3rd_CW_Tesco_Analysis_Atifa_Mahmoodi_27_04_14

Atifa Mahmoodi
Student Number: W1348660
Tesco Case Study
Module: Strategic Perspectives (BKEY601)
Module Leaders: Ioannis Christodoulou & Zorica Patel
Module Tutors: Ahmed Saeed & Sumita Ketkar
Seminar time and day: Monday 2:30-4:00pm Room M322
Submission deadline: 13:00, Monday 28th April 2014
Word Count: 4303 excluding, Graphs, Tables and, Appendices.

Student ID: Module: Strategic Perspectives BKEY601
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Executive Summary
Tesco: The largest food retailer which has a store in each postcode of UK, and further
focusing on the expansion, operates in 12 countries worldwide. This report in-depth
analyzed the External and internal environment of Tesco taking into consideration strategic
theories.
The second part of this report critically analysis the internal environment of Tesco PLC, by
looking in depth into resources based view of the company, values chain and supporting it
with resources and capabilities (R+Cs), and resources based view theories and further will
look into the core capabilities and competencies of Tesco for instance financial control,
economies of scale, and leading in the Market, Tesco has adopted Hybrid strategy, which is
further analyzed in this report.
As the external environment of Tesco is analyzed in the UK, in the second section of this
report it was found out with the theoretical help of porter five forces.
Threat of New Entrants “Low”, Bargaining power of Buyers “High”, Threat of Substitute
“considerably “low” for food products and “Medium-High” for nonfood items, Bargaining
Power of Suppliers “Low”, Rivalry among Existing Competitors “High”. Further please refer
to heading (2.2).
The third section of this report identifies two issues that affected Tesco PLC both internally
and externally with the support of ethic theories, corporate governance, corporate social
responsibilities concept, stakeholder applications and reputation management concept
metrics. It is analyzed in this report that Tesco lately face some challenges with regards to its
PR relations as, it is mentioned in this report, they were accused of hiring cheaper labor
force from European countries, further Tesco was accused of having Horsemeat mix with
beef products further please refer to 4.1.
There is a high level of competition in the supermarkets in the UK, as every brand wants to
have competitive advantage over its competitors. However, Tesco is using cost leadership
and differentiation strategy by producing ‘Value’ to ‘finest’ products, since it is supplying it is
own products it can be said that it is vertically integrated.
The Financial performance of Tesco improved from 2012 at the end of 2013, which was due
to an increase in their UK profit. In 2013 Tesco’s group sales went from £72 billion to £72.4
billion (Tescoplc, 2014). There was also an increase in the revenue as it increased to £43.6
billion total increase of 1.8% in 2013 (Tescoplc, 2014). On the other hand, Tesco’s trading
profit declined in 2012 by 1% but however, by the end of 2013 it was increased by 8.3%
(Tescoplc, 2014).

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Furthermore, after critically analyzing the current operation of Tesco it is suggested that
Tesco needs to diversify, by spreading its brand in the globe. Diversification into the
emerging economies such as the BRICs (Brazil, Russia, India, and China) is an ultimate
prospect for Tesco, to expand it is presence in the BRICs, and get a global market shares
from these economies, it has to be mentioned that these emerging countries are resources-
rich hence Tesco can tighten it is links with the suppliers, by implementing “vertical backward
integrations” (Dhabalia, 2013).

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Contents
Executive Summary ..............................................................................................................2
1.0 Introduction ................................................................................................................5
2.0 Q1- Analysis of the external environment........................................................................ 6
2.1 Macro-Environment Analysis (PESTLE) ...................................................................... 6
2.2 Micro-environment Analysis Porter five force model .................................................... 8
3.0 Q2 -Analysis of the internal environment....................................................................... 10
3.1 Resources based view of the Tesco PLC (RBV)........................................................ 10
3.2 Value chain................................................................................................................12
3.3 Core Competencies of Tesco........................................................................................ 14
4.0 Q3 Analysis of Tesco PR crisis, & CSR......................................................................... 14
4.1 Horsemeat Scandal................................................................................................... 14
4.2 Hiring EU migrants at the cheap rate......................................................................... 14
5.0 Q4 Strategic Analysis of Tesco PLC.............................................................................. 15
5.1 Business Level Strategies ......................................................................................... 15
5.2 Corporate Strategies ................................................................................................. 16
5.3 Suggested Strategies for the future ........................................................................... 17
5.4 Suitability – Acceptability – Feasibility (SAF) ........................................................... 18
5.6 Implementation suggestion........................................................................................ 19
6.0 Conclusion ....................................................................................................................19
References .........................................................................................................................20
Bibliography........................................................................................................................22
Appendices.........................................................................................................................24
A1: Market Shares, the Industry Competitors Rivalry....................................................... 24
A2: Tesco Production ...................................................................................................... 24
A3: UK Unemployment, 2005-2012 ................................................................................. 24
A4: A glance at Tesco .................................................................................................... 25
Q2 -Analysis of the internal environment............................................................................. 26
B1: Tesco Tangible & Intangible Assets .......................................................................... 26
B2: Key financials............................................................................................................26

