Tesco is a large British multinational grocery and general merchandise retailer founded in 1919. It has over 6,800 stores across several countries. Porter's Five Forces model was applied to analyze Tesco's competitive environment. Rivalry is high in the grocery industry. Tesco differentiates itself through various store formats and supply chain integration. Supplier bargaining power is mitigated through IT systems and own brand products. Significant capital requirements and brand recognition make entry difficult for new competitors. Loyalty programs and wide product ranges help counter customer bargaining power. Threat of substitutes is addressed by product differentiation and availability.

1. Sri Lanka Institute of Information
Technology
Master of Science in Information Management
Enterprise Applications and Relation Management
Group Assignment
W.M.J.H. Fernando - MS18901290
Perera K.D.R.S - MS18907926
C. D. N. Fernando - MS18911572
T. Bandara - MS18908084
K.M.S.H.Karunaratne - MS18908152
S.Khadija Bukhari - MS18908220

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Table of Contents
1.0 About TESCO………………………………………………………………… 4
1.1 Aim / Objectives……………………………………………………………… 4
1.2 The values of TESCO………………………………………………………. 5
1.3 Key Strategies used by Tesco to grab customers……………………….. 6
1.4 TESCO Code of business………………………………………………….. 6
2.0 Internal and External Environment in an organization……………….….. 7
2.1.1 Internal Environments……………………………………………........... 7
2.1.2 External Environments…………………………………………….……... 8
3.0 Porter’s Five Forces of Competitive Position Analysis……………….…. 10
3.1 How Porter’s Five Forces Model and External Environment relates?.... 11
3.2 How Porter’s Five Forces Model affected to the TESCO…………….…. 12
3.3.1 Rivalry among Competitors………………………………………………. 12
3.3.2 Bargaining Power of Suppliers……………………………………….….. 13
3.3.3 Threat of New Entrants…………………………………………………… 15
3.3.4 Bargaining Power of Buyers………………………………………….….. 16
3.3.5 Threat of Substitutes……………………………………………………… 17
4.0 Porter’s Value Chain Model - Analysis……………………………………. 19
4.1.1 Primary Activities………………………………………………………….. 19
4.1.2 Inbound Logistics………………………………………………………….. 20
4.1.3 Operations…………………………………………………………………. 20
4.1.4 Sales & Marketing………………………………………………………… 20
4.1.5 Services……………………………………………………………………. 21
4.1.6 Outbound Logistics……………………………………………………….. 21
4.1.7 Support Activities…………………………………………………………. 22
4.2 Competitive Advantage……………………………………………………. 22
5.0 References………………………………………………………………….. 23

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Table of Figures
Figure: 1.0 – Internal factors…………………………………………………. 7
Figure: 1.2 Competitive Rivalry…………………………………………….. 10
Figure: 1.3 Competitive Rivalry…………………………………………….. 19

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1.0 About TESCO
Tesco PLC, trading as Tesco, is a British multinational groceries and general
merchandise retailer. Tesco was founded in 1919 by Jack Cohen as a group of market
stalls. Tesco headquarters in Welwyn Garden City, Hertfordshire, England, and United
Kingdom. Tesco was the third-largest retailer in the world measured by gross revenues
and ninth-largest retailer in the world (2016) measured by revenues. It has shops in
nine countries across Asia and Europe, with over 6800 shops and is the market leader
of groceries in UK, India, Malaysia, Ireland, Czech Republic, Hungary, Poland, Slovakia
and Thailand. As a leading retailer, with 440,000 colleagues, Tesco serves millions of
customers every week, in their stores and online. (“Tesco,” 2018)
1.2 Aim / Objective
Once it first started its online grocery store, Tesco used mass-mailing as a key strategy
for marketing. But after a year, the retailer was faced with matters such as bouncing of
emails and invalid addresses. Meanwhile, on its loyalty front, it also saw a decline in
shoppers.
“We know that one loyal customer is worth five times a newly acquired customer.
Unfortunately, we had a problem where loyalty was in decline and we felt that we
needed to find a way to thank our important, loyal customers,” said Vivian Yap,
marketing director of Tesco Malaysia. (Manjur, 2014)
Tesco also required to go further and understand how customers’ minds worked and
how to be a priority brand in their purchase choices.
A vision is an ambitious view of where the business wants to be. It make available a
benchmark for what the business hopes to achieve. Tesco is a company built around
customers and colleagues. Its vision guides the way of the organization and the
strategic decisions it makes. Tesco’s vision is:

