Report: Strategic Analysis- Tesco Plc

BKEY601.Y

Strategic Perspectives 2013/14

Module Leader: Ioannis Christodoulou

Seminar Leader: Evgeniya Macleod

Student: Petko Georgiev

Date submitted: 27 February 2014

Word Comunt: 4970

(Excluding: Cover Page, References, Appendixes)

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Exacutive summary

This report conducts in-depth analysis of Tesco plc. In it introductury part the report presents the
company's current financial status, indicting that Tesco is the UK biggest supermarket chain, which
have highly diversified products own brands and financial service. The report develops an external
environment analysis using PEST analysis, the focus is primarily on the UK market. The PEST
analysis do not considered policy and legislation dimensions in depth, yet some legislation restrictions
where pointed. The economic dimension demonstrated that, at present the UK food retail industry
experience 3.4% growth. Yet consumers income shrinks which force them to chose cheaper
groceries. In the social dimension this study found that consumers have become less loyal, shop
locally, and buy more non-food products from supermarkets. The study found that in the technology
dimension there is a general trend to shop online and the UK market is the most advanced in this
perspective.

Once the general environment has been explored, this study analysed the micro environment in which
UK supermarkets operate. The study found that threat of entry of new competitors into the food retail
industry is very low. This is not true for the online grocery retail which has been defined as relatively
easy to enter. In terms of threat of substitute, supermarkets expand their convenience segment, which
stops other retailers to sell substitutes. However the non-grocery products, especially clothing sold by
supermarkets seams to be high threaten. The intensity of rivalry in the supermarket sector is very high
and the sector is on the threshold of a price war at the moment. The bargaining power of both the
suppliers and buyers in this industry is low.

After defining the external environment this study proceeded towards investigating the Tesco's internal
environment. Here was used the Resource Based Approach as a tool for analysis. On the tangible
side the report found that Tesco is loosing financial grip, however the group is now investing in stores
and product improvements, hoping to improve customer satisfaction. Tesco was found to have many
intangible resources; HR development programs, internship programs, and special promotion scheme.
The company has proven historic and recent innovative business approach, through its use of
technologies and sales/marketing techniques. In terms of reputation and brand the company has long
traditions and well trusted brands. On the supply side there are some speculations for Tesco being not
very trusted. One big issue found by the study was that, nevertheless the company has very good
resources, at present it fails to effectively employ them and create value for its customers. By
analysing Tesco's PR and Crisis handling, this report illustrated that the company have been recently
involved in a scandal that affected the company reputation and revenue. Nevertheless that the
company have handled the crisis situation well and demonstrated good corporate social responsibility.

Tesco's business level perspective follows dual strategy, targeting both the upmarket and the low cost
food retail segments. This approach seems to have worked adversely for the company by far. On a
corporate level, the company has claimed that it looks for growing opportunities, however recent data
shows that the company have withdrawn from some international markets and has stooped its UK
expansion. The report suggested that the company is concentrated over current issues utilizing
caution strategy.

In its final part this report recommends that, the company should follow same strategic approach.
Tesco lacks on the execution side of the strategy. Therefore in order to tackle this current hardship,
Tesco will have to urgently employ all core capabilities beginning to achieve strategic goals and
deadlines.

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Table of Contents

Report: Strategic Analysis- Tesco Plc.....................................................................................1

Exacutive summary.................................................................................................................2

Introduction.............................................................................................................................4

1. Analysis of the external environment..................................................................................5

1.1 Macro Environment Analysis – PESTEL......................................................................5
1.1.1 Political and Legal.................................................................................................5
1.1.2 Economic dimension UK focus.............................................................................5
1.1.3 Social dimension UK focus...................................................................................6
1.1.4 Technology............................................................................................................6
1.2 Micro Environment Analysis – Porter’s 5 Forces Model...............................................7
1.2.1 Threat of new entrants..........................................................................................7
1.2.2 Threat of substitute products and services...........................................................8
1.2.3 Intensity of competitive rivalry...............................................................................8
1.2.4 Bargaining power of buyers..................................................................................9
1.2.5 Bargaining power of suppliers...............................................................................9

2. Analysis of the internal environment - Tesco..................................................................9

2.1 Resource Based View - Tesco plc..........................................................................10
2.1.1 Tangible Resources.............................................................................................10
2.1.2 Intangible Resources..........................................................................................10
2.1.3 Organisational Capabilities.................................................................................13