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1.0 Introduction
Tesco is a private limited company, it was found in 1919 in London east end by Jack Cohen
from a market stall, and it first started trading in 1924. It’s considered to be one of the world’s
biggest retailers, which operates in 12 nations worldwide. 530,000 people around the world
are employed by Tesco (Tescoplc.com, 2014).
This analytical report aims to prepare an extensive case study and undertake a strategic
review for the CEO of Tesco. The first section of this report will evaluate the external
environment of the retailors, looking both at macro environmental particularly PESTLE
analysis and the Porters five forces will be used to analyse the micro-environment. The
second part of this report critically analysis the internal environment of Tesco PLC, by
looking in depth into resources based view of the company, values chain and supporting it
with resources and capabilities (R+Cs), and resources based view theories and further will
look into the core capabilities and competencies of Tesco for instance financial control,
economies of scale, and leading in the market. The third section of this report identifies two
issues that affected Tesco PLC both internally and externally with the support of ethic
theories, corporate governance, corporate social responsibilities concept, stakeholder
applications and reputation management concept metrics.
The final and fourth section in part (a) of this report identifies the business level strategies of
Tesco. Part (b) of section four will identify the corporate level strategies, Market
development, and product development. Part (c) of section four will suggest two strategies
for Tesco which, which suitable, acceptable and feasible to implement into the Tesco PLC.
And finally conclude by, suggesting the implementation techniques or modes such as
licensing, franchising, merger/ acquisition, joint venture, direct investment or wholly
subsidiary of the suggested strategies.

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2.0 Q1- Analysis of the external environment
The external environment analysis is based on the food retailers industries. The
Macro-environment review of Tesco is conducted to demonstrate how (PESTLE)
political, legal, Economic, Social, Technological, Legal, and Environmental issues
which affect the food retail industry. The Micro-Environment is analysed with the aid
of porter’s five forces which analysis particularly Threat of New Entrants, bargaining
power of Buyers, Threat of Substitute or Services, bargaining Power of suppliers,
Rivalry among Existing Competitors in the food retail industry in UK (Porter, 1985).
2.1 Macro-Environment Analysis (PESTLE)
Political: The Food retail industry operates according to the legal and political
framework in UK. These rules and legislation affect the food retail industry both in
positive and negative aspects. The main regulations and legislation to which the food
retail industry in UK adjusts are competition (the office of fair trading, and competition
commission controls the food retail market so that they don’t form monopoly,
oligopoly or cartel), employment, environmental, food and grocery safety, health
issue, and financial services (changes in fiscal policy occurs quite often in UK, for
example current standard VAT is 20% increased from 17.5% from January 2011
(Gov.uk, 2014). In addition the legal administration encourages the retailers to
provide jobs ranging from unskilled minimum wage to “highly skilled” well-paid jobs to
the local people.
On the other hand, globalization has widened opportunity's to the food retail industry
to expand outside UK, for instance EU, and Asia. In 2004, ten European countries
became members of the European Union, promotion of free trade extended in
Eastern and Western European Nations (Ec.europa.eu, 2014). According to the
(European Commission, 2014) in the FTA (Free Trade Agreement) content included
“EU-Chile Association Agreement," “EU-Korea Free Trade Agreement," “EU-South
Africa Trade, Development and Co-operation Agreement (TDCA)”, etc.
Economic: Is the key concern of the food retail industry in the UK as it affects
revenue, costs, demand and supply of the industry for instance unemployment,
inflation, taxation, varies consumer spending. The 2008 financial crisis was a key
element that caused changes in the industry. However, the changes brought were
not negative; the consumer demand was still high between 2007-2008 this was due
to high recession hence consumer cut eating out and started to cook at home (Mintel,
2008).

