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Strategic Report and Stakeholder Review (Tesco PLC)
Strategic Report and Stakeholder Review (Tesco PLC)
STM 70
BY OMOBOLAJI
Table of contents
Title page…………………………………………………………………………………1
Table of contents………………………………………………………………………….2
Introduction………………………………………………………………………………3
Macro and Micro environment…………………………………………………………3
Management Review……………………………………………………………………..8
Conclusion……………………………………………………………………………….10
References………………………………………………………………………………..11
INTRODUCTION
Tesco PLC is a British retail conglomerate company that sells food and other items . Jack Cohen founded
the business in 1919, and it has since grown to become a popular retailer in the UK with a considerable
amount of total market share of over 28%. Along with Sainsbury's, Asda, and Morrison's, it is ranked as
one of the fourth largest supermarkets in the UK based on sales, making it the only grocery retailer based
in the UK to appear on the list. Safeway, Sainbury, Morrisson, insta cart, Giant Eagle, Ice Land,
Carrefour, Waitrose, Lidl, Argos, ASDA, and Walmart are the companies that compete with Tesco. In the
fiscal year 2020/21, Tesco is expected to bring in 53.17 billion British pounds, nearly twice its current
level of income. Tesco is one of the topmost food sellers in the world, with a staff strenght of over
326,000 personell and 2,318 outlets. It is also in the e-commerce space via www.Tesco.com, a subsidiary.
The product and services rendered and sold by Tesco are supermarkets, hypermarkets, superstore,
convenience stores, club cards, F and F clothings, Tesco Bank MOBILE, Rental DVDs, and music
downloads.
MACRO AND MICRO ENVIRONMENT
The macro environment can be described as the typical setting in which a firm or organisation operates,
along with the influences that shape its microenvironment (Hans, 2018, p. 72; Cherulinam, 2012, p. 53).
Therefore, a corporate organization rarely engages directly with its macro environment, it is also known
as the indirect action environment. Despite businesses having less control over macroenvironmental
forces, dangers are still posed by these forces and businesses trade oppurtunities. Because of this, Hans
(2018) notes that an organizations capacities and ability to thrive will depend on how well it can respond
to its macroenvironment (Hans, 2018, p. 72; Cherulinam, 2012, p. 53). There are several parts to the
macro environment. The legal, political, economic, and technical aspects are among them.
Political
The UK is a stable political country involving a strong democratic government as the overall political
certainty in the country has been 77.36% in 2021 based on the data collected by World Bank
(Tradingeconomics.com, 2022). However, this year the British government has faced strong criticism
from business leaders due to rising energy cost in the country and the resignation of the last Prime
Minister, Liz Truss (Financial Times, 2022). Moreover, the business leaders have also asked the
government to devise a concrete plan to deal with rising inflation rates and interest rates (Financial Times,
2022). Another evidence of political stability can be estimated from the fact that there has been growth in
businesses in the country i.e., 61% new businesses from 2000 to 2021 (Roberts, 2022). However, it is
pertinent to point out that this took place before Brexit when the UK enjoyed the benefits of single market
under the EU. The situation may not necessarily be the same after Brexit. This is further discussed below
in the ‘Economic’ element of PESTEL analysis.
Economic
Both Brexit and COVID-19 had an impact on British economy. The main effect of Brexit was that the
customs tariff is back up again i.e., the UK is no longer the member of the European Union and
resultantly, the four freedoms are no longer available to the UK i.e., free movement of goods, persons,
services, and capital (Barnard, 2022). This means that tesco can no longer supply products in the UK
market as it does in other EU countries as it has to cross customs barrier if its products are imported into
the UK. COVID-19, however, affected the people's income strength as IMF dubbed it the worst economic
crisis since the Great Depression (KFF, 2022). According to research briefing to the House of Commons
on the impact of COVID-19, unemployment increased by 400,000 whereas economically inactive people
increased by 327,000 (Francis-Devine et al., 2022). Moreover, the income strength of the people also
reduced. However, consumer spending on groceries has only increased (Statista, 2022a). In the UK,
online retail sales of edible groceries increased when the COVID-19 epidemic began in March 2020. The
monthly index of online grocery retail sales, using 2019 as a baseline, reached its peak in February 2021,
during the second pandemic winter, at 243.9. E-commerce, grocery shopping online is still significantly
more common prior to the pandemic, despite it falling or stable after the outbreak. Data showing value of
4.6billion US dollars prior to the pandemic in 2019 increasing to more than 9.5 billion US dollars in 2021,
Tesco.com’s net e-commerce sales increased. Tesco business's cost, profits, operations, income, and
prices have been impacted by various economic factors and elements. To this purpose, in addition to
increasing its global market presence, the company should look to expand more It is important to note
that the larger proportion of the total sales and income of the company is reliant on the UK market in spite
of its drive to further expand internationally (Statista, 2018, n.d.), with vulnerability to dangers of various
market forces in the UK market.