3. Analysis of PR crises....................................................................................................13

4. Strategic Analysis.........................................................................................................15
4.1 Business Level Strategy.........................................................................................15
4.2 Corporate Strategy.................................................................................................17

5 Strategies Suggested for future.....................................................................................18

6. References...................................................................................................................19

7. Appendices – Appendix one.........................................................................................23

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Introduction

Tesco plc operates in twelve European and Asian countries and is currently the third largest
retailer in the world (Mintel, 2014). During the financial year ended Feb 2013 the company
recorded revenues of £64,826 million, yet over 65% of them where generated in the UK. With
over 3,000 stores and over 310,000 employees, Tesco plc is the current biggest supermarket
retailer in the UK (Tesko, 2014b).On the UK market the company operates five format stores,
which have different size and range of products: Tesco Extra - largest format, Tesco Metro,
Tesco Express, and One Stop - being the smallest format (Kreutzer and Lechner, 2008).
Stores operate on in-store picking model, which is further complemented by on-line retail
throughout Tesco's own website – www.tesko.com (Tesco, 2014a). The retailer has
developed its own branded products, which range from low cost products accordingly
branded - “Everyday Value” to the highest range - “Tesco Finest”. In addition to its grocery
offer the company has diversified its main business and sells some own branded electrical
appliances, clothing, video on demand, broadband service, mobile service and also financial
services throughout “Tesco Bank”, and “Tesco Insurance”(Kreutzer and Lechner, 2008). This
report will explore the company environment and core features by having a particular focus on
the UK market, however the report will also indicate some global trends, since the Tesco plc is
a globally presented company and its operations extend beyond the UK. In its first part this
report will look into the food retailers external macro and micro environment, then the report
will concentrate on Tesco core capabilities and will analyse them using concepts like value
chain and internal resource based view of a company. The report will also analyses the
company corporate social responsibility policy, throughout a particular crisis situation. Finally
the report will conduct a strategic analysis of the company on both business and corporate
scales concluding with some recommendations.

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1. Analysis of the external environment

Successful management must monitor the ever changing external environment in which a
company operates and adjust its strategy accordingly, therefore these multiple factors in the
external environment can have dramatic effect on a company strategy (Dean at al, 1998).
Amongst one of the most popular external environment assessment tools is PEST, this model
divides the general environment into six segments; demographic, sociocultural, political/legal,
economic, technological,and global (Georgiev, 2014).

1.1 Macro Environment Analysis – PESTEL

1.1.1 Political and Legal

Political and legal dimensions are not going to be discussed in great detail since not particular
legislations restricts affect the normal operation of the UK supermarket retailers, however it is
worth mentioning some recent announcement that China has entered WTO and removed
trading barriers which action have prompting many foreign traders, including western food
retailers to enter their huge market (Wang, 2010). On the other hand a legislation restriction in
South Korea has reduced the operating hours of the supermarkets, accounting to serious
decline in profits for all food retailers including western companies who operate on this
market.

1.1.2 Economic dimension UK focus

The UK economy is recovering and is set to grow by 2.7%. Unemployment is expected to fall
by 1.4% to 7% in 2014, however the relatively high debt levels and the expected increase in
interest rates by 0.5%, are expected to result in decreased household consumption (BBC,
2013). Yet according to Mintel UK buyers are now positive and feeling much more confident
when shopping. Supermarket retail segment is predicted to grow by 3.4% in 2013, and
continue with similar rate throughout 2014. However if the 2013 growth is measured against

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food price inflation, the market is in a real-terms declining by 1.1% (Mintel, 2013). Since the
continuing inflation outpace wage growth, the real shopper income, remain under pressure
and some customers have chosen cheaper products (e.g. supermarket own brands) or shifted
to discounter retailers (Mintel, 2013).

1.1.3 Social dimension UK focus

Shoppers are influenced by convenience and price in terms of store choice. Four social
change patters are noticeable in the consumer behavior. According to Mintel (2013) grocery
consumers are “shopping around more” which suggests that they are generally more willing to
try new retailers, therefore are becoming less loyal, customers are also doing more grocery
shopping locally in their closest convenience stores or at the town centre supermarkets.
Another trend is that customers have moved beyond impulsive shopping when it turns to non-
grocery stocks in a supermarket and some of the Mintel survey respondents, they do special
trip to a supermarket to by a general merchandise. Finally customers are shopping much
more food and non-food online (Mintel, 2013).