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Social: The social aspect of the PESTLE takes into consideration, such as culture,
demographics, lifestyle, and trend in the population that affect the food retail industry.
As the ageing population is considerably high & continue to be rising in UK, there
tend to be an increase in retirement this has a massive impact on the industry, that’s
due to; their income is only pensions hence little consumption by elder people.
Secondly, aged population prefers shopping from small, convenient stores near them
(Food Commission, 2014). Furthermore, the participation of women in the workforce
as more women working now, the demand of fast-food is rising as women does not
have time to cook (Ilo.org, 2014). Hence Supermarkets expanded and continue to
expand the ready meal varieties taking into consideration different needs such as
cost, taste, and calories.
Technological: The rapid development of the technology affected the industry in
different ways, containing consumption, prices, logistics, and the environment. In the
last 10 years, the retail industry in UK fully utilized the advancement of technology,
by providing online shopping, and self-service machines which lead to minimum
operation costs and, and increasing sales. The most important element of technology
in the food retail industry is the Universal Product Code also known as bar-code, has
simplified price-labelling and check-outs whereas saving time and holding to
accuracy. In addition, the attachments of electrical chips on the products declined
theft Eurofound.europa.eu. (2013).
Legal: The operation cost of the industry increased when the minimum labour wage
increased in 2009-2012 (Gov.uk, 2013). For instance in UK the national minimum
wage rate an hour was £5.93 in 2010, however, now it increased to £6.31.
Environmental: Due to fast global climate changes alerted UK government to
implement some policies, about Co2 emissions and other toxic gasses which caused
by massive industrial production. Furthermore as (Clark, 2012), demonstrates that
food is very sensitive to the climate changes, having enough rain, or too much of
rainfall, floods storms, and extreme cold weather have significant effects on the
primary production of the food retail industry.

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2.2 Micro-environment Analysis Porter five force model
According to (Porter, 1985) “Awareness of the porters five forces can help a
company understand the structure if its industry and stake out a position that is more
profitable and less vulnerable to attack”.
Figure 1: Porters Five forces
Source: Porter, M. E. (1985) at EBSCO
Threat of New Entrants “Low”: Is comparatively low in the food retail industry in UK
in order to establish a brand name and compete with the big four ( Asda, Tesco,
Sainsbury, and Morrison’s) a large capital investment is required hence the new
entrants must offer remarkably low prices and high quality product. According to
Competition-commission (2014), there a some factors which restricts New Entrants
to the food retail industry 1st cost advantages that big 4 retailers have, 2nd their
planning regimes, and the control “control of land of large grocery retailers”.
Bargaining power of Buyers “High”: is fairly high as Porter (1985) theory
demonstrates when products are undifferentiated the switching cost becomes lower
and more freedom for a consumer to choose same product from variety of
supermarket. Loyalty cards play a significant role in the customer retention strategy
Rivalry Among
Existing
Competitiors
Threat of New
Entrants
Bargaining
power of
Buyers
Threat of
Substitute or
Services
Bargaining
Power of
Suppliers

