In the present

world, switching cost is very low and retention of customers in firm is a difficult task. Tesco uses

policy of low price, online trading facility, etc for attracting and retaining customers.

Bargaining power of supplier

In Tesco, suppliers bargaining power is comparatively low. Suppliers of major food retailers in

UK have the threat of losing their business if they make higher bargaining and in such a

situation, they makes positive negotiations for getting products at most possible low price

(Dhabalia, 2012).

Critical Success Factors

The above analysis shows that the following stands as the critical success factors of Tesco:

Reputation and brand image: Tesco provides good quality and trustworthy products at

fair price and it ensures value for the money. So, the company is able to maintain good

brand image and reputation in the UK and other operating markets.

Customer loyalty: Tesco provides high quality services, online trading facility and

customer loyalty cards for its customers and it helps the company to generate high

loyalty among the customers of the company. Due to high competition and change in

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preference of customers, company follows innovative methods for maintaining

customer loyalty.

Improve the efficiency of production and distribution channels: For generating good

impact on customers and for improving the brand image of the company, Tesco

reorganizes the production and distribution channels of the company. This helps the

company to improve its product lifecycle management process and for improving its

supply chain management process.

Integration of IT in business: Presently, in all kind of business, IT and internet facility

have an important role for maintaining record and for creating good relation with

customers. Tesco has taken proper care on using such facilities for the success of

business.

TASK B - Resource and Capability Analysis

An internal environment analysis is a process of identifying the strengths that helps to develop

and the strengths that are to be surmounted (Henry, 2011). The analysis of the entire

characteristics of an organization is involved in this process. This process analyses the

strategies, objectives, plans, competencies, operations, policies, resources etc of an

organization. In this section marketing mix and value chain analysis is used.

Marketing mix

Marketing mix is a marketing tool that is implemented in the business and it plays a crucial role

in establishing a product or brand, reports Martin (2014). It usually deals with the 4 P’s – price,

product, promotion and place. In order to achieve the competitive position and to satisfy its

target customer base, Tesco concentrates in developing the marketing mix in an appropriate

manner.

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Figure 3: 4 P’s of Marketing mix

Source: Dudovskiy (2014)

Price: ‘Every Little Helps’ is the marketing message of Tesco and it is on this the pricing

strategy depends upon, reports Tesco (2014). The pricing strategy determines the

profitability and sales of a company. Tesco implements its pricing strategy according to

its business ethics and maintains the competitive advantage. Zhao (2014) observes that

in order to satisfy the customers the management of Tesco decreases the operation cost

and purchase cost by enabling the customers with cost advantage and by sustaining the

brand image through strong sale growth.

Product: Tesco advertises the quality of the product along with low prices for attracting

the customers, reports Mintel (2010). The company efficiently communicates with the

customers about the various products and services through advertisements in

newspapers, TV, radio etc. Tesco offers its customers with variety of services and

products such as clothes, electronic goods, food, monetary services etc. Latest

innovations with advanced creativity are synchronizing in the products of Tesco (Ghani,

2012). Tesco balances both the product quality and price for sustaining the competition

prevailing in the industry and also provides better customer service for satisfying the

customers.

Promotion: Tesco adopts various promotion techniques by focusing on the prime

marketing objective of maximizing the profit and enhancing the brand image in both

short and long term perceptions, observes Henry (2011). The promotional techniques of

Tesco includes charity, advertising through media, point of sales, providing discounts

and offers, sponsorships etc. The successful promotion and marketing tool of Tesco ,

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Tesco club card was introduced as a loyalty scheme for influencing the customers by

providing extra points and discounts on the purchases (Jenny, 2015). This club card

aided Tesco to understand the customer’s viewpoint and information to improve their

marketing strategies.

Place: Tesco has adopted online and offline methods to make its products and services

reach its customers in an efficient manner (Martin, 2014). Place in the marketing mix is

defined as the location from where the products and services of Tesco are available.

‘Tesco Direct’ is the online sales channel of Tesco related to www.tesco.com the official

website. Tesco superstore, Tesco express, Tesco compact and Tesco metro is the offline

sales channel of Tesco.

Hence from the above analysis it can be concluded that reduced cost with high product quality

and the Tesco club card the effective promotional tool are considered as the Tesco’s important

internal characteristics’.

Porter’s Value chain analysis of Tesco

The strategic evaluation tool that links both the primary activities with the supporting activities

of an organization is defined as the value chain analysis (Aboubacar, 2012). According to

Freeman (2010) value chain analysis aids in identifying the strengths and weakness in the value

adding processes of organizations. Porter’s value chain links the primary and the supporting

activities by focusing on the customers and also reveals consequence that it makes on the

profits and costs. Here the business activities are divided into two sections- primary and

supporting activities.

Figure 4: Porter’s generic value chain of Tesco

Source: Aboubacar (2012)

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Primary activities

Inbound Logistics

An effective role is played by inbound in the value chain of Tesco. Brand image with leading

position and the economies of scope are used by Tesco as the tool for bargaining low cost to

the suppliers (Kotler et al, 2012). The delivery of the product at the right place on right price

with proper price is readily assured by Tesco. The inbound logistics of Tesco helps to maintain

its competitive advantage and mainly considers the product selection, scheduling staffs, storing

and the stock.

