STRATEGIC mana

TESCO PLC
Table of Contents
1.0 Introduction................................................................................................................................2
2.0 Porter Five Force.......................................................................................................................2
Threat of New Entrants................................................................................................................2
Bargaining Power of Suppliers....................................................................................................3
Bargaining Power of Customers..................................................................................................3
Threat of Substitutes....................................................................................................................4
Bargaining Power of Competitors...............................................................................................4
3. PESTEL analysis.........................................................................................................................5
Political Forces............................................................................................................................5
Economic Forces.........................................................................................................................5
Social Forces................................................................................................................................5
Technological Forces...................................................................................................................6
Environmental Factors.................................................................................................................6
Legal Factors...............................................................................................................................6
4.0 Value Chain Analysis................................................................................................................7
Inbound Logistics........................................................................................................................7
Operations Management..............................................................................................................8
Outbound Logistics......................................................................................................................8
Marketing and Sales....................................................................................................................8
Services........................................................................................................................................8
5.0 Conclusion and Recommendation.............................................................................................9
References......................................................................................................................................11

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1.0 Introduction
Tesco plc is one of British largest retail grocery currently the first in terms of the top 10 retail
grocery in the United Kingdom. It was the first UK business to make £2 billion in profits when it
announced the feat early in 2005, (Tesco Annual Review, 2005) and the third largest global
retailer based on revenue. Over the years, retail grocery sector represents the largest industry in
UK providing employment for millions of people in UK either in manufacturing or in retailing.
In 2003 retail accounted for 9% of domestic product (Datamonitor, 2003).

The name TESCO was derived from the combination of a tea supplier's name T.E.Stockwell and
Jack Cohen the founder of Tesco plc. Tesco was founded by Jack Cohen when he began to sell
surplus groceries from a stall in the East End of London in 1919 and in 1924 Jack Cohen made a
new label by combining the first three letters of the supplier's name (TES), and the first two
letters of his surname (CO) to form TESCO. Tesco is one of the largest food retailers in the
world, operating around 2,318 stores and employing over 326,000 people.

The worst fallout with the legal before tax loss of £6.4billion in the year 2015 to the end of
February was recorded for the first time in the 96 years history of Tesco. The customers are
switching to internet shopping, small domestic stores and discounters like Aldi and Lidle, thus
the extensive pressure is being faced by all retailers in the industry. Nonetheless, Tesco face the
worst consequences due to its large-scale business

2.0 Porter Five Force

Threat of New Entrants

The UK grocery market is primary dominated by few competitors, including four major brands
of Tesco, Asda, Sainsbury’s and Safeway that possess a market share of 70% and small chains of
Somerfield, Waitrose and Budgens with a further 10%. Over the last 30 years, according to Ritz
(2005), the grocery market has been transformed into the supermarket-dominated business.
Majority of large chains have built their power due to operating efficiency, one-stop shopping
and major marketing-mix expenditure. This powerful force had a great impact on the small
traditional shops, such as butchers, bakers and etc. Hence, nowadays it possesses a strong barrier
for new companies who desire to enter the grocery market. For instance, it becomes rather

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difficult for new entrants to raise sufficient capital because of large fixed costs and highly
developed supply chains. This is also evident in huge investments done by large chains, such as
Tesco, in advanced technology for checkouts and stock control systems that impact new entrants
and the existing ones. Other barriers include economies of scale and differentiation (in the
provision of products or services with a higher perceived value than the competition) achieved
by Tesco and Asda seen in their aggressive operational tactics in product development,
promotional activity and better distribution.

Bargaining Power of Suppliers

This force represents the power of suppliers that can be influenced by major grocery chains and
that fear of losing their business to the large supermarkets. Therefore, this consolidates further
leading positions of stores like Tesco and Asda in negotiating better promotional prices from
suppliers that small individual chains are unable to match Ritz (2005). In return, UK based
suppliers are also threatened by the growing ability of large retailers to source their products
from abroad at cheaper deals. The relationship with sellers can have similar effects in
constraining the strategic freedom of the company and in influencing its margins. The forces of
competitive rivalry have reduced the profit margins for supermarket chains and suppliers.

Bargaining Power of Customers

Porter theorized that the more products that become standardized or undifferentiated, the lower
the switching cost, and hence, more power is yielded to buyers Porter M. (1980). Tesco’s famous
loyalty card – Clubcard remains the most successful customer retention strategy that significantly
increases the profitability of Tesco’s business. In meeting customer needs, customizing service,
ensure low prices, better choices, constant flow of in-store promotions enables brands like Tesco
to control and retain their customer base. In recent years a crucial change in food retailing has
occurred due to a large demand of consumers doing the majority of their shopping in
supermarkets that shows a greater need for supermarkets to sell non-food items. It has also
provided supermarkets with a new strategic expansion into new markets of banking, pharmacies,

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etc. Consumers also have become more aware of the issues surrounding fairer trade and the
influence of western consumers on the expectations and aspirations of Third World producers.
Ecologically benign and ethically sound production of consumer produce such as tea, coffee and
cocoa is viable, and such products are now widely available at the majority of large chains.