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as the big4 uses, Club-card, nectar, Asda-money, and Morrison’s miles to maintain a
long term relation and to keep their customers (Mintel, 2014).
Threat of Substitute “considerably low” for food products and “Medium-High”
for nonfood items: The big4 superstore offers variety of services and products such
as financial services, petrol station, clothing, fast-food, pharmaceutical, and home
wares, hence these services can be substituted with Banks, Restaurants, electrical
equipment stores, and clothing retail industry (Igd.com, 2014).
According to, (Mental, 2009) 50% of total sales in the whole industry accounts for
food and sub products. Food cannot be substituted as it’s a basic need; however the
merge of small chain of convenience stores in the food retail industry can be a threat
for the supermarkets such as the big4 in UK. Tesco and the other big3 are getting
clutch of these shops by opening Express Stores, in local towns and city centres
creating huddle for these substitutes to enter the market
Bargaining Power of Suppliers “Low”: The main suppliers in the retail industry are
the farmers, food manufacturing industries, and food processors. The UK based is
helpless by imports from abroad at cheaper deals (Financial Times, 2013).
Rivalry among Existing Competitors “High”: There is a high competition in the UK
food retail industry, the big4 food/non-food retailors are competing with one another
over price, promotion and product. They all use particular strategies to compete with
each other for instance according to (Tesco Annual report, 2013) Tesco concentrates
on, the expansion across UK, and abroad, 2nd
maintain a strong position in food/non-
food retailing services, 3rd
finance, 4th
Tesco telecoms, 4th
tesco.com ,and 5th
to hold
the community at the heart of what they do. Similarly Sainsbury also adopted certain
strategies to compete in the market by setting corporate objectives, such 1st
good
quality food at affordable prices, 2nd
expansion in services and non-food products, 3rd
growing space and creating property value, 4th
reaching buyers via online shopping,
5th
growing supermarkets space (J-sainsbury.co.uk, 2013). Similarly Asda and
Morrison’s are trying best to keep their current customers and attract more by
differentiating their products for example Asda operate a discount stores called “Asda
Essential” and sells its own brand products, on the other hand Morrison’s target is to
become specialists in the food, it owns 13 planets of manufacturing, and factories of
fresh foods. The core strategy is offering fresh food, good prices compare to its
competitors in a premium customer service, (Morrison’s Annual Report, 2013).
As it can be seen from the figure below that the big4 dominates the food retail market
with a total market share of 74.70% among the big4 Tesco is the market leader with

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a total market share of 29% in 2013, followed by Asda with a market share of 18%
and Sainsbury 17% of market share, (Retail Times, 2013)
Figure 2:
Source: (Retail Times, 2013)
3.0 Q2 -Analysis of the internal environment
3.1 Resources based view of the Tesco PLC (RBV)
Resource based view of the firm: “perspective that firms’ competitive advantages are due
to their endowment of strategic resources that are valuable, rare, costly, and costly to
substitute” (Christodoulou and Patel, 2014).
There is a high level of competition in the supermarkets in the UK, as every brand wants to
have competitive advantage over its competitors. However, Tesco is using cost leadership
and differentiation strategy by producing ‘Value’ to ‘finest’ products, since it is supplying it is
own products it can be said that it is vertically integrated. Tesco offers its products and
service at very competitive prices to achieve the cost leadership against competitors like
Asda and Sainsbury (Teaching Notes, page.5, 2014). However, Tesco try every effect in
order to differentiate its brand from the other supermarkets in the industry. One of the ways
Tesco achieves this is by offering range of different products and service. They also manage
to keep on updating its technology in order to provide its customers with easy ways to shop
with them. Tesco was the first supermarket to have loyalty cards in order to get customer
loyalty towards its brand (Christie, 2013).
29%
11%
17%
18%
25%
Market shares of the big4
Supermarkets 2013
Tesco Morrisons, Sainsbury's Asda Other

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Table 1:
Tangible Resources: sources that are easy to classify, which Tesco and other
organizations uses to create value for their consumers.
Financial e.g. “cash,
accounts receivables,
and ability to borrow”
The Financial performance of Tesco improved from 2012 at the end
of 2013, which was due to an increase in their UK profit. In 2013
Tesco’s group sales went from £72 billion to £72.4 billion (Tescoplc,
2014). There was also an increase in the revenue as it increased to
£43.6 billion total increase of 1.8% in 2013 (Tescoplc, 2014). On the
other hand, Tesco’s trading profit declined in 2012 by 1% but
however, by the end of 2013 it was increased by 8.3% (Tescoplc,
2014). However, in 2012 Tesco’s sales had growth by 6.2%,
according to Tesco there was increase due to the new store
performance (Tescoplc, 2014).
Physical e.g. “plant,
equipment’s, and
machineries”.
Tesco has 5 setups of stores, which are distinguished by One stop,
Tesco Express, Tesco Extra, Tesco Metro, and Tesco Superstores;
Tesco has at least one these formats at each postcode in the UK
(Lechner & Kreutzer, 2008). Other important physical resources that
Tesco owns are it is inventories. According to (TesscoPLC, 2013)
Tesco had £3bn of inventory in the late 2011.
Intangible Resources: These resources are most likely unidentifiable.
The resource which cannot be identified. The 313,885 workers in UK are the main asset of
Tesco. These workers are trained by Tesco regularly through various programs to make them
prepared for the market by offering management, and leadership skills. Tesco make sure that
all employees from bottom to the top are aware of their responsibilities. Tesco also have
innovation induction programs that provides for different value and norms. Hence it can be
said that workers at Tesco are considered the critical image of Tesco PLC to its consumers
(Case Study, 2008).
Secondly, Tesco is not only in UK but also in the world is considered a top firm that has a
loyalty system with their consumers. According to (Mintel, 2013) there are about 13 million
consumers that have Tesco club cards. This shows that Tesco have large amount of
consumers that are guaranteed to buy form their various formats of store. Hence it’s clear that
the Tesco PLC has recognised its advantages over its competitors such as Sainsbury’s, Asda,
and Morrison’s.
Source of resource based view: Barney, J. (1991). , Source of Tesco: (Lechner & Kreutzer,
2008)