Operations

For developing the low cost leadership strategy Tesco utilizes its IT systems the Tesco Digital

program in an efficient manner. This system manages the operations of Tesco and is regarded

as company’s third generation ERP solution which has gained high profitability by reduction in

the stock holdings (Jenny, 2015).

Outbound Logistics

Due to the efficiency of the outbound logistics, Tesco is able to maintain its brand position both

in the online and offline segments. In order to reach its large customer base Tesco have

distributed its stores as Superstores, Home plus, Express and Metro (Duncan, 2015).

Marketing and Sales

In order to boost the demands of the customers Tesco introduced price campaigns’ by proving

products at lowest prices but with high quality, observes Dhabalia (2012). Tesco club card is

such an effective loyalty scheme of Tesco which gained the company with huge customers.

These have helped Tesco to become as a competitive retailer by enhancing its position in the

market.

Service

The first online shopping was started by Tesco in UK which enable customers to save their time

and cost by purchasing clothes, electronic goods etc. The effective implementation of the dual

strategy the cost leadership and differentiation with efficient customer services has made Tesco

reach the top most position (Freeman, 2010).

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Support activities

Firm infrastructure

In order to save the time and cost Tesco has implemented warehouse and single vehicle

system. Also it has expanded its stores as warehouses for the online customers to collect their

products from the store nearby, observes Martin (2014).

Human resource management

Tesco provides its employees with effective training, personal development programs, rewards

etc to retain the talented staffs and for recruiting new staffs (Dhabalia (2012).

Technology development

Tesco adopts latest innovations and advanced technologies for improving their services and

products offered to the customers. The online system of Tesco has enhanced its competitive

advantage, reports Datamonitor (2011).

Procurement

All the supporting activities finally arrive in procuring better services to the customers. It has

been found that Tesco spends more on the procurement of goods and services.

The threshold and unique resources and core capabilities/competencies of Tesco are evaluated

on the basis of internal analysis and they are noted below:

Successful inbound and outbound logistics.

Effectiveness in operations

Excellent and talented staffs

Efficient customer service

Price campaigns based marketing and sales

Club card loyalty scheme

Efficiency of the marketing mix involving 4P’s

Task C: Strategic fit analysis of Tesco

According to Zhao (2014), the ability of the organization to match the threats and opportunities

created by the external environment with the capabilities and resources of the company is

known as strategic fit. This section examines the strength and weaknesses of Tesco on the basis

of threats and opportunities in the market environment. The major findings of micro and macro

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environment analysis of Tesco and internal environment analysis of Tesco are used for

analyzing the strategic fit of Tesco.

While analyzing the strategic fit of Tesco, it was understood that, the company has excellent

strategic fit in UK market. The main indicator of this strategic fit of Tesco is its strong brand

image and reputation. With the help of economies of scale, company is able to achieve

competitive advantages over competitors. The major threat of Tesco is the highest degree of

competitions from rivals like Asda, Sainsbury’s, Morrison’s, etc (Mintel, 2010). However, the

company is able to control all competitions over Tesco and the company is able to maintain

major market share in the UK market. Changes in demand and preference of customers are

considered as another major threat for the operations of Tesco. For overcoming this threat, the

company has introduced innovative food products by considering the needs of the customers

for attracting and retaining customers.

For enhancing the market share and for increasing the market position of Tesco in the UK

market, company adopts new strategies. For improving its position in the market, company

should have to concentrate on private label products. Comparing to branded product, these

products have higher margin and the private label sale will help the company to generate high

degree of loyalty from customers. The loyalty schemes and sophisticated scanning will provide

opportunity for Tesco to improve its strategy (Aboubacar, 2012).

The UK food retail market provides many opportunities and strengths for the growth of Tesco

and the company now concentrates on online sale, international sales and non- food sales. The

company achieves highest profit from its UK market and uses this profit to widen its business to

other countries.

The economic crisis in UK will affect the UK business adversely and it will negatively affect the

overall growth of the company (Freeman, 2010).

From the market environment analysis, it was identified that, the food retail industries have

opportunities in the healthier food items but most of the companies expect growth from the

sale of non- food items (Kotler, et al, 2012). Tesco has a strong brand image and reputation in

the market. So, concentration on healthiness and beauty products will improve the success of

the firm. For overcoming the competition in the market, company should concentrate on online

trading and it will help to change the small scale nature of the company.

It was also found that, effective utilization of online distribution channels and online trading will

help Tesco to achieve potential growth in business (Jenny, 2015). For recovering the current

weaknesses of Tesco, it is recommended that the company focus on healthy products and

services.

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It was identified that, in the near future, online purchases will be more than store based

purchases and the popularity of online trading will be high in future, as stated by Duncan

(2015). The major strong point of Tesco is that, it produces goods and services according to the

preference of the customers. So the company can utilize this opportunity effectively for

attracting more customers.

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