Strategic Management Analysis Tesco PLC

[Name]
[Institution]
[Date]

Strategic Management Analysis

Table of Contents

Introduction......................................................................................................................................3
History.....................................................................................................................................3
Company Overview.................................................................................................................3
Section A: Market Environment Analysis.......................................................................................5
Micro and Macro Environment...............................................................................................5
Critical Success Factors...........................................................................................................7
Section B: Resource and Capability Analysis of internal environment of Tesco............................9
Unique Resources....................................................................................................................9
Threshold Capabilities and Competencies.............................................................................10
Section C: Strategic FIT Analysis..................................................................................................13
Tescos Swot Analysis...........................................................................................................13
Strengths................................................................................................................................13
Weaknesses............................................................................................................................14
Opportunities.........................................................................................................................15
Threats...................................................................................................................................15
References......................................................................................................................................17

Strategic Management Analysis

Introduction

History
Tesco PLC originated in 1914 from Londons East End markets when Jack Cohen, a war
veteran began selling groceries. The name Tesco is an incorporation of the initials of company
partner T.E. Stockwell, a tea trader, and the initial two letters of Cohen. In 1920s, Tescos brand
name appeared first on Tea packets and in 1929. The first Tesco store was established in Burnt
Oak, Edgeware (Ndungu, 2014).

Company Overview
Tesco PLC is a British based international grocery retail chain and the largest food
retailer in UK. Tesco owns 1,878 stores in UK and 2,318 stores all over the world employing
over 326,000 people (Ndungu, 2014). Tesco has the highest sales and largest market share in the
British retail sector with revenues of more than 3 billion pounds. Based on its global revenues,
Tesco is also the third largest global retailer with Walmart and Carrefour in the first and second
position (Ndungu, 2014).
In the last five years, Tesco has faced major expansion from a conventional UK
supermarket to become a retail giant with multiple products and services ranging from food, nonfood products, personal finance and internet shopping (Haerifar, 2011). The increasing size and
globalisation of business operations has resulted in increased profitability and efficiency.
Although Tesco provides products and services at affordable prices, the consumer confidence of
the company has declined as changing economic times brought financial insecurity and
unemployment to the masses (Haerifar, 2011). In order to cope with these changing economies,

Strategic Management Analysis

Tesco also shifted its priorities to cater the needs of customers (Haerifar, 2011). The company
constantly evaluated and monitored its product prices and made changes in the value chain
strategy in order to lower the cost, which could in turn benefit the consumer as the prices of the
products will be lower (Ndungu, 2014).
This assignment is divided into three sections. Section A consists of Market Environment
Analysis, which provides micro and macro environmental conditions that Tesco operates in and
the critical success factors of the organisation. Section B consists of Resource and Capability
Analysis, which analyses the internal environment of Tesco and presents unique resources, core
capabilities/competencies of the organisation. Section C consists of Strategic FIT Analysis,
which provides Tescos strengths, weaknesses, opportunities and threats.

Strategic Management Analysis

Section A: Market Environment Analysis

Micro and Macro Environment
Consumers in UK spend more than 325.98 billion pound yearly on retail and out this
approximately 171.05 billion is spent on food retails. The UK retail market has become mature
and saturated and the industry has an annual growth rate of less than 1 %. The disposable income
of UK consumers grew around 4 % in year 2014 to reach 1112 billion (Ndungu, 2014). The
rate of inflation is expected to remain approximately 2.5 % for the next 3 years with the interest
rate at 4 %. The retail sector of UK adds up to 8 % of GVA (Gross Value Added) to the British
economy, creating 2.9 million employment opportunities (Ndungu, 2014). Due to the global
financial crisis of 2008, the UK retail sector faced a large decline in sales; however, the sector
also faced another drop in sales in year 2013. Moreover, it has been forecasted that the UK retail
sector will face another drop in sales in year 2015 and the primary reason for this is the
increasing taxation and decreasing income levels of consumers (Ndungu, 2014). However, the
drop in retail sales does not impact food retailers but other consumer goods, like white goods, are
affected. Additionally, despite the declining sales, retail of non-food items showed an increasing
growth rate as compared to food retails.
The UK supermarket and grocery industry has an oligopolistic structure with Tesco,
Sainsbury, Asda and Morrisons controlling more than 80 % of the market share. Tesco, being the
market leader, holds up to 30 % of the market share and after a large gap its closest rival Asda
has 14.7 % market share (Grugulis, Bozkurt & Clegg, 2011). Additionally, the online business
sector of UK experiences significant growth and tripled in size, reaching a value of 3.84 billion
by the year 2012 and making it the most attractive online food retail sector of the world
(Grugulis, Bozkurt & Clegg, 2011). UK consumers are considered as the heaviest online

