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, Tescos 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
Porters 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, Porters 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, Sainsburys
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, Sainsburys,
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 Sainsburys 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 Tescos 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 Sainsburys
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-oftesco-supermarket-pestle-analysis-porter-5-forces-analysis-critical-success-factors-swotanalysis-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-oftesco-marketing-essay.php#ixzz3tGBg6bJV

http://www.thinkingbookworm.com/blog/2012/03/strategic-planning-and-implementationcase-study-of-tesco.html

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

(Porter, 1980).
(Kendrick 2003).
(Johnson et al 2008).