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Current Ratio: As he graph below demonstrates that the total liability of Tesco hasn’t
been stable neither increased in the past 8 years compare to its core competitors which
indicates Tesco is struggling to meet its current liabilities.
Figure 3: Tesco and its core competitors
Source: (fame, 2014)
3.2 Value chain
As (Christodoulou and Patel, 2014), defines value chain as “strategic analysis of an
organization that uses value creating-activities”. According to Porter (1985) there are
two types of activities in the value chain 1st
the primary activities 2nd
the support
activities.
Figure 4: Value chain of Tesco
Source: (Porter, 1985).
0.61
0.56
0.78
0.73
0.65 0.68 0.69
0.39 0.39
0.84 0.8
0.68
1.02
0.54
0.66
0.71
0.54
0.66
0.58
0.65 0.61
0.49
0.41
0.53 0.51 0.55 0.57 0.57
2008 2008 2009 2010 2011 2012 2013
CurrentRatio
Year
Current Ratio of Tesco and its Competitors
Curent Ratio Tesco Curent Ratio Asda Curent Ratio Sainsbury Curent Ratio Morrisons

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Support Activities: These are Tesco activities that, that adds value them self, or
through other important activities.
Tesco distribution center is located in Reading International Business Park, Berkshire, RG2
0PN. Tesco owns one of the five different formats of its store in at least on the UK post code.
The Tesco management is fragmented into various area of management.
These workers are trained by Tesco regularly through various programs to make them
prepared for the market by offering management, and leadership skills. Tesco make sure
that all employees from bottom to the top are aware of their responsibilities. Tesco also
have innovation induction programs that provides for different value and norms. Hence it
can be said that workers at Tesco are considered the critical image of Tesco PLC to its
consumers (Case Study, 2008).
Primary Activities: How Tesco obtains competitive advantages over, the other big3
supermarkets (Asda, Sainsbury, and Morrison’s).
The primary activities take into consideration, from receiving to distribution. A very important
element in the value chain of Tesco and that’s due the arrangements between Tesco and its
suppliers. As Tesco is very concern about; good quality products, affordable prices, and
receiving enough quantity of the goods and services from its suppliers to satisfy its
customers. The outbound logistic: are the products of Tesco that goes away from the Tesco
stores. There are not many products and services that are send out of the Tesco stores, but
the customers experience and satisfaction within the Tesco stores is necessary to be
managed within the Tesco supermarkets hence Tesco offers a satisfactory customer
service.
Furthermore, since Tesco operates online as Tesco manages its online orders really
effectively the delivery and orders are managed well, as a result Tesco had 40%
market share in online. In terms of marketing Tesco uses various types of
communication tools such as advertising, in-store layouts to delivery its message to
its customers to promote their affordable prices and products. Nevertheless the
Tesco loyalty cards which were established in 1996 called club cards also maintains
Tesco current customers and attracts new, this core competence is a rival to Tesco
competitors such as the other big3 .
Source: (Porter 1985, in Swiercz and Spencer 1992, 35).