Strategic Management Analysis

consumers of the world and continue to lead the European online shopping. They are expected to
contribute up to 30 to 35 % to the total European sales by the end of 2015.
After Tesco, the closest rivals in the online shopping sector are Asda and Sainsbury's in
terms of sales volume. However, other retail sectors such as detergents, clothing, home audio and
video and white goods, have promising growth rates (Haddock-Millar & Rigby, 2015). Retail
companies are now focusing on introducing and enhancing the quality and positioning of their
own private labels, which has affected the sales of well-known food businesses. In the past
decade, the major focus of retailers was to decrease the number of store outlets and increase the
space of the outlet to achieve economies of scale and convenience of large number of consumers
who have out-of-town shopping preference (Haddock-Millar & Rigby, 2015). The consumers of
UK retail industry are highly empowered with high level of quality orientation and
sophistication. The space increased trend has favoured the market leaders in the UK grocery
sector and allowed them to penetrate into other categories like health and beauty items, which
has been successful to an extent that these retail chains have surpassed the market leaders of
primary health and beauty sector. Tesco has also become the market leader of health and beauty
sector, holding half of the market share, dominating the health and beauty retailers like Lloyds
Pharmacy and Boots (Haddock-Millar & Rigby, 2015).
In order to reduce the monopolistic practices in the grocery sector, in 2008 the UK
Competition Commission's (CC) issued several recommendations to prevent retailers in
expanding more than 60 % of the total market share (Brown & Whysall, 2013). However, many
observers believed that these decisions by Competition Commission will have slight impact on
the market share of top players. According to Competition Commission, the main reason for
these regulations is to allow new entrants in the market and give small retail businesses a chance

Strategic Management Analysis

for growth (Brown & Whysall, 2013). High financial and monetary pressures allowed
discounters, like Aldi and Lidl, to increase their sales and achieve around 9 % of growth in 2012.
Although the financial and monetary pressures have not changed much, but differentiated
retailers like Waitros can achieve increased sales of their brands at a premium by successfully
positioning the companys brands around value (Brown & Whysall, 2013).
These oligopolistic retail market conditions should be provided UK consumers with a
lower bargaining power as compared to the retail giants (Ramakrishnan, 2010). However, the UK
consumers are not limited to the Big 4 players and enjoy more control over their purchasing
process by using multiple retailers for meeting their needs. Due to this the UK consumers enjoys
a unique power in the UK market that differentiates it from other consumers in the global market
and creates a highly competitive environment (Ramakrishnan, 2010). The luxury goods sector
has also achieved a sustainable growth in the UK market as a result of higher income trends. The
luxury goods retail industry is expected to grow in the future as the annual income level of highend consumers rises above $50,000 and above $1 million (Ramakrishnan, 2010).
Another major factor contributing to the micro and macro retail environment is the
changing consumer demand patterns, especially in food retail items. UK consumers have become
more price-conscious without compromising on the quality of products or services. They have
also become less loyal to their favourite brands and can easily switch to a substitute having same
quality and at low prices (Ramakrishnan, 2010).

Critical Success Factors

Although Tescos attempted to lower their product prices and introduce their own labels,
it is now focusing on cost leadership strategy to claim premium customers by offering a

Strategic Management Analysis

differentiated product line (Clottey, Collier & Stodnick, 2011). However, offering product range
and different variety has not proven to be effective in gearing the potential of private labels along
with poor store atmosphere and display. The slogan of Tesco, Every little helps has been
successful in in positing the brand around value for money and savings. Tescos portfolio
includes grocery retail stores, petrol pump stations, clothing and accessory, financial solutions,
and online commerce (Clottey, Collier & Stodnick, 2011).
Tescos vision and marketing strategies are quite generic and broad. However, if
translated into one statement it would be, We want to be great in all products and all markets for
all customers.

