a)

INTRODUCTION

Tesco PLC is a British multinational grocery and general merchandise retailer headquartered

in Cheshunt, Hertfordshire, England, and United Kingdom. It is the third largest retailer in the

world measured by profits and second-largest retailer in the world measured by revenues. It

has stores in 12 countries across Asia and Europe and is the grocery market leader in the UK

(where it has a market share of around 28.4%), Ireland, Hungary, Malaysia, and Thailand.

PESTLE ANALYSIS

1. Political Factors

Operating in a globalized environment with stores around the globe (Tesco now operates in

six countries in Europe in addition to the UK; the Republic of Ireland, Hungary, Czech

Republic, Slovakia, Turkey and Poland. It also operates in Asia, Tesco’s performance is

highly influenced by the political and legislative conditions of these countries, including the

European Union (EU).

2. Economical Factors

Economic factors are of concern to Tesco, because they are likely to influence demand, costs,

prices and profits. One of the most influential factors on the economy is high unemployment

levels, which decreases the effective demand for many goods, adversely affecting the demand

required to produce such goods.

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3. Social/Cultural Factors

Due to a variety of social changes, trends indicate that customers in the UK have moved

towards bulk shopping and one-stop shopping. Therefore, Tesco has increased the number of

non-food items offered for sale. The type of goods and services demanded by consumers is

mostly influenced by their beliefs and attitudes which, in turn, are influenced by social

conditioning. Because customers are becoming more aware of health issues, due to which

their approach towards foods is changing constantly, Tesco is adapting to these changes by

accommodating the demand for organic products.

http://pestleanalysis.com/pestle-analysis-tesco/

4. Technological Factors

Technological is crucial for success. Supply chain management is very crucial for success for

any retail company like Tesco. It would be great challenge to maintain it and achieve

competitive advantage. Online grocery retailing has steady growth, the statics shows that

60% of young people in UK uses internet for their shopping. Mobile shopping has also

proven to be of great influence for retail industry.

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5. Environmental factors

Environmental safety and climate change was always on key agenda of Tesco plc since 2000

(www.tesco.com). Greener Living Scheme of Tesco advice its customers how to reduces

food waste and all other environmental issues which will reduces carbon footprint. Reusing

and Recycling bags and other product are always encouraged by Tesco.

6. Legislative factors

Legislative actions influence the company to an great extant. Change in % of income tax or

sales tax charged to customer would bring in change in buying behaviour of customers in

retail industry as whole. In UK minimum wage rate has gone up to 15.5% which would force

Tesco to revise its Labour budget. And VAT is expected to go up by 15%,this would affects

Non-food sector of the industry(www.lowpay.gov.uk ).

SWOT Analysis

Strengths

Leadership position in UK

Solid cash reserves with sales of more than £72 billion for the financial year of 2011-

12 (Annual Report, 2012)

Effective marketing strategy

Weaknesses

Competitive advantage not sustainable and can be imitated by competitors

Over-dependence to home market in the UK

Opportunities

Increasing international presence

Further diversification of services

Threats

Competition from developing counties

Rising costs of operations

Decline of sales due to crisis in the UK

b)

Development of strategic choices

Porter’s Five Forces Analysis

An analysis of the structure of the industry should be undertaken in order to find effective

sources of competitive advantage (Porter, 1985). Therefore, in order to analyse the

competitive environment of Tesco, Porter’s five forces analysis has been used by the

researcher as follows:

Threat of substitute products and services

The threat of substitutes in the grocery retail market is considerably low for food items and

medium to high for non-food items.

In the food retail market, the substitutes of major food retailers are small chains of

convenience stores, off licences and organic shops which are not seen as a threat to

supermarkets like Tesco that offer high quality products at considerably lower prices

(Financial Times, 2009). Moreover, Tesco is further getting hold of these shops by opening

Express stores in local towns and city centres creating a hurdle for these substitutes to enter

the market.

However, the threat of substitutes for non-food items, for instance clothing, is fairly high. It

should be noted that so long as the economic recession prevails, customers will be inclined

towards discounted prices hence Tesco is a threat to the speciality shops.

Threat of entry of new competitors

The threat of entry of new competitors into the food retail industry is low.

It requires huge capital investments in order to be competitive and to establish a brand name.

Major brands that have already captured the food retail market are Tesco, Asda, Sainsbury’s

and Morrison and they account for 80% of all shopping in the UK (Mintel, 2010). Therefore,

new entrants have to produce something at an exceptionally low price and/or high quality to

establish their market value.