Social
A population study of the UK reveals that there are much more elderly people than children. Given that
older people consume less than younger ones, this poses a substantial issue for business. In addition,
compared to young people, elderly folks visit supermarkets less frequently. The adoption of e-commerce
technologies by Tesco would make it convenient for elderly citizens to pay, however it is important to
note that internet literacy declines with citizens above 65 years. (Eastmen & Iyer, 2004, p. 212).
Furthermore, smaller deliveries are viewed as ineffective and expensive by the business. The shopping
pattern of consumers is developing with time. In this age, people desire quick meals since their routines
are less flexible.
Technological
Customer’s trust has been earned back by rapid improvements in technology adopted by Tesco after the
various problems encountered in time past like the horsemeat crises and the below average level of
customers service standards of few years ago. To improve the in-store customer experience, the company
adopted the implementation of RFID technology, which regularly enumerates all the stock and removes
items sold from the available stock. Additionally, a mobile online payment platform was created by Tesco
called PayQwid that allows user make payments conveniently (Tesco, 2019, n.d.). However, given the
impact of disruptive technologies like e-grocers on the grocery retail sector, the company's management
should take precautions (Wessel & Christensen 2012, p. 60).
Environmental
An important aspect for businesses to perform their operations ethically is regarding environmental
challenges which has been a major social trouble facing food sellers. The objectives of the corporate
social responsibility of Tesco is about the attitude and methods that an organization performs it’s
businesses activities beyond the statutory obligations to stakeholders as specified through regulation and
corporate governance as a consequence of noting this trend within the wide ethical attitude. Johnson and
Scholes (2003)
Legislative
The overall success performance of Tesco is impacted directly by government laws and regulations. For
instance, the food retailing commission (FRC) recommended a code of practice to prohibit many of the
practices and methods used by the organization such as requesting payments from suppliers and revising
negotiated prices retroactively or without prior notice (Mintel Report, 2004).
The existence of strong competitors with quality and popular brands in a product market increase
demands for product differentiation consequently raising the likelihood of a fierce price wars. Measures
such as license requirements and restriction on raw materials availability implemented by government’s
monopoly control and buyer power control policies ultimately restrict new entry into the industry. (Mintel
Report, 2004; Myers, 2004). Prices are given by Tesco to customers to implement politically correct
pricing practices.
Porter's Five Forces Tesco PLC's Analysis
Porter's five forces analysis is used to analyze Tesco's competitive market to help the business identify
strategies to obtain an edge over its competitors.
Rivalry Competition
A lot of rivalry occurs among the groceries market in UK. tesco and it key rivals fight over the
amount goods are sold and promotions. Consumers who receive up to 40% discounts on a variety of
products are posing serious competition to Tesco's business because its rivals offer comparable goods like
electronics, clothing, and food items among others at prices that are comparably similar, decreasing the
likelihood that customers will switch products. This forced the company to create a discount programme
to boost sales (Christie, 2017, n.d).
Supplier Power
Is the power the supplier owns over large grocery markets, the fear of losing consumers to large retailers.
This enhance like tesco and asda in getting promotional prices from the manufacturers the smaller
single chain cannot fit. Ritz (2005).