1.1.4 Technology

Since 1991, when was published the first ever website on the Internet, World Wide Web has
become a phenomena that changed the way people work, learn, shop and even socialize
(ONS, 2010). Today more than 2,4 billion people or 35% of the whole world population use
Internet (Internet Society, 2012). In the UK 87% of all adult population use Internet (ONS,
2014). This technological trend according to Mintel (2014) resulted in 20% of the UK adults
doing some or most of their grocery shopping online and places UK as a leader in online
grocery retailing in Europe. Online grocery sales are expected to continue to grow in a rate of
almost 17%, however the total online food retailers sales are still less than 5%, which means
they do not have significant revenue contribution in the current moment (Mintel, 2014a). In
addition to the rise of Internet use, other technological trends like use of smartphones also
affect how consumers shop. For example iPhone apps now show nutrition information and

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other facts while in the store, this presents new form of customer interaction and retailers
reflect on this (Keystone, 2011)

1.2 Micro Environment Analysis – Porter’s 5 Forces Model

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:

Porter’s Five Forces Analysis model.

1.2.1 Threat of new entrants

Grocery retail market in many countries and particularly in UK, is charactered with pretense of
a big supermarket retail chains which form the core of the industry. For example in the UK,
Tesco, Asda, Sainsbury’s and Morrisons account for 81% of all grocery retail (Mintel, 2013).
The supermarket chains also operate on oligopoly principles which presents further difficulty
for new entrants. Another substantial briers to enter the industry are the huge capital
investments, finding and buying strategically appropriate land and gaining planning
permissions for building new retail stores. Nevertheless the UK customers have become less
loyal to brands and more wiling to try new stores, still many of them prefer their trusted
supermarkets (Mintel 2013), meaning that new entrants will face difficulties to attract
customers. Furthermore most of the established supermarkets in UK have already specialised

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in either quality or price differentiation, meaning that new entrants will have to produce
something at an exceptionally low price or high quality to position into the market. Taking into
consideration all of the above factors it becomes obvious that, the threat of entry of new
competitors into the food retail industry is very low. Nevertheless that, online shopping is
gaining more popularity, supermarkets are taking advantage of this but in contrast to the
traditional food retail stores, online market is relatively easy to enter and does not require
substantial investment, as a result some relatively new entrants like Ocado have managed to
gain substantial market share.

1.2.2 Threat of substitute products and services

Supermarkets sell mainly food groceries but they also sell increasingly more non-food items.
In regards to the food offer sold by the supermarkets, some small chains of convenience
stores introduce very little substitutes to the major food retailers. However according to Mintel
(2014) there is a current trend showing the biggest supermarket chains expanding their
convenience format stores which will get hold of potential substitutes and create hurdle for
them to enter the market, therefore substitutes are not seen as a threat to the big
supermarket chains in UK. Threat of substitute in terms of non-grocery products, especially
clothing, sold by supermarkets seams to be fairly high. This is since there is many highstreet
retailers that offer similar products to competitive prices. Nevertheless that according to Mintel
(2014) customers are now more wiling to by clothing from supermarkets and there is growing
demand resulting in increasingly more nonfood sales.

1.2.3 Intensity of competitive rivalry

The intensity of competition in the food and grocery retail industry is very high, as it was
already indicated supermarkets often operate in oligopoly meaning that change in price of one
competitor immediately affects the prices of all other rivals. Tesco, Asda, Morrison,
Sainsbury’s, Waitrose, Audi, and Lidl, are the main rivals on the UK market and compete with
each other over products quality, price, and promotions. There is a rumor that supermarket
are about to enter a price war, over Tesco anouncment to cut prices by £200 million and
Morrison cutting prices of over £1 billion in the next three years (The Telegraph 2014b), These

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tow retailers appear to respond to heavy discounters like Aldi, who recorded a 41% surge in
total sales and Lidl recording 11% sales increase, due to cheap food offers in 2012/13 (Mintel
2013). If the a real price war occur the whole oligopoly market will soon or later react and
down price its products meaning that whole industry will lose profits.