Strategic Management Analysis

Section B: Resource and Capability Analysis of internal environment of Tesco

Unique Resources
Unique resources and critical success factors are indispensable elements of a business for
achieving a competitive edge over the rival organisations. One of the crucial strategic capabilities
of Tesco is its cost effectiveness. According to Brannen, Moore & Mughan (2013), the
economies of scale are significant in the marketing and distribution of products in food retail
sector. Tesco has been able to achieve more than 30 % market share with the help of economies
of scale and offering an experience that has strong strategic impact.
Tescos large sales volume has provided strong bargaining power, the ability to spread its
expenses as well as specialize and divide its labour. Having high sales volume compared to its
rivals, Tesco can have the advantage of the Experience Curve, which means improvement in
labour productivity, standardisation, efficiency, specialisation, technological advancements and
better use of equipment.
Tesco has established its multi-channel leadership by aiming at the horizontal
diversification strategy and providing various business solutions the targeted segment. One
example of this approach is Tescos petrol pump stations in UK, which are located strategically
near the companys targeted consumers (Clottey, Collier & Stodnick, 2011). Tesco has clearly
adopted the multi-channel approach in reporting and management and has divided its business
units based on markets instead of product groups. Due to this is has become challenging to
understand and analyse Tescos portfolio and performance of product categories (Clottey, Collier
& Stodnick, 2011).
Haerifar (2011) explains that the resources of an organisation are categorised in two
broad groups, i.e. tangible and intangible resources. The tangible resources can be identified

Strategic Management Analysis

10

easily since they exist physically and are considered as the assets of the organization. Tescos
tangible assets include 3700 stores, 440,000 workers and around 38 billion pound turnover. On
the contrary, the intangible assets of an organisation are not easily identifiable and comprise of
consumer information, technology, brand image and name, and organisational culture. According
to Haerifar (2011), these intangible assets are invaluable to the company and may help in achieve
competitive edge because of their sustainability and uniqueness. The three crucial intangible
assets of a company are its reputation, worker knowledge, and product name. Therefore, to
achieve competitive advantage over its rival, a company must have unique, valuable,
irreplaceable and non-substitutable resources. These factors have high impact on companys
strategy and results. However, the nature of resources of a company is not important, but it is the
way a company manages its unique resources is crucial.

Threshold Capabilities and Competencies

Competencies of an organisation include the skills that are required to effectively manage
the unique resources for achieving strategic capabilities. According to Haerifar (2011), it is
necessary to make a distinction between core competences of an organisation and its threshold
capabilities. Threshold capabilities signify what the organisation must do for surviving in the
industry, and have direct relationship with the critical success factors. These capabilities follow a
specific strategy and responds to the needs of the customer with unique resources. Grocery retail
stores like Tesco has to ensure a consumer friendly environment for attracting maximum
potential customers; therefore, Tesco needs its workers to have a friendly and helpful attitude
with the customers. Such threshold capabilities can be crucial for the survival of the organisation
in the industry. Yet, there are time when the company has to make some trade-offs but the focus

Strategic Management Analysis

11

on providing consumer friendly environment and responding to consumers basic needs cannot
be compromised. With the combination of strong resources and threshold capabilities, Tesco will
be able to lock out its competitors.
Porter explained that core competencies of an organisation are the key resources and
critical success factors in order to successfully achieve competitive edge. One of main threshold
capabilities of Tesco is its cost effectiveness. According to Brannen, Moore & Mughan (2013),
the economies of scale are significant in marketing and distribution of products in food retail
sector. Hence, by applying economies of scale, Tesco can have the advantage of achieving cost
reduction. Tesco also has the advantage of Experience Curve, which means specialisation,
efficiency, improvement in labour productivity, technological advancements, standardisation, and
better use of equipment.
Tesco realised the importance of threshold capabilities and its value to the consumers for
building competitive advantage. Therefore, the Tescos core companies are based on customer
service, product quality and value, and product variety (Jttner, Christopher & Godsell, 2010).
The company also focuses on logistics and supply chain, and provides an environment which is
consumer friendly. Initially, Tesco focused on old deal-based procurement system; however, its
supplier relations evolved over the time into a well-integrated supply chain and logistics
management system. This system has made Tescos business significantly stronger (Jttner,
Christopher & Godsell, 2010).
Another focus of Tesco is the consumer friendly environment and the company provides
proper training to its workers regarding the proper behaviour of attending a customer and provide
helpful environment (Potter & Disney, 2010). Tesco enjoys control over its suppliers with a
diverse product range. This control helps the company in bringing idea of untapped segment of