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‘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.’
1.2 The Values of Tesco
1. No one tries harder for customers
● Understand customers
● Be first to meet their needs
● Act responsibly for our communities
2. We treat people how they want to be treated
● Work as a team
● Trust and respect each other
● Listen, support and say thank you
● Share knowledge and experience
3. Every little help makes a big difference
● Helping to reduce food waste globally and ensuring surplus food goes to those in
need
● Making it easier to live more healthily
● Sourcing great quality, affordable and sustainable products
● Making a positive contribution to the communities where we operate. (“Core Purpose
and Values,” n.d.)

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1.3 Key Strategies used by Tesco to grab customers
● Delivery or collection
Delivery 7 days a week and free next-day store collection
● Handled with care
Great quality products picked and packed with care
● Freshness Guarantee
We only pick the freshest groceries
● Shop your favorites
Order your most loved products in just a few seconds
● Club card points
Collect Clubcard points for days out, travel and more
● Shop on the move
Shop on the move with our apps for tablet and mobile.
1.4 Tesco Code of Business
Tesco designed its business ethics and policies relevant to areas in which affects to the
internal and external environments of the company. (“How we do business,” n.d.)
● Anti - bribery
● Human Rights
● Tax approach
● Ethical approach
2.0 Internal and External environments in an organization

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2.1.1 Internal Environments
The internal business environment comprises of factors within the company which
impact the success and approach of operations. Unlike the external environment, the
company has control over these factors. It is important to recognize potential
opportunities and threats outside company operations. However, managing the
strengths of internal operations is the key to business success.
Some examples of areas which are typically considered in internal factors are:
● Financial resources like funding, investment opportunities and sources of income.
● Physical resources like company’s location, equipment, and facilities.
● Human resources like employees, target audiences, and volunteers.
● Access to natural resources, patents, copyrights, and trademarks.
● Current processes like employee programs, software systems, and department
hierarchies. (“Insights,” n.d.)
The internal factors basically include the inner strengths and weaknesses. Internal
factors can affect how a company meets its objectives. Strengths have a favorable
impact on a business. Weaknesses have a harmful effect on the firm.
Figure: 1.0 – Internal factors
2.1.2 External Environments
An external environment is composed of all the outside factors or influences that impact
the operation of business. The business must act or react to keep up its flow of

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operations. The external environment can be broken down into two types: the micro
environment and the macro environment.
● The micro environment consists of the factors that directly impact the operation of
a company.
● The macro environment consists of general factors that a business typically has no
control over. The success of the company depends on its ability to adapt.
Figure: 1.1 External Factors
The factors that can affect the business are:
● Social – how consumers, households and communities behave and their beliefs. For
instance, changes in attitude towards health, or a greater number of pensioners in a
population.
● Legal – the way in which legislation in society affects the business. E.g. changes in
employment laws on working hours.
● Economic – how the economy affects a business in terms of taxation, government
spending, general demand, interest rates, exchange rates and European and global
economic factors.
● Political – how changes in government policy might affect the business e.g. a
decision to subsidies building new houses in an area could be good for a local brick
works.
● Technological – how the rapid pace of change in production processes and product
innovation affect a business.

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● Ethical – what is regarded as morally right or wrong for a business to do. For
instance should it trade with countries which have a poor record on human rights?
3.0 Porter’s Five Forces of Competitive Position Analysis
Porter’s Five Forces of Competitive Position Analysis were developed in 1979 by
Michael E Porter of Harvard Business School as a simple framework for assessing and
evaluating the competitive strength and position of a business organization.
This theory is based on the concept that there are five forces that determine the
competitive intensity and attractiveness of a market. Porter’s five forces help to identify

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where power lies in a business situation. This is useful both in understanding the
strength of an organization’s current competitive position, and the strength of a position
that an organization may look to move into.
Strategic analysts often use Porter’s five forces to understand whether new products or
services are potentially profitable. By understanding where power lies, the theory can
also be used to identify areas of strength, to improve weaknesses and to avoid
mistakes.
Figure: 1.2 Competitive Rivalry
3.1 How Porter’s five forces model and external environment
relates?
Porter's Five Forces and PESTLE analysis are two sets of business tools for analyzing
situations and helping companies to improve their competitive positions. Porter's Five
Forces looks at where the power lies in a competitive situation. An industry with high
profits is a difficult environment for new competitors to enter. Suppliers and buyers both
have few options available, and therefore, weak bargaining power. PESTLE, on the