Threat of Substitutes

General substitution is able to reduce demand for a particular product, as there is a threat of
consumers switching to the alternatives Porter M. (1980). In the grocery industry this can be seen
in the form of product-for-product or the substitute of need and is further weakened by new
trends, such as the way small chains of convenience stores are emerging in the industry. In this
case Tesco, Asda and Sainsbury’s are trying to acquire existing small-scale operations and
opening Metro and Express stores in local towns and city centres Ritz (2005).

Bargaining Power of Competitors

The grocery environment has seen a very significant growth in the size and market dominance of
the larger players, with greater store size, increased retailer concentration, and the utilisation of a
range of formats, which are now prominent characteristics of the sector. As it was mentioned
above, the purchasing power of the food-retailing industry is concentrated in the hands of a
relatively small number of retail buyers. Operating in a mature, flat market where growth is
difficult (a driver of the diversification into non-food areas), and consumers are increasingly
demanding and sophisticated, large chains as Tesco are accruing large amounts of consumer
information that can be used to communicate with the consumer Ritz (2005). This highly
competitive market has fostered an accelerated level of development, resulting in a situation in
which UK grocery retailers have had to be innovative to maintain and build market share. Such
innovation can be seen in the development of a range of trading formats, in response to changes
in consumer behaviour. The dominant market leaders have responded by refocusing on price and
value, whilst reinforcing the added value elements of their service.

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3. PESTEL analysis
To assess the opportunities and threats that can be experienced by the management of Tesco in
UK is the aim of performing Pestle analysis (Drummond and Ensor, 2005). These threats and
opportunities will be used to develop strategies to overcome the present issues of Tesco.

Political Forces

Tesco is significantly influenced by the political and legislative condition of the country as it is
operating internationally along with the governing drivers implemented by European Union. The
political factors include the tax rates, government policies and laws. As Tesco provides many job
opportunities for the unemployed workers and guarantees reliability, thus many nations permit
Tesco to carry out its business operations in their nation. However, the performance of Tesco is
badly affected by the on-going instability in the financial condition of many nations all over the
world (Economist, 2010)

Economic Forces

A major concern of all the organizations at present is the economic conditions. The economic
recession has increased the unemployment rate, thus declining the buying power of the
consumers, this will have a sternly bad impact on Tesco. Economic factors also impact the cost,
demand, prices and profitability of the organization. Tesco largely depends on it sales revenue
and profit on the UK market tough it is operating globally, this means that if the economic
conditions negatively affect or collapse the UK economy it will directly impact the operations of
Tesco as well (Zoe wood, 2016)

Social Forces

The customers specifically in UK currently prefer to shop in one stop stores. The demand and
needs of the customers are changes as the beliefs and attitude of individuals are influenced and
change based on the social conditions. The non-food items are now being provided to customers
by Tesco due to social changes. The number of health conscious people of increasing thus

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changing their food choices. This change in food selection can have negative effect on the
business operations of Tesco (Consumers international, 2012)

Technological Forces

There have been major developments in technology in UK, for the past decade. Organizations
needs adopt these technological developments in order to succeed in UK market. With the help
of Technology Tesco has been able to introduce Tesco.com the online shopping store of Tesco,
self-checkouts increasing the satisfaction of customers as the products and services are readily
available. However, the use of modern technology, results in job cut down as the technology
substitutes the in person service. Moreover, the aging population of UK is increase, this customer
segment does not favor the use of technology. The technological developments are taking place
at a rapid speed, coping up with these developments is difficult for companies like Tesco and
also requires extensive investments (Stan, 2013)

Environmental Factors

For surviving in the industry it is now essential to develop as an Eco-friendly organization. To

ensure the organization is being a part of war against carbon emission many measures are
applied by Tesco. Their aim is to achieve 30 percent decrease in it supply chain carbon effect by
2020 and by 2050 establish in a business with zero carbon. Recently, to promote the eco-friendly
environment, the strategy of club points are being used which allows the customer to get a free
product in future to reduce waste, the use of leg carrier bags is also being practiced, increase in
the use of recyclable packing. The plans of Tesco are too far in future, this will negatively impact
the operation due to increasing pressure of environmentalist (Emerald, 2012)

Legal Factors

The policies and laws are enforced by numerous bodies acting in the government of UK,
organizations have to act in accordance with these laws and policies. Food Retailing commission
is one of the Bodies that prevents organizations to ask suppliers for settlements and changing

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price with no prior notice. The penetration into the sector may be limited by the policies of
government for monopoly and decline in the buyer’s power. The influence exerted by all these
variables are different and differently impact the Tesco’s performance and operation in the
market (Corporate, 2012)

4.0 Value Chain Analysis

According to Lynch (2003), value chain is defined as the links between key value adding
activities and their interface with the support activities. Value chain has been implied as a
strategic evaluation tool used for distinguishing the strengths and weaknesses in value adding
processes (Audrestsch, 1995). The value chain of Tesco has been demonstrated in the following
diagram:

Fig: Value Addition in Value Chain of Tesco

Inbound Logistics

The overall cost leadership strategic management of Tesco is exhibited in its lean and agile
inbound logistics function. Drawing upon Abeysinghe (2010), the company uses its leading
market position and economies of scope as key bargaining powers to achieve low costs from its
suppliers. The analysts have also highlighted the constant upgrading of their ordering system,

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approved vendor lists, and in-store processes to induce effectiveness and efficiency into the
company’s inbound logistics operations.