1.2.4 Bargaining power of buyers

The recent sales increase of the discounter supermarkets shows that customers are attracted
towards the low prices, customers are also able to compare prices online thus select the best
offer available, this suggests some power in the shoppers hands. Nevertheless some
customers may prefer high quality over price or vice versa, most of the supermarkets offer a
rich variety of food products that are segmented into product ranges, therefore customer may
easily switch retailers and still find whatever he/she prefers. These factors suggest some
buyers bargaining power since they can easily compare prices are not dependent on any
particular retailer, yet buyers have very little or not at all bargaining power and can not control
over price formation.

1.2.5 Bargaining power of suppliers

The market dominance of small number big food retailers ensures their power in regards to
price negotiations when supplyer wants to sell a product to them. Those already established
business contracts there is a treath of loosin it and therefore loosing market. In this regard it
can be concluded that the bargaining power of suppliers is fairly low.

2. Analysis of the internal environment - Tesco

For the needs of evaluating the internal environment of Tesco plc., therefore identifying the
company value creating capability which can enable definition of the Tesco's competitive
strength, this report will use two well the Resource Based View of a Firm as an analysis
framework. Anoter option to analyse a firm for researchers is the Value Chain which was
described by Porter in 1996(Porter, 1996).

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2.1 Resource Based View - Tesco plc

The resource based view of a firm is a tool that combines both internal and external
perspectives for a company analysis (Collis and Montgomery, 1995). By using this framework
it is possible to gain insights, why some competitors on the market are more profitable than
others, but the framework can also be used as a tool supporting formation of a strategy
(Georgiev, 2014). According to the model companies posses three key resources; tangible
resources, intangible resources and organisational capabilities.

2.1.1 Tangible Resources

During the financial year ended Feb 2013 Tesco plc. recorded revenues of £64,826 which is
an increase of 1.4% over previous year. For the same period the company had £2,188 m
operating profit which is a decrease of 47.7% and a net profit of £124 million which is a
decrease of 95.6% compared with previous year (Market Line, 2014). In terms of physical
assets the company has stopped its expansion appetites and has started to improve the
already operating stores under ‘Build a Better Tesco’ program lunched in 2012. The program
plans £1 billion investment in UK store refurbishments, new product development and
repositioning, as well as delivering of a better customer service (Clarke, 2013). However
according to Mintel this program has been slow “with only 82 of the 247 Extras and 178 of the
482 superstores “refreshed”(Mintel, 2014). Yet the company continues to improve and “[t]he
emphasis in 2014/15 will be on the Extras, with the hope of completing the estate by 2017”
(Mintel, 2014).

2.1.2 Intangible Resources

In order to keep feeding in new young and fresh staff Tesco's executes twenty graduate
schemes, which offered 5,000 new apprentice positions in 2012 (Clarke, 2012). In addition to
this, over the last year the company has trained and deployed an additional 8,000 new
employees and has provided in-store training under the moto “Making Moments Matter”
aiming in improved customer service. This training program is supplemented by technical

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teachings for 36,000 employees, in the fresh food departments (Tesco, 2012b). In terms of
managerial skills the chief executive Philip Clarke shares that the company have in place a
“culture of progress” program that “never stop investing in people”, this program includes
talent management scheme under which more than 12,000 managers where appeased in
2012 and where supported in their further carrier progression. Thanks to the program more
than 80% of the current management positions are filled in by people from within, people who
have progressed throughout flour shop positions, Mr Clarke himself is such an example
(Clarke, 2012). Mr Clarke believes that Tesco's managers are taught according to the values
and priorities described in their new strategy and he believes that the management they “have
in place has the skills, experience, creativity and drive to deliver their ambitions” (Tesco, 2013:
9).

In terms of innovation and creativity the company has showed historically its potential with
opening the first on-line grocery retailing store in the UK, introduction of Tesco Clubcard for
the first time in UK etc. (Kreutzer and Lechner, 2008). Today the company continues to
innovate new approaches to reach the customer or improve his experience. In store
innovation have been embraced by the company at present and there are couple of recent
innovation already in use for example; “Scan as you shop”, which allows customers to scan
their purchases themselves while shopping, this technology according to CIO McNamara
greatly increase the checkout process and “customers love it” (McNamara, 2014). Another
recent technology utilization in Tesco is the use of special cameras that “sense” if a vegetable
tray is emptied and then sends a notification straight to inventory staff, who can supply the
stock immediately. Furthermore the company continues to excel in its innovative approach
recently introducing for a first time in the UK, an interactive grocery store in the waiting lobby
at Gatwick Airport. This final innovation tends to reflect on the technological trends and the
customer behavior. Here at Gatwick commuters are provided with interactive screen, which is
slided by hand and reveals products that can be purchased when scanned with a smart
phone. The ordered and delivery are set and commuters have them received when get home
(BBC, 2014).