Gaining planning authorisation from local government takes a considerable amount of time

and resources to establish new supermarkets and this is therefore a considerable barrier to

new entrants.

Intensity of competitive rivalry

The intensity of competitive rivalry in the food and grocery retail industry is extremely high.

Tesco faces intense competition from its direct competitors, including Asda, Sainsbury’s,

Morrisons and Waitrose, which are competing with each other over price, products and

promotions intermittently. It should therefore be highlighted that Asda is one of the key

competitors in this segment with an increase of market share from 16.6% to 16.8% during the

fiscal year 2010/ 09, while Sainsbury’s has shown an increase to 16.1% from 15.8% and

Morrisons to 11.6% from 11.3% through the same period (Euromonitor, 2010). The slow

market growth essentially means that these increasing market shares from competitors have

intensified the market rivalry, which is threatening Tesco’s market leadership position. In

rural areas where the nearest superstore can be some distance away, some primary consumers

are attracted by retailers like Somerfield and Co-op. Hard discounters like Aldi and Lidl have

taken over the market in times of recession. During 2008 they recorded a growth of sales of

over 25% (Keynote, 2010).

Bargaining power of buyers

The bargaining power of buyers is fairly high. In cases where products have a slight

differentiation and are more standardised, the switching cost is very low and the buyers can

easily switch from one brand to another. It has been proposed that customers are attracted

towards the low prices, and with the availability of online retail shopping, the prices of

products are easily compared and thus selected.

Bargaining power of suppliers

The bargaining power of suppliers is fairly low. It should be noted that the suppliers are

inclined towards major food and grocery retailers and dread losing their business contracts

with large supermarkets. Hence, the position of the retailers like Tesco, Asda, and

Sainsbury’s is further strengthened and negotiations are positive in order to get the lowest

possible price from the suppliers.

c)

Evaluation of strategic choices

d)

TESCO is considered as one of the largest companies in the world, at the same time,

considered as one of the most popular brand name. The main mission of the company is to

maintain the loyalty of the customers towards the brand, which will help to maintain its

performance and position in the market. Based on this, together with the changing social

behaviour of the customers, including the popularity of one-stop shop and the growing

number of women in the labour force, indicates a change for the company.

The success of the Tesco shows how far the branding and effective service delivery can come

in moving beyond splashing one's logo on a billboard. It had fostered powerful identities by

making their retailing concept into a virus and spending it out into the culture via a variety of

channels: cultural sponsorship, political controversy, and consumer experience and brand

extensions.

In a rapidly changing business environment with a high competitors' pressure Tesco have

to adopt new expansion strategies or diversified the existing in order to sustain its leading

market position in an already established retailing market. The company must constantly

adapt to the fast changing circumstances.

Strategy formulation should therefore be regarded as a process of continuous learning,

which includes learning about the goals, the effect of possible actions towards these goals and

how to implement and execute these actions. The quality of a formulated strategy and the

speed of its implementation will therefore directly depend on the quality of Tesco's cognitive

and behavioural learning processes.

Once the business has identified its stakeholders and their importance to the business, it

can begin to plan based on their needs and expectations. Each stakeholder has concerns that it

expects to be met by the business. For example, the business's owners expect it to be

profitable and to distribute that profit to them while local and federal government agencies

expect it to obey the law and pay its taxes on time.

The importance of each stakeholder to the business determines the degree to which the

business attempts to accommodate the stakeholder in the course of planning its actions.

http://www.tesco.ie/crreview08/managecr-stakeholders.html

e) REFERENCES

http://www.ivoryresearch.com/samples/economics-essay-example-strategic-management-of-

tesco-supermarket-pestle-analysis-porter-5-forces-analysis-critical-success-factors-swot-

analysis-value-chain-analysis-tesco-strategic-options-core-comp/

http://pestleanalysis.com/pestle-analysis-tesco/

http://www.ukessays.com/essays/marketing/internal-and-external-environmental-analysis-of-

tesco-marketing-essay.php#ixzz3tGBg6bJV

http://www.thinkingbookworm.com/blog/2012/03/strategic-planning-and-implementation-

case-study-of-tesco.html

http://www.tesco.ie/crreview08/managecr-stakeholders.html

(Porter, 1980).

(Kendrick 2003).

(Johnson et al 2008).