Operations Management

Tesco has been praised by a number of supply chain management critics for its effective use of
IT systems that facilitate the company’s low cost leadership strategy. According to Tesco (2010),
the company has invested over £76 million in streamlining its operations through their Tesco
Digital program, which is a third-generation ERP solution for the company. The company has
achieved £550 million in increased profitability during 2009 alone due to the introduction of this
system. This company -wide ERP system has also facilitated the minimization of stock holdings
within the company.

Outbound Logistics

Tesco holds leadership position in online and offline food retail segments, which is due to its
efficient and effective outbound logistics. Drawing upon Mintel (2010), the company has
developed a range of store formats and types, which are strategically placed to achieve maximum
customer exposure. These formats include Express, Metro, Superstores, Extra and Homeplus,
which are segmented according to the target population.

Marketing and Sales

Loyalty programs like Tesco Clubcard are being introduced through information technology
advances which dissuade the customers from switching over to their competitors. Tesco has
introduced its Greener Living Scheme to give consumers advice on environmental issues,
including how to reduce food waste and their carbon footprint when preparing meals.

Services

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Tesco has been pursuing a dual strategy of cost leadership and differentiation, which has led to
an increased importance placed on customer service. Drawing upon Keynote (2010), this dual
strategy is exhibited through the development of self-service kiosks, financial services, focused
direct marketing and promotions.

In order to put Tesco’s value chain analysis into perspective, it should be noted that despite cost
leadership strategy the company has been able to create a high degree of value in comparison
with its key competitors. The relative analysis of the value created by the big four supermarket
chains, i.e., Tesco, Asda, Sainsbury’s and Morrisons has been provided as follows:

5.0 Conclusion and Recommendation

For tradeoff the company must select differentiation strategy for the business operations. There
are more change of progress for Tesco is it positions its image taking into account differentiation
and high caliber for its top of the line client. As opposed to concentrating on contending with
discounters by bringing down the value, it ought to concentrate on offering the clients an item
portfolio that is creative, differentiated, coordinated and of high caliber. To gain greatest
benefits, the organization must make interest in building up the R&D division to offer backing to
Tesco's privet marks. In any case, Tesco should likewise not totally rely on upon the privet
marks revenue driven era. To give an adjusted and coordinated experience for clients that quality
situated, the privet names of Tesco must not contend with its offer brands. To evacuate and
supplant unsuccessful items with new, new, imaginative items the item portfolio must be looked
into by Tesco. The US operations must be isolated by Tesco as the administration there doesn't
have critical learning of business sector and abilities required for achievement. Recapturing the
business sector position in UK must be engaged. There is help being offered by losing ground in
other costly worldwide business sector.

Laborers condition is the most underlining test for Tesco must be recognized by it. Keeping in
mind the end goal to start an association wide action of charming the morel and engagement of
workers in the association, a component of corporate denunciation should be produced. To
distinguish the real difficulties confronted by the representatives in workplace, profession

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advancement, administration style and security arrange the administration of Tesco must lead an
exploration in a joint effort with the HR division. This exploration must institutionalize and
survey the advancement of worker engagement and offer proposals to administration for moves
that must be made. To put each worker in the fitting position where he/she can utilize their gifts
positively in everyday exercises, Tesco must make Talent-based vocation arranges that survey
and diagrams the requirements and attributes of every position. Keeping in mind the end goal to
enhance the correspondence to lower level workers with the administration and contribution is
basic leadership Tesco must change its hierarchical society. Enlistment process must be
enhanced by Tesco so it contracts and holds the workers with best abilities and experience.

To oversee new channels and item extend, fruitful operational quality and production network
must be misused by Tesco. For example, fusing outskirt scope of supplier’s partner items and
unique arrangements which are accessible just on online stores, to grow the online stores. The
fruitful extension of the express shops must be proceeded by the retailer with a specific end goal
to designate little shops in areas that are picked deliberately which provides food the land
appropriations and client’s regular courses. The substantial space stores situated outside the town
must be utilized by Tesco for building one stop shops. For the clients that want to shop month to
month to get all the required items, these shops must give a wide product offering and
administrations. Wide range administration can incorporate day care, express auto support and in
addition feasting and stimulation offices this will help Tesco in acquiring upper hand.

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References
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