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3.3 Core Competencies of Tesco
Significant economies of scale can be considered as Tesco’s competency that pulls
Tesco toward the edge of competition in way to produce cheaper than the other big3
or it is other competitors, which leads to the attraction of customers. This is pursued
by the high level of bargaining power with the suppliers of Tesco, and the logistics as
mention in the external environment of this report (Hammett and McMeikan, 1994).
Second competency, which Tesco has over its competitors, is the “Loyalty cards”.
Tesco first created it is loyalty cards in 1995, these loyalty cards keeps Tesco current
customers from switching to other supermarkets. According to the (Competition-
commission.org.uk, 2014) the loyalty card helped Tesco for a decade to have a
market share of 31% of UK grocery retail market.
Third competency, which Tesco holds compare to its competitors, is the effective
supply chain of Tesco, therefore lowering prices. Tesco also have its own brands
such as “Tesco Finest”, “Tesco Value”, and “Tesco Organic” which are offered to
consumers at affordable prices, hence results into the customers’ attraction.
4.0 Q3 Analysis of Tesco PR crisis, & CSR
4.1 Horsemeat Scandal
Lately, Tesco’s reputation came under examination when the big food fraud
happened in UK, as (Lawrence, 2014) from the guardian newspaper reports in the
early 2013, Tesco Everyday value beef burgers, frozen food, and ready meals
contain 29% of horsemeat. On this similar scandal (BBC News, 2013) UK reported in
Feb “Some Tesco Everyday Value Spaghetti Bolognese contains 60% horsemeat,
DNA tests by the retailer have found”. According to (Mintel, 2013), Tesco sales were
dropped by 3.1% in 2013/2014; it was hit by the horsemeat scandal at the beginning
of 2013 and lower food inflation at the end of the year. When the DNA test proved the
presence of horsemeat in beef products Tesco emptied its shelves, and claimed they
were not aware of their suppliers’ fraud. Further, Tesco Group technical director Tim
Smith apologized “We are very sorry that we have let our customers down” (BBC
News, 2013).
4.2 Hiring EU migrants at the cheap rate
In addition, in the same year Tesco faced another accusation as (Hennessy, 2013)
reports, in 2013 the labour immigration officer Chris Bryant, accused Tesco for hiring

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EU migrants at the cheap rate at the cost of British labor he claimed “.It is unfair that
unscrupulous employers whose only interest seems to be finding labor as cheaply as
possible will recruit workers in large numbers in low-wage countries in the EU bring
them to the UK, charge the costs of their travel and their substandard
accommodation against their wages and still not even meet the National minimum
wage”. The reporter further, stated that the controversy around Tesco focuses on the
Tesco distribution Center in Harlow Tesco told their workers that they will close this
distribution and open another larger one 30 miles down the road, and the workers
were asked in order to keep their jobs they have to accept lower pay and conditions
as a result many of them took redundancy instead (Telegraph, 2013).
Thus, it can be summarized that based on these PR crisis Tesco have contradicted
and showed lack of corporate social responsibilities (CSR), as CSR is “The actions of
a firm to benefit society beyond the requirements of the law and the direct interest of
the firm” (McWilliams and Siegel, 2001). Though the consumption of horsemeat is
not illegal however fraud and wrong labelling is against the law. According to
(Gov.uk, 2014), minimum wage Act 1998 sets a minimum wage of £6.31p/h for
employer 21 or older in UK, however most salespersons employed by Tesco were
paid less than minimum wage (BBC News,2013).
5.0 Q4 Strategic Analysis of Tesco PLC
5.1 Business Level Strategies
Firms adopt different strategies to compete with each other, or have competitive
advantages over one another. For example firms might have cost leadership or,
differentiation or one might have both, called Hybrid strategy. These Strategies
originated from 1985 by Michael Porter. Tesco almost followed the footsteps of Wall
mart. Which focuses on be cheaper, expansion, and sell more, however Tesco
added an element to their operation: improving the experience of customers in
various segments of shopping.
Differentiation Strategy: Tesco adopted differentiation marketing strategy, the firm
targets various part of the market. Tesco main targets are customers in the suburban
and urban areas. In the Urban Areas Tesco modern Metro supermarkets are aimed
for customers living in cities, by offering lunch, and easy access to shopping on their
way back home.