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other hand, identifies how various macro environmental factors might affect an
organization and its competitive standing.
3.2 How Porter’s five forces model Affected to the TESCO
Tesco’s main rivals are ASDA and Sainsbury's which also offer home deliveries driven
by orders over the internet.
3.3.1 Rivalry among Competitors

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The intensity of rivalry among competitors in an industry refers to the extent to which
firms within an industry put pressure on one another and limit each other's profit
potential.
● Competition between online and offline companies
● Level of advertising expense
● Powerful competitive strategy
● Degree of transparency
● Number of competitors
● Quality differences
● Other differences
● Customer loyalty
Tesco has overcome the issue by,
● Multiple store formats such as superstores, compact stores, metros, express stores
make TESCO more accessible and provide the unified experience.
● Not having to keep excess stock in stores allow the total space to be used for sales,
huge benefit over other competitors.
● E-POS helped to gain advantage over retailers like Boots and WH Smith where only
certain products contained barcodes.
● Barcode system eliminated the need for individually pricing products thus saved a lot
of time when stocking and restocking.
● Barcode system allowed price changes to implement rapidly and controlled from a
centralized location.
● Inventory control and DSS helped the stores to be always stocked based on
demand.
● Introducing Multi-temperature composite warehouses
● Given this, distribution, stock control and replenishment become a single, integrated
system.
● Can be eliminate of the need to price every single product. The price can be
displayed where the products are shelved; the EPOS system inputs the price once the
barcode is read.

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● price changes can be implemented rapidly.Every Tesco store had up-to-date
scanning technology.
3.3.2 Bargaining Power of Suppliers
Supplier power refers to the pressure suppliers can exert on businesses by raising
prices, lowering quality, or reducing availability of their products.
● Number of suppliers
● Size of suppliers
● Cost of changing
● Degree of differentiation of inputs
● Impact of inputs on cost and differentiation
● Presence of substitute inputs
● Strength of distribution channel
Tesco’s strategies to overcome bargaining power of suppliers:
● Internet helps invite suppliers to engage in bids or auctions when either the retailer
has a specific shortage or a supplier has excess inventory.
● Exposing an instant record of sales and stock movement via Tradanet Electronic
Data Interchange (EDI) allow the suppliers to monitor performance and pre-plan
delivery schedules.
● Investing on food technology and ethical product labelling allowed TESCO to push
own brand products, this keeps its suppliers in check and reduces bargaining power.
● The supply chain backed by IT, only made suppliers to deliver to only a handful of
intermediate warehouses, this reduced costs for the supplier.

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● Warehouses are managed by multiple specialist distribution companies. So TESCO
was not bound to a single one
● IT is used to also monitor warehouse efficiencies – space and vehicle utilization,
delivery times linked to route planning, etc.
● IT eliminated need for sales reps to visit or call, also allowed TESCO to work with
2500+ of suppliers.
● TESCO created a strong network “community”, with its suppliers through the IT
implementations.
● working closely with suppliers to build long-term business relationships based on
strict quality and price criteria.
● Implement an IT strategy for close co-operation with suppliers.
● Automated data capture in stores using electronic point-of-sale (EPOS) – examined
in detail in the next section.
● Electronic data interchange (EDI) for the rapid transmission of sales and stock data,
order confirmations and delivery schedules.
● Pre-planning with suppliers.
● Decision support systems to help forecasting, planning and inventory management.
3.3.3 Threat of New Entrants
New entrants eventually will decrease profitability for other firms in the industry.
● Government policy
● Capital requirements
● Absolute cost
● Cost disadvantages independent of size
● Economies of scale
● Product differentiation
● Brand equity
● Time and cost of entry
● Specialist knowledge
● Technology protection
Are few of the reason to companies won’t be handle the situation of the business
industry.