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In terms of reputation and brand, Tesco plc is a worldwide company that has well recognized
brand in UK, but also Europe and Asia. In terms of product offer Tesco heavily relay on
branding and classifies all its products into brand ranges; some examples are 'Everyday
Value', which offer “quality and variety at consistently low prices”(Tesco, 2014), 'The Tesco
Brand', which is the heart the company range and “offers an amazing choice at great Tesco
prices”(Tesco, 2014), and the Tesco Finest, which promices high quality to the customer.
Tesco claims that “Brands are about giving customers confidence in the quality, value and
reliability of the things we sell. We aim to be a creator of highly valued brands across our
offer, whether it is Finest, F&F or Tesco Bank”(Tesco, 2013: 13). Yet in terms of quality offer,
according to a research conducted in 2012 Tesco was scored the worst supermarket in UK,
customers rated Tesco for being poor in most of the following categories: pricing, store
environment, quality of fresh produce and customer service (The Telegraph, 2013). In addition
to this in 2012 the company was hit by a huge scandal, when it was discovered that its
Everyday Value beef burgers, contained nearly 30% horse meat.

Finally Tesco's reputation on the supply side should be guaranteed if they follow the
“groceries supply code of practice” however if taken into account one of the Tesco's strategic
objective to be amongst the value leaders and the current promise of a £200m price reduction
in milk and cucumbers in order to match Morrison’s, reductions (The Telegraph, 2014), Tesco
would further lower its profits, therefore there is a risk that the company might pass the
burden to its suppliers. According to The Telegraph, farmers are worried that the price
reduction policy executed by Tesco would press on the dairy farming industry, asking for even
lower supply prices (The Telegraph, 2014a). In addition to this, there are already speculations
about Tesco trying to squeeze its suppliers, a “letters demanding money from suppliers'
trading accounts – where payments are deposited by Tesco – to support its short-term profit
margins” (The Guardian, 2013) are claimed to have been received by some.

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2.1.3 Organisational Capabilities

This dimension of the RBV model refers to company assets that are classified as neither
tangible or intangible, but are rather competences that a company employs in order to
transform inputs to outputs (Ethiraj at al, 2005). Clearly Tesco possess long history that helps
when it turns to management, its employee scheme, creative approach and well established
brands, together with the tangible assets and the incorporated technology, described above
contribute to the company ability to sustainable turn inputs to outputs as a whole. However it
appears the company is in difficult situation judging by the already discussed customer
perception about Tesco, having the worst quality and value for money in the UK. Despite the
company recent attempt to invest in quality improvements, this program has been
implemented with slow pace (Mintel, 2013) and even though Mr Clarke said in February 2014
that he had seeded the program up (The telegraph, 2014), the store performance has shrunk
to its lowest level in almost a decade (Kantar, 2014). All these indicators suggest that at
present, Tesco is unable to employ effectively its competences when combining tangible and
intangible assets and deliver appropriate, products on a sufficient price with good customers
service.

3. Analysis of PR crises

“Corporate Social Responsibility (CSR) can be defined as the action of the firm to benefit
society beyond the requirements of the law and the direct interest of the firm”(McWilliams and
Siegel, 2001). However another more recent dimension of this concept relates to the ethics
and values according to which a business practices and operations are conducted
(Christodouolu and Patel, 2013: 459). One very recent issue in terms of ethical practices
within the grocery retailing business occurred in the beginning of 2013, when the Food Safety
Authority of Ireland (FSAI) found horse DNA in frozen burgers sold in the UK and Ireland, the
burgers where sold by four major supermarket retailers including Tesco (The Guardian,
2013a). It is important to notice that the issue did not had any health treating character and

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did not breach the law, however the discovery was badly perceived by the community and
arose into a scandal. The scandal had a major media coverage and hit Tesco's reputation
badly. According to a survey Tesco suffered immediate fall in sales not only in the UK, but also
in 9 out of its 11 global markets (The Guardian, 2013b).