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Cost-leadership Strategy: Tesco endeavor to have affordable prices in the industry,
and offers its goods and services to market at lowest prices. Thus it can be said that
Tesco adopts Hybrid Strategy which is a mix of both.
5.2 Corporate Strategies
The creation of value through alignment and harmonization of firm’s multimarket
activities by the firm itself (Collis, Montgomery, 2005). According to the Times 100,
(Business case studies, 2014), Firms like Tesco that like long-term success; they
have a core Vision to remain constant while the business environment is changing
around them. Tesco is a firm which builds around consumers and employers. Tesco
vision is “To be the most highly valued business by: the customers we serve, the
communities in which we operate, our loyal and committed colleagues and of course
our shareholders” (TescoPLC, 2013).
Tesco follows vertical background integration where it progresses, by having good
ties with the suppliers by doing partnership with them or by owing the supply chain
itself. Tesco has maintained long-term relationships with its suppliers by providing
products ecofriendly operations (Tescoplc.com, 2014). In 2013 Tesco started
partnership with it is suppliers to reduce waste in order to reduce costs and be
efficient hence it can be said that Tesco gains it is economies of scales through
vertical background integration.
Furthermore, in the figure below is the Ansoff Matrix which is used to suggest that
firms endeavors to grow through the development of the product and “market
penetration” for the Tesco current market in UK, and EU. As Tesco expand upon
price cutting strategies, Tesco attracts customers from its competitors to its own
brand to penetrate or increase its own market shares. One of the strategies which
Tesco lately adopted to keep current customers and attract more from its customers
is doubling the points on the loyalty card (Tescoplc.com, 2014). 2nd
opening 5
different types of stores in at lease on of the postcode in the UK.
Tesco has also developed; its products in the non-food section for instance clothing
and skin care products, financial service by offering Tesco bank, and also recently
developed Tesco mobile (Tescoplc.com, 2014).

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Source: Collis, D. J. and Montgomery, C. A. (2005).
5.3 Suggested Strategies for the future
Looking at the current operation of Tesco, in the UK food/non-food retail industry. It is
suggested, to expand its “Market Penetration”, “Product Development”, and
“diversification”. As mentioned earlier though Tesco is on the top among the big4
supermarkets in the UK, however it lost its market shares to the previous year’s
Having a total market shares of 29% in 2013, which has dropped from 30.5% since
2011, due to the emerging discounters such as Lidl and Aldi (Retail Times, 2013).
For Tesco to get it is old customers, and attract more, it will need to work on its
reduction in prices or in other words its price cutting strategies, and slow down going
massive, and concentrate on further providing good customers service, and quality
products. As it was analysed above that, in (Telegraph, 2013), it was ranked as
worse food/non-food retailors scoring 45%.
In Addition, Tesco needs to work on its product development strategy, which will
differentiate Tesco from the other big3. If a similar product is found on the shelves of
other competitors of Tesco, it will not take so long for the customers to switch to the
Figure 5:

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other big3 or the discounters. Investing on the research and development will have a
long-run return.
Furthermore, after critically analyzing the current operation of Tesco it is suggested
that Tesco needs to diversify, by spreading its brand in the globe. Diversification into
the emerging economies such as the BRICs (Brazil, Russia, India, and China) is an
ultimate prospect for Tesco, to expand it is presence in the BRICs, and get a global
market shares from these economies, it has to be mentioned that these emerging
countries are resources-rich hence Tesco can tighten it is links with the suppliers, by
implementing “vertical backward integrations” (Dhabalia, 2013).
5.4 Suitability – Acceptability – Feasibility (SAF)
Suitability: Since Tesco has been in the market for over century, Tesco is fully
aware of the consumer taste, demands, alertness to price-cutting, and the
satisfaction of the reward schemes that helps the strategy of Market penetration. As
result it is suggested for Tesco current market to corporate with the previously
mentioned strategies, to keep it is current customers and attract more.
New product on the shelves is always exiting and preferable, by customers, hence
the development of new goods and services will attract new customers and keep the
old ones.
Acceptability: The above mentioned strategies, clearly lead Tesco to higher
market shares, safe financial position, taking into consideration it is economies of
Scale, improved Tesco Sales and it is brand loyalty. According to (Clawson, 2013),
better marketing, lower prices (Market Penetration), leading to higher market shares,
while new products are developed, hence resulting to “differentiation” is well in with
the expectations of the stakeholders. As Tesco PLC operates in more than 11
countries, the increase in prices in UK has no effect on the Tesco sales in the other
12 countries; hence there is still high demand abroad due to higher purchasing power
in the other countries.
Feasibility: Being a market leader, Tesco has various capabilities, most importantly
financial and development, in order to implement the suggested strategies.
According to (Tesco Annual report, 2013), Tesco had £43.6bn revenue only in UK in
2013. As every investment takes time to make profit, in the long run, however in the
short run Tesco can go essay on the minimum profit. For example, price cuts
reduces the profit, however after the suggested strategies are implemented and