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In Porter's five forces, Threat of new entrants refers to the threat new competitors pose
to existing competitors in an industry.
How TESCO handles this…
● Move with latest technologies.
● Keep full potential of networked supply-chain management has not yet been
achieved by any retailer.
● Due to high capital investment required and brand name recognition, competing is
difficult for new entrants.
● Come up with new innovations.
● Always they use latest technology and move on with the trend other than holding on
one technology.
● They have strong supply-chain management system. By using power of internet, e-
marketing, shares live sales information with its suppliers. Suppliers are mainly asked
to deliver to Tesco’s various warehouses, and consequently a fresh-food supplier will
have just eight delivery points. The actual orders are increasingly transmitted by EDI
● The increasing predominance of retailer own brand food products has increased the
need for close co-operation between the store chain and its suppliers
● They have introduced new system which have meant lower costs and greater
certainty for suppliers, and in turn lower prices for Tesco.
3.3.4 Bargaining Power of Buyers
Power of the buyers. The pressure consumers can exert on businesses to get them to
provide higher quality products, better customer service, and lower prices. When you
deal with only a few savvy customers, they have more power, but your power increases
if you have many customers. Bargaining power of customers contains below factors.
● Number of customers.
● Size of each other.
● Buyer switching costs
● Buyer information availability
● Availability of existing substitute products
● Buyer price sensitivity
● Differential advantage (uniqueness) of industry products

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● Differences between competitors.
Tesco’s strategies that applied to bargaining power of customers are:
● Tesco has been a pioneer of loyalty or frequent-purchase cards. Tesco’s Clubcard
has a magnetic strip which records a customer’s purchases and awards a credit for use
with future purchases.
● They are offering customers the best value for money and the most competitive
prices
● They have big product range. Larger stores, quite simply, offer wider ranges.
● Product availability is high. Shelves must be stocked and quickly replenished.
● Competitive prices – which in turn depend in part on controlling costs.
● Porter’s Five Forces of buyer bargaining power refers to the pressure consumers
can exert on businesses to get them to provide higher quality products, better customer
service, and lower prices.
● Tesco tries to reduce bargaining power of buyers.
− Tesco Provides loyalty schemes with various benefits like discounts and etc.
− They Display price differentiations of various products with regards to their
competitors.
− Late payments and electronic funds transfers are allowed.
− Sell wider overall product range with many flavors.
3.3.5 Threat of Substitutes
A substitute product uses a different technology to try to solve the same economic
need.
Potential factors:
● Buyer propensity to substitute
● Relative price performance of substitute
● Buyer's switching costs
● Perceived level of product differentiation
● Number of substitute products available in the market
● Ease of substitution

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● Availability of close substitute
The way that Tesco company overcome this issue is,
1. It facilitates the achievement of the ‘right’ good at the ‘right’ place, at the ‘right’ time,
and at the ‘right’ price.
2. They are maintaining a huge range of products. Non food and food items can buy
from one place.
3. They are using internet to build a relationship between customers and company.
They have facilitated home delivery to their millions of customers.
4. Keep full potential of networked supply-chain management has not yet been
achieved by any retailer.
Due to high capital investment required and brand name recognition, competing
is difficult for new entrants.

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4.0 Porter's Value Chain Model – Analysis
Rather than looking at departments or accounting cost types, Porter's Value Chain
focuses on systems, and how inputs are changed into the outputs purchased by
consumers. Using this viewpoint, Porter described a chain of activities common to all
businesses, and he divided them into primary and support activities
Figure: 1.3 Competitive Rivalry
4.1 Primary Activities
4.1.1 Inbound Logistics
These are all the processes related to receiving, storing, and distributing inputs
internally. Your supplier relationships are a key factor in creating value here.
Electronic point-of-sale (EPOS)

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It is self-contained, computerized bar coded system that enables an effective recording
of the sale of goods or services to the customer
● Inspect the goods on shelves & bar code scanning using portable data-capture
machines used for checking shelf stock levels and send the data to centralized system.
● Based on centralized system figures monitoring warehouse efficiency, space and
utilization.
Electronic data interchange (EDI)
Electronic Data Interchange (EDI) is the computer-to-computer exchange of business
documents in a standard electronic format between business partners
● Receive the supplier delivery note and sending the promissory note via EDI.
● Electronic payment and funds transferring.
● Delivery times planning through route linking.
4.1.2 Operations
These are the transformation activities that change inputs into outputs that are sold to
customers. Here, your operational systems create value.
● Suppliers have systematically joined Tesco’s network (‘community’)
● Provide knowledge of EDI for suppliers by seminars
● EDI is not just for PO releasing and invoices, but to broadcast forecast information.
● Up-to-date product information
● Faster movement of information and shorter supply times
● Handling large number of suppliers through the network
● Effective operation by efficient procurement and customer services.
4.1.3 Sales & Marketing
Attracting potential customers to enhance business or activity of selling goods or
services
● Efficient Customer Response (ECR)
● Likelihood of stock-outs and the consequent loss of sales is minimized.
● Sales & cash flow monitoring via system
● Loyalty programs through IT discourage the customers from brand switching
● Based on sales patterns through system make sure product availability with
competitive prices