One possible reason for Tesco to have involved in such an unethical practice is perhaps that
food industry has become very sophisticated and supply chains so complex therefore it is
much harder to monitor what ingredients go into a product (Bloomberg 2013), an official
reason that Tesco have stated for the problem. However it is possible that actually Tesco and
all other food retailers new that, the products they sell contain horse meat, and the reason
why Tesco sold this was “following fashion” or simply “profit pursuit”, both very common
reasons for business to involve in unethical practices suggested by Mahoney (1997).
Nevertheless whatever the reason was there is nothing to excuse Tesco's misconduct, yet the
company have demonstrated great amount of social responsibility in the post event period.
The company immediately apologised and “have immediately withdrawn from sale all
products from the supplier in question”(Tesco 2013a). The company also offered immediate
refund to the customers who already bought the affected products. Tesco responded to the
media adequately, with doing a number of interviews, press releases and even have
published a full-page ads entitled ‘we apologise’ in most of the UK press (see Appendix one).
The company also took remedy actions by taking proactive approach and promising to “spend
millions of pounds annually on DNA testing, to make sure its suppliers are delivering the
ingredients as listed”(Bloomberg, 2013). Introducing DNA testing ads whole new process to
the supply side. Tesco also suggested that will work more closely with British farmers and
supply more food from home producers ensuring “more transparent supply chain and creating
"world class" traceability in the products it supplied” (The Telegraph, 2013a)

Nevertheless the misconduct Tesco has been involved in, the crisis actions taken by the
company, as stated above, demonstrate real dedication to CSR. Judging by the company
ability to immediately and appropriately react on the crisis situation, suggests the company
have well established code of practice, which according to Martin (2005) is a tool that
companies establish in “attempt to provide guidance on ethical standards” yet another

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essential element of successful CSR practice. Furthermore, according to official press
releases Tesco have won a number of home and international awards one for “Continuous
Excellence in Recycling”, meaning the company strives at sustainability within waste
management and another “Disability-Friendly Workspace Award”, meaning the company
supports and integrate disabled people into their workforce. Obviously Tesco's dedication to
the crisis plus their awards in categories that are undoubtedly beneficial to the society
demonstrate real dedication to CSR and this appears to be one of the company's strong
points not only in UK but also globally.

4. Strategic Analysis

So far this study have discussed the Tesco's operating environment, core resources and
capabilities. Undoubtedly core resources and capabilities are very important to a firm and
according to Grant (2001) these are the primary determinants of a firm strategy. Yet
competitive advantage and market sustainability is largely achieved throughout strategic
management and the strategies utilized by a company.

4.1 Business Level Strategy

Porter's generic strategies have been

highly influential within the business
study field. Porter's three generic
strategy approaches (Figure 3) allow
firms to outperform rivals in their
industry, by suggesting they should
concentrate on either cost
leadership, product differentiation, or focus over narrow segment of the market (Porter, 1996).

Figure 3 Porter's Generic Strategies. Source: The Nose

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Referring to the Tesco strategic document, that has focus on the UK market, this report have
identified the following goals the company aims at: “To be an outstanding international retailer
in stores and online”; “To be a creator of highly valued brands”; “To build our team so that we
create more value“(Tesco, 2013) . In addition to the strategic goals this report has already
discussed the Tesco's program to invest £1 billion in UK store refurbishments, product
development and repositioning, as well as customer service improvements. All these
arguments suggest that at present the company is concentrated on building quality and
therefore strives to differentiate from its rivals. On the other hand the resource capability
analysis of the firm, conducted by this study, demonstrated that Tesco is perceived as having
the worst quality and value for money in the UK. Therefore the current strategic goals and
investment program, perhaps simply attempt to remedy the current situation by addressing
the quality problems they have. Nevertheless the reason behind Tesco's quality and store
standard improvements according to Mintel such an approach is “the right things to turn the
business round” (Mintel, 2013) and this should result in more differentiated offer.