Analysis of Threat of Entry
Tesco, Asda, Sainsbury's, and Safeway collectively has a market share of 70% of the UK food and retail
store, while smaller retailers Somerfield, Waitrose, and Bugden’s own 10% of the market. The larger
food market has changed in the last 30 years such that it is majorly controlled by big supermarket and
superstores according to Ritz (2005). Several supermarket chains has evolved and grown exponentially
due to operational effectiveness, one stop shopping, online shopping adoptions and profound marketing-
mix investments. This has gravely impacted on small scale businesses like butchers, bakers etc.
consequently, it has become cumbersome for new businesses to enter the supermarket sector
Analysis of Buyer Power
Because competing firms like Asda and Sainsbury’s produce goods that are of equal value at the same
amount, the consumer has more purchasing power. Porter proposed that when more items are the same
costs reduce, giving more power to buyers. M. Porter (1980). Renowned loyalty card is use to increase
Tesco profitability.
Analysis Threat of Substitution
Because consumers may switch to substitute goods, this can reduce the need particular goods M. Porter
(1980). This is manifested in the food and retail sector as "need-for-a-substitute," that significantly ruined
by developing movement of small sector of retail outlets are taking over the market. In this instance,
Tesco, Asda, and Sainsbury's are attempt the construction of Metro and Express stores in nearby places
while also acquiring small-scale operations Ritz (2005).
Swot analysis of tesco
Strengths
A disastrous incident of £6.4 billion was lost in 2015 that made people know that tesco was ending it
ledearship. Tesco, though, made an enormous comeback. Tesco's performance is the result of positive
turn round. Reasons for buying from Tesco:
Financial Recovery visionary leadership: Dave Lewis ‘helped Tesco recover all the money lost dring the
financial year of 2015 and 2020
Market Share: Tesco market share of the food and retail market 26.9% cannot be compared to
Sainsbury 26.9%.
Strong Performance during the Virus: Tesco performed better during the pandamic because there was in
in in the demand for grocery food from the online shopper which is 10.5% gain in the three months.
Adaptability: the delivery strength of Tesco increased due to high demand of grocery shopers during the
pandemic. Also, there was increase in profit.
Given Tesco's advantages, its management is the key to its success. Ken Murphy help tTesco to
expansion.
But not everything is not perfect. Tesco does have certain internal challenges that need to be fixed. We
will then examine Tesco's shortcomings.
Weakness
Sainsbury's, Asda, and Morrisons are Tesco's major competitors. Here are Tesco's weakness to overcome
it rivals.
Change in Leadership: In September, Ken Murphy took over from Dave Lewis as CEO. The modification
brought the beginning of a new thing in Tesco's history, says the Retail sector machine. It would not be
easy to continue with well-oiled machine Dave left behind while accelerating the big.
Quality control: Tesco advertises stringent quality control procedures, but a troubling customer complaint
reveals potential for improvement. Tesco apologized for selling chicken which had partially digested
feed, but the event should never have happened.
Inventory control: Tesco was charged £175,000 for retaining products for display 1 after their expiration
date. Tesco replaced the product and stopped same problem from happening.
Opportunities
The food and grocery sector are part of the sector that survived the pandemic. The way consumers
consumers transact business changed because of long-life pandemic.
.
Growth of Online Grocery Sales: COVID-19 prevention measures also prevented people from going out
as frequently as they once did. The limitations made internet grocery shopping commonplace. Ocado
gained from a 76% increase in online sales because of this. Tesco should take full control of the trend.
High unemployment rates: According to a Guardian new papper, the employment rate for people
between the ages of 16 and 24 has drastically decreased. Tesco is providing job to the unemployed youth.
increase in plant base protein alternative: The increase demand for plant-based sources of protein is
predicted to reach £4.1 billion globally in 2020. Making the switch to meat substitutes also supports
sustainable business. In response to this chance, Tesco has promised a 300% rise in the sales of meat
substitutes by 2025.
Threat to Tesco
There are three major crises been encountered by the UK namely: political, health and economic, also one
of the key competitors of Tesco’s key competitors is resurfacing. All these are threats Tesco must
consider with further details below:
UK-EU Relations: As UK-EU continue to take steps in having a favorable plan after Brexit for both
parties. if a definite agreement is not achieved on time it could lead to an interruption of the free trade
agreement. During this interruption, trade between the UK and EU will have to be done according with
the WTO regulations. Ultimately this will cause increment in custom inspections at all border points,
tariffs, quotas etc. Tesco been an international brand will certainly be affected by these, as raw materials
and imported goods will have an adverse effect on its operational expense.