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● Based on system data statistics planning seasonal offers.
4.1.4 Services
All the activities required to keep the product / service working effectively for the buyer
after it is sold and delivered. It enhance the product’s value.
● Introduction of virtual super markets by using IT infrastructure is another competitive
advantage.
● Having support desk to facilitate customer care and services.
● Club card records a customer purchases and award a credit for use with future
purchases.
4.1.5 Outbound Logistics
Required to transfer the finished products to the customers via warehousing, order
fulfillment, transportation, and distribution management.
● The company has developed four convenience store formats.
− Superstores: Stores of this format offer a good range of food and other products.
Each Superstore also has a bakery and fresh food counters
− Compact stores: The largest type of store, Tesco Extra offers the greatest choice of
products, including electrical equipment, clothing, homeware, health and beauty
services, and financial services such as travel money.
− Metros: Metro stores sell wide range of food and a smaller selection of general items
such as cook ware and greetings cards.
− Express stores: The smallest size of stores, Tesco Express aims to bring fresh food
as close as possible to home and work. Express store formats are designed for top-up
purchases and small shopping visits
● EDI has developed in parallel with composite, multi temperature food warehouses
and trucks.
● EPOS extract updated information from centralized systems. eg. Transmit orders via
Tradanet, evaluate profitability.
● EPOS reduce the cost of all outbound operations eg. Lower cost to suppliers and
company.
● EPOS has developed to predict demand patterns for individual stores.

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4.1.6 Support Activities
These activities support the primary functions above. In our diagram, the dotted lines
show that each support, or secondary, activity can play a role in each primary activity.
For example, procurement supports operations with certain activities, but it also
supports marketing and sales with other activities.
● Procurement - Supply Chain Management
(EPOS, EDI, Pre-planning with suppliers, Decision Support System, Streamlined
Distribution)
● Technology Development - Centralized Automated Information
Management System
● Human resource management - Structured process for recruitment and Selection
● Infrastructure - Collaborative work systems (Stronger cash flow and improved profit
for all parties)
Companies use these primary and support activities as "building blocks" to create a
valuable product or service.
4.2 Competitive Advantage
● The central computer system will contain information on the margin and relative
profitability of every item.
● Making decisions concerning which products to boost and promote and which ones
drop.
● Speed up the warehouse efficiency and to reduce the costs of distributing the
products.
● Used to minimize duplication. The fewer times that actual deliveries and the support
documentation need to be checked, the speedier and cheaper in the system. (“From
Competitive Advantage to Corporate Strategy,” n.d.)
5.0 References

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❖ Core Purpose and Values [WWW Document], n.d. . Tesco Plc. URL
https://www.tescoplc.com/about-us/core-purpose-and-values/ (accessed 10.5.18).
❖ From Competitive Advantage to Corporate Strategy [WWW Document], n.d. URL
https://hbr.org/1987/05/from-competitive-advantage-to-corporate-strategy (accessed 10.5.18).
❖ How we do business [WWW Document], n.d. . Tesco Plc. URL
https://www.tescoplc.com/about-us/how-we-do-business (accessed 10.5.18).
❖ Insights [WWW Document], n.d. . Blue Fountain Media. URL
https://www.bluefountainmedia.com/insights (accessed 10.5.18).
❖ Manjur, R., 2014. Case Study: How Tesco brought loyalty back to its stores [WWW
Document]. Mark. Interact. URL https://www.marketing-interactive.com/case-study-tesco-
brought-loyalty-back-stores/ (accessed 10.5.18).
❖ Tesco, 2018. . Wikipedia.
❖ Mindtools.com. (2018). Porter's Five ForcesUnderstanding Competitive Forces to Maximize
Profitability. [online] Available at: https://www.mindtools.com/pages/article/newTMC_08.htm
[Accessed 2 Oct. 2018].