Another strategic goal that Tesco has stated on the other hand is “To be as strong in
everything we sell as we are in food” which suggests the company aims at keeping their long
term established reputation for been low cost food retailer represented by the company's
Everyday Value brand. Furthermore at present the company has greatly reduced its profits
due to the loss of market share arriving at its lowest level in almost a decade (The Guardian,
2014). To stop this trend the company has recently announced £200m price cuts on groceries
“and this is just the begining”(Philip Clarke, 2014), in response to its rivals Morisons and the
heavy discounters, like Aldi and Lidl (Mintel, 2013). Therefore nevertheless, cost leadership is
not stated officially as Tesco's core strategy goal, it appears that due to the current market
conditions the company is trying to compete on the low cost segment meaning value market
is part of the Tesco strategy.

Taking into account the above considerations it appears that Tesco is currently following dual
strategy persuading market on both the upmarket and the low cost market segments.
According to Limpkin (2012) it is possible to integrate cost leadership and differentiation

16
strategies and create enviable position on the market. Successful execution of dual strategy is
possible if a company is very flexible with just in time management system, efficient resource
planning, manage total quality and take advantage of the interconnections with the supplies
and distributors (Christodoulou, 2014). However if a firm “fail to attain both strategies it may
end up with neither and stuck in the middle” (Limpkin 2012: 141), and it appears that this is
exactly the case of Tesco on the UK market now. As this study resource based analysis
demonstrated nevertheless Tesco has a number of core advantages, it is unable to employ
them effectively and the company loses market from both the low cost and the upmarket
stores like Marks & Spencer and Waitrose (Kantar, 2014). According to analysts at US broker
Bernstein “Tesco is now in an impossible position: it is neither value nor quality, it is simply
everywhere, and can't compete with either the quality or value retailers”(The Guardian,
2014c)

4.2 Corporate Strategy

The corporate level strategy defines the mission, vision and all values that a business entity
belies in. Based on these values companies formulate and implementate all their major goals
and initiatives. A corporate strategy is considering the company resources and takes into
account the external environments and internal business environment in which the entity
competes (Nag at al, 2007). According to Tesco's strategy the company is trying to
understand customer's needs.
and then innovate to make their lives easier. The company tries to act locally while thinking
globally and strives at earning trust, through everything it does. The company also envisions
that it wants to be highly diversified in its products and offer stakeholders trust (Tesco, 2013).
The company have been following a growth strategies for very long time abroad and home,
however it withdraw from the US market due to not offering of a “prospect of acceptable
returns in an appropriate time frame ”(Tesco 2013 p8) This choice in general seems to be
good decision when taking into account the losses generated from the business.
Nevertheless this withdrawal the company still recognises growth opportunities in overseas
(Tesco 2013). However according to the recent revenue figures Tesko's sales are down by 5.6

17
% in Asia and 28 % in Europe, the whole Group gross-tax profit fell 6.9 in the beginning of
2014 (2014). And according to BBC overseas failure have distracted the company on its
home market (BBC 2014). In the UK the company also has stopped its expansion in the huge
superstore segment (Mintel, 2014). Yet this according to Mintel reflects on the current trend of
less shoppers traveling outside town who prefer shopping in the convenience shop. It appears
that due to the current turbulent market conditions, both home and abroad (Bloomberg 2014),
the company is acting strategically cautiously and all recent decision seams to make sense.
On a corporate level perhaps the company is concentrated over current issues at the moment
and utilizes caution strategy, waiting to get insight and better scene next directional step
(McKensey, 2008).Finally it appears that CSR is a really strong feature of the company and
Tesco's dedication to such an increasingly important values will pay off in long term.

5.3 Strategies Suggested for future

On a business level strategy, all arguments suggested by this study indicated that, at present
Tesco is following dual strategy persuading market share on the upmarket and the low cost
segments. Unfortunately the report demonstrated that the company is experiencing shrinking
market share and failing revenues. Some analysers have even stated that “Tesco now is in an
impossible position”. All these are indicators of failure to implement the strategy that Tesco
follow. Nevertheless that, this report do not recoment any change in the strategy. This is
because, as this study demonstrated, the company has very good tangible and intangible
resource capabilities and what seams to be the real problem of Tesco is its inability to employ
its resources to an extend that would allow the company to successfully execute its strategy.
Mintel (2014) also think that the dual strategy approach is “the right things to turn the
business round”. Yet the company would have to prepare for hard times and slow recovery,
since the process of recovery would take time.

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7. Appendices – Appendix one

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