Page
19
acknowledged in the market, it will not take loner for Tesco to get back what’s being
spend.
5.6 Implementation suggestion
The development of the product can be applied by investing in the Research and
development, by introducing new services which satisfies customers and meet their
expectations. Having a partnership “joint ventures” with firms which are already
established in the BRICs will help to implement the diversification strategy. Since the
Mergers already have a knowledge of the, current market in those countries where
Tesco PLC is suggested to diversify.
6.0 Conclusion
Tesco PLC has the highest market shares both in store and in online (29% in store, and 40%
online market share in 2013), (Mintel, 2014). Operation in 12 countries worldwide, employing
313,885 & 3146 stores only in the UK is crystal clear evidence that Tesco PLC is doing
exceptionally good among its competitors. Tesco has been through various phases of
development. It has adopted various strategies in order to compete and still remain as strong
as it in the food retail industry in UK, two of the strategies that mentioned above which Tesco
adopted as its business level strategies is cost leadership (offering completive and
affordable prices) , and differentiation (producing it is own brand), both these strategies are
called Hybrid.
Significant economies of scale can be considered as Tesco’s competency that pulls Tesco
toward the edge of competition in way to produce cheaper than the other big3 or it is other
competitors, which leads to the attraction of customers. This is pursued by the high level of
bargaining power with the suppliers of Tesco, and the logistics as mention in the external
environment of this report (Hammett and McMeikan, 1994).

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20
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Appendices
A1: Market Shares, the Industry Competitors Rivalry
The big4 Market Shares 2013
Tesco 28.70%
Morrison’s, 11.10%
Sainsbury's 17.00%
Asda 17.90%
Other 25.30%
A2: Tesco Production
Source: Mintel, (2013).
A3: UK Unemployment, 2005-2012
Year Unemployment rate
2005 4.7
2006 5.5
2007 5.4
2008 5.4
2009 7.8
2010 7.8
2011 7.9
2012 7.9

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A4: A glance at Tesco
UK International
No of stores 3,146 No of Countries 12
Group sale £72.4bn No of Stores 3638
Number of employers 313,885 Number of employers 220,509
Market position 1st Market position (Asia in 3
markets, EU in 5 markets)
1st
or 2nd
Revenue £43.6bn Revenue £20.8bn
Tesco bank revenue £1.0bn
0
1
2
3
4
5
6
7
8
9
2005 2006 2007 2008 2009 2010 2011 2012
Un-employmentrate
Year
UK Unemployment rate, 2005-2012
Unemploy
ment rate

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Question 2:
Q2 -Analysis of the internal environment
Sub heading 3.1 Resources based view of the Company (RBV) - Resources and capabilities
theory (R+Cs) /
B1: Tesco Tangible & Intangible Assets
Year Tangible Assets mil GBP Intangible Assets
2005 15495 1044
2006 15882 1525
2007 16976 2045
2008 19787 2336
2009 23152 4027
2010 24203 4177
2011 24398 4338
2012 25710 4618
2013 24870 4362
B2: Key financials
Key financials & Employees
28/02/2013 29/02/2012 28/02/2011
mil GBP mil GBP mil GBP
Turnover 64826 64539 60931
Profit (Loss) before Taxation 1960 3835 3535
Net Tangible Assets (Liab.) 26782 27214 25137
Shareholders’ Funds 16643 17775 16535
Profit Margin 3.023478234 5.94214351 5.801644483
Return on Shareholders’ Funds 11.77672295 21.5752461 21.37889326
Return on Capital Employed 6.293347033 12.047625 11.99321459
Liquidity Ratio (x) 0.492599421 0.48894401 0.466753144
Gearing (%) 91.93054137 91.6962025 86.66465074
Source: Fame, (2014).

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