Brexit and Supply Chain: over 80% of imported food sold at supermarket will be influenced by Brexit.
With restricted flow of goods at the UK border point of entry, Tesco’s supply chain will consequently be
affected negatively.
Economic Recession: Ken murphy Tesco’s new CEO predicts a gloomy holiday season, with critical area
of concern been economic recession and resultant decline in purchasing power of customers.
Furthermore, unemployment increase creates increase financial insecurity for Tesco’s Customers
COVID-19 Pandemic: Quick adoption of internet service for customers shopping by Tesco enabled the
business to thrive significantly when many other have failed. Nevertheless, resultant cost of Covid-19 to
the business gulped up to £533 million. Also, interesting to note that Ocado surpassed Tesco as the most
valuable UK retailer during this period, proving the competitiveness of the UK retail market industry.
However, a no-deal Brexit is the greatest threat to Tesco amongst others. Time will tell how Tesco
responds to this and many other economic threat and factors.
Resources and capability
A company’s resources and capabilities are of importance to be understood. While resources are a
company’s productive assets, capabilities are the things that a company can do or actions they are capable
of taking.
The resources of an organization can be divided into two major groups, according to Grant (2005)
tangible and intangible. Since they represent the organization's physical and financial assets, tangible
resources are the simplest to identify and assess. Tesco's tangible resources include things like its 3700
stores, 440,000 employees, £60 billion in annual revenue, and £3 billion in operating income.
The term "intangible resources" refers to assets or talents that cannot be seen, such as a specific
technology, a collection of consumer data, a company's brand name, reputation, or corporate culture.
They are essential to the firm's ability to compete, according to Grant (2005), because of their potential
for originality and sustainability. Tesco's intangible assets include things like extensive industry
experience in the retail sector, extensive consumer data, strong brand awareness, a reputation for
supporting major brands, and service innovations like 24-hour opening. The three most valuable
intangible resources, according to a study by Hall (1992), are staff know-how, product reputation, and
corporate reputation. A company needs scarce, non-imitable, and non-substitutable resources to maintain
a competitive advantage.
One of Tesco's most important and long-lasting competitive advantages has been its capacity to develop,
be adaptable, and change with the times. According to Teece et al. (1997), a company's capacity to
identify innovative forms of competitive advantages is referred to as its "dynamic capacities."
First, Tesco introduced its "Clubcard" in 1995. This operated as more than just a simple promotion
strategy; it allowed Tesco to gather comprehensive information about its customers' interests and tailor its
offerings to meet those needs. Tesco's success can be linked to this idea, despite Sainsbury's initial
resistance to embracing this strategy.
Tesco also emphasizes the integration of knowledge. Strategic capabilities place a high value on
knowledge integration. According to Grant (2005), coordinating the crucial work of all organizational
activities is one of the biggest issues facing every organization. Integrating the essential components of
knowledge throughout the entire company is its main objective. Due to this, Tesco has used two main
tools in this situation.
Tesco has created an effective IT integration system as a result. Tesco has established an extranet system
in addition to utilizing technologies that maintain all stock and delivery data and analyse business
activities.
Tesco's success is a result of its knowledge of its resources and capabilities and the effective usage of
those understandings to its company. Tesco is now able to expand geographically and introduce new
goods and services because of its strategic strengths.
NATURE OF COMPETITIVE STRUCTURE
Tesco is an oligopoly since it controls 30.4%, or over one-third, of the UK grocery retail market. There
are lots of companies that compete with Tesco, such as Sainsbury, which owns 16.3% of the market share
in the UK, and Morrisons, which owns 11.55%. This means entry hurdles are high due to domination of
the industry by few big organizations that control and own the stock exchange.
SCENERIO
Tesco only possesses certain advantages. Other competitors in the supermarket sector share their flaws,
though. Therefore, Tesco will continue to benefit from the strong leadership and management techniques
of CEO Ken Murphy that set it apart from its competitors. Every crisis may be resolved by effective
leadership. Additionally, it has the power to turn a risky circumstance into a learning experience for
innovation and development.
In addition, Tesco has demonstrated its resilience by reinventing itself to meet the growing demand for
online groceries despite the continued hurdles that Brexit and COVID present. It might be highly
beneficial for Tesco to tap into this vein.
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