Strategic Management Analysis

12

the market and becoming flexible to changes in market with the use of New Product
Development (NPD) and integrated supply chain and logistics management system (Potter &
Disney, 2010).
With respect to product quality and value, Tesco sells high volume of products for
benefitting from the experience curve and resultantly reducing the unit cost and price without
reducing its profit margins (Jttner, Christopher & Godsell, 2010). Even though Tesco provides a
combination of value added products with low prices; the company is capable of managing its
unique resources and threshold capabilities with the in-depth insight of customers requirements.
Additionally, value with low cost permits the company to increased sales volume with profits,
which can be re-invested for developing differentiation (Jttner, Christopher & Godsell, 2010).
The main challenge of core competencies of an organisation is to adopt a strategy that
balances the focus on customer requirements as well as companys profitability and Tesco has
been able to successfully develop its threshold capabilities for achieving competitive edge (Potter
& Disney, 2010).

Strategic Management Analysis

13

Section C: Strategic FIT Analysis

Tescos Swot Analysis
Tesco PLC, being a major food retailer primarily, operates in the United Kingdom. The
company manages over 2,291 supermarkets, superstores and convenience stores in the United
Kingdom and in the rest of Europe and Asia (Haerifar, 2011). The company provides a wide
range of services including financial services, such as insurance and banking services, as well as
electrical appliances and telecommunication products.

Figure 1: SWOT Anlaysis of Tesco PLC

Source: Data mornitor

Strengths
The global retail brand Tesco is listed in the top 100 of the worlds most valued brands;
however, its placement is slightly below IKEA and eBay (Brown & Whysall, 2013). The
company is well-known as it offers a wide range of products, convenience, and value for money
and focused management (Ndungu, 2014). Tesco has 6,784 stores worldwide, out of which 433

Strategic Management Analysis

14

stores were opened after 2012, regardless of the disposal of their US venture, Fresh & Easy
(Ndungu, 2014).
Tesco has incorporated innovative business methods at its good time that encompasses
the creation of stores like Tesco Metro and Tesco Express, which are small stores located in local
neighbourhoods to ensure convenient shopping for customers (Brown & Whysall, 2013). The
nucleus of strength in global operations includes online shopping, joint ventures, such as in
China, and local recruitment, including in senior management positions. Taking privilege of its
size and facilities, Tesco can benefit from economies of scale by buying in bulk (Clottey, Collier
& Stodnick, 2011). This leverages the company to keep lower prices that are attractive and
competitive with UK retailers such as Asda or Sainsburys. Moreover, they retain customers by
building long-term relationships and creating loyalty packages such as the Clubcard (Brown &
Whysall, 2013).

Weaknesses
Tesco has emerged as a very big company with a diversified range of products that
includes food items and non-food items like, books, clothing, furniture, insurance, petrol stations
and financial services. This model bears weaknesses as well. Tescos profit has been influenced
due to bad debts from credit cards and high levels of household insurance claims (HaddockMillar & Rigby, 2015). Another issue is the companys lack of experience in few markets it
intends to cater, such as its own brand smartphones and tablets (Brannen, Moore & Mughan,
2013). Tesco needs to invest heavily in areas of web technologies and IT, as well as store
refurbishment, diverting cash from price reduction strategies, which is anticipated to have a
drastic impact on sales (Brannen, Moore & Mughan, 2013).

Strategic Management Analysis

15

Opportunities
Tesco has a number of opportunities to exploit, which includes expansion into markets
such as digital entertainment, through their 80% investment in Blinkbox (Potter & Disney, 2010).
The move of offering company branded tablets and smartphones can intersect with this
investment, specifically in foreign markets such as Malaysia, South Korea, Thailand and China
(Nwagbara, 2010). Online shopping is a feasible and flexible option for customers with busy
lives and mobility issues and Tesco is trying to cater to this market by expanding operations in
this sector (Potter & Disney, 2010). The continuing effects of the recession, where individuals
and families are too busy in financial struggle (Thompson et al., 2012), can be offset through
wider value and Tescos finest branding. Furthermore, overseas expansion can be taken up to in
markets like Australia, where grocery retail market is exposed to comparatively limited
competition but is price-sensitive (Potter & Disney, 2010).

Threats
Tesco face many threats in the market. Their current position in the UK grocery retail as
number one intensifies their competition from Sainsburys, Adsa, Morrisons, and, increasingly,
Lidl and Aldi (Wood, Coe & Wrigley, 2014). The threat Tesco continues to take on is the
takeover of Adsa by Wal-Mart. The increasing branding of stores as Adsa Wal-Mart in the UK,
highlights a weakening in the customer disdain of Wal-Mart. The 9th on top 100 brands in world,
Wal-Mart is Tescos biggest global competitor and is leveraged by necessary skills, resources,
experience and funds to cause Tesco problems (Barnes & Lea-Greenwood, 2010).
Being a cost leadership and differentiated retailer, Tesco should take a strategic move of
trade-off (Grugulis, Bozkurt & Clegg, 2011). Established on Tescos history and the market

Strategic Management Analysis

16

analysis, it can anticipate success by positioning its brand through differentiation and high
quality products for premium customers. Strong segmentation and digital services would be vital
for attaining this position. The key elements to invest in should be building a strong customer
relationship management system that is highly effective and rich in data (Barnes & LeaGreenwood, 2010).

Strategic Management Analysis

17

References

Barnes, L., & Lea-Greenwood, G. (2010). Fast fashion in the retail store environment.
International Journal of Retail & Distribution Management, 38(10), 760-772.
Brannen, M. Y., Moore, F., & Mughan, T. (2013, September). Strategic ethnography and
reinvigorating Tesco Plc: Leveraging inside/out bicultural bridging in multicultural
teams. In Ethnographic Praxis in Industry Conference Proceedings (Vol. 2013, No. 1, pp.
282-299).
Brown, D. M., & Whysall, P. (2013). Viewing the StrategyPerformance Relationship Through a
Reputational Lens: A Longitudinal Study of Leading Retailers. Strategic Change, 22(3
4), 129-144.
Clottey, T. A., Collier, D. A., & Stodnick, M. (2011). Drivers of customer loyalty in a retail store
environment. Journal of Service Science (JSS), 1(1), 35-48.
Grugulis, I., Bozkurt, ., & Clegg, J. (2011). No place to hide? The realities of leadership in UK
supermarkets. Retail Work, 193-212.
Haddock-Millar, J., & Rigby, C. (2015, January). Business Strategy and the Environment: Tesco
Plc's Declining Financial Performance and Underlying Issues. In Global Conference on
Business & Finance Proceedings (Vol. 10, No. 1, p. 127). Institute for Business &
Finance Research.
Haerifar, P. (2011). Performance Management in Tesco.
Jttner, U., Christopher, M., & Godsell, J. (2010). A strategic framework for integrating
marketing and supply chain strategies. The International Journal of Logistics
Management, 21(1), 104-126.

Strategic Management Analysis

18

Ndungu, K. (2014). Analysis of Tesco. Grin Verlag.

Nwagbara, U. (2010). Managing Organizational Change: Leadership, Tesco, and Leahy's
Resignatio. E-Journal of Organizational Learning and Leadership, 9(1), 56-79.
Potter, A., & Disney, S. M. (2010, May). Removing bullwhip from the Tesco supply chain. In
Production and Operations Management Society Annual Conference.
Ramakrishnan, K. (2010). The competitive response of small, independent retailers to organized
retail: Study in an emerging economy. Journal of Retailing and Consumer Services,
17(4), 251-258.
Wood, S., & Reynolds, J. (2012). Leveraging locational insights within retail store development?
Assessing the use of location planners knowledge in retail marketing. Geoforum, 43(6),
1076-1087.
Wood, S., Coe, N. M., & Wrigley, N. (2014). Multi-scalar localization and capability
transference: exploring embeddedness in the Asian retail expansion of Tesco. Regional
Studies, (ahead-of-print), 1-21.
Yu, W., Ramanathan, R., & Nath, P. (2014). The impacts of marketing and operations capabilities
on financial performance in the UK retail sector: A resource-based perspective. Industrial
Marketing Management, 43(1), 25-31.

Online Source:
Datamonitor. Tesco PLC Company Profile. Retrieved from: http://www.datamonitor.com/