Table of contents

1. Task 1: 1
1.1 Tesco PLC: Company Overview 1
1.2 Goals and Objectives 1
1.3 The Industry 1
1.4 Offerings and Services 1
2. Task 2: 2
2.1 Revenue and Profit Generation: 2
2.2 Comparison of Size and Influence with competitors: 2
3. Task 3: 3
3.1 Gross Profit Margin: 3
3.2 Operating Profit Margin: 3
3.3 Return on Capital Employed (ROCE): 4
3.4 Current Ratio (Liquidity Ratio): 5
3.5 Acid Test Ratio (Quick Ratio): 6
3.6 Inventory Turnover Period: 7
3.7 Settlement Period for Trade Receivables: 8
3.8 Settlement Period for Trade Payables: 9
3.9 Gearing Ratio: 10
3.10 Interest Cover: 11
4. Task 4 13
4.1 Core Economic Concepts for Tesco PLC Decision Making: 13
4.2 Factors Affecting Demand in the Short and Medium Term: 14
4.3 Tesco’s Influence on Pricing: 14
5. Task 5: 15
5.1. Digital Transformation and E-commerce Dominance: 15
5.2. Data Analytics for Personalization: 15
5.3. Sustainable Practices and Green Initiatives 15
5,4. Diversification and Innovation in Product Offerings: 15
5.5. Enhanced In-Store and Online Customer Experiences: 15
5.6. Global Market Expansion and Partnerships: 16
5.7. Supply Chain Optimization and Operational Efficiency: 16
 1. Task 1:
1.1 Tesco PLC: Company Overview

Tesco PLC is a known retail corporation that focuses on grocery and general merchandise. Headquartered
in Welwyn Garden City, UK Tesco is recognized as one of the retailers employing over 330,000
individuals. The company has a network comprising supermarkets, convenience stores and an online
platform to serve a customer base with a broad selection of products and services.

1.2 Goals and Objectives

The primary objectives of the company revolve around providing environmentally friendly food choices.
Tesco strives to improve the quality of life for its customers by simplifying their shopping experience and
delivering value through its range of products and services (Zhao, 2014).

1.3 The Industry

The retail industry encompasses businesses that sell goods and services to consumers. It includes formats
such as supermarkets, convenience stores and online platforms (Nolan et al., 2007). Retailers cater to a
range of customer needs and preferences by offering products ranging from food to electronics.

1.4 Offerings and Services

Tesco offers an array of products, including produce, groceries, clothing and electronic items.
Additionally it provides services like telecommunications and financial solutions through Tesco Bank
thereby diversifying its business model(Sarkar,2021).

By prioritizing a customer approach Tesco continually. Maintains its position as a leading player in the
retail sector.

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 2. Task 2:
2.1 Revenue and Profit Generation:
Tesco PLC, a leading multinational retailer, generates revenue through the sale of groceries, clothing,
electronics, and other merchandise in its stores and online platforms. The company's profits stem from its
retail operations, with a reported revenue of £57,656 million and an adjusted operating profit of £2,630
million for the fiscal year 2022/23(Gan,2023). Tesco also earns from services like Tesco Bank and
telecommunications.
2.2 Comparison of Size and Influence with competitors:
Tesco PLC is a leading force in the retail industry, particularly within the UK where it holds a significant
market share. As of 2023, Tesco maintains over 26% of the grocery market, positioning it as the largest
among the 'big four' supermarkets, which includes Asda, Sainsbury's, and Morrisons. This dominance
affords Tesco considerable influence over market trends and consumer preferences(Shastri,2023). In
comparison to its competitors, Tesco's size and market presence are substantial. While Asda, Sainsbury's,
and Morrisons are major players, Tesco's consistent performance and extensive store network underscore
its status as a market leader(Bell,2006). However, the retail landscape is competitive, with discount chains
like Aldi and Lidl gaining ground. In September 2022, Aldi surpassed Morrisons to become the fourth
largest supermarket in the UK, indicating a shift in consumer shopping habits and the growing appeal of
discount retailers(Wood,2022).

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 3. Task 3:
Let’s analyze each of the financial ratios for Tesco PLC and identify possible reasons as to why the ratios
were as such:
3.1 Gross Profit Margin:
The percentage of revenue that is retained after subtracting the cost of goods sold is called gross profit
margin,which indicates the efficiency of production and pricing strategies.The Gross Profit Margin
decreased from 0.261 in Year 1 to 0.158 in Year 2. This could be due to an increase in the cost of goods
sold or a decrease in sales revenue. In the context of the retail industry, this could be due to increased
competition, changes in supplier costs, or changes in customer buying habits(Statista,2023).

3.2 Operating Profit Margin:

Operating profit margin is the ratio of operating income to revenue, reflecting a company's ability to
generate profit from its core business activities. The Operating Profit Margin also decreased from 0.049 in
Year 1 to -0.052 in Year 2. This suggests that Tesco’s operating expenses increased relative to its sales
revenue. This could be due to increased overhead costs, such as wages or rent, or decreased operational

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efficiency(TSCDY, no date).

3.3 Return on Capital Employed (ROCE):

Return on Capital Employed calculates the efficiency of capital utilization by comparing operating profit
to the average capital employed, providing insight into overall profitability.The ROCE decreased from
0.204 in Year 1 to -0.228 in Year 2. This indicates that Tesco’s profitability from its capital employed has
decreased. This could be due to lower profits or higher capital employed. In the context of the retail
industry, this could be due to increased competition or changes in market conditions(Stock

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analysis,2024).

3.4 Current Ratio (Liquidity Ratio):

Current Ratio assesses the short-term solvency of a company by comparing liquid assets to current
liabilities, indicating its ability to meet immediate financial obligations. The Current Ratio decreased from
1.889 in Year 1 to 1.215 in Year 2. This suggests that Tesco’s ability to cover its short-term liabilities with
its short-term assets has decreased. This could be due to an increase in short-term liabilities or a decrease

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in short-term assets(Tesco Annual Report,2023).

3.5 Acid Test Ratio (Quick Ratio):

A more stricter measure of short-term liquidity, excluding inventory from assets, and assessing a
company's ability to cover short-term liabilities with its most liquid assets.The Acid Test Ratio decreased
from 1.332 in Year 1 to 0.271 in Year 2. This indicates that Tesco’s ability to cover its short-term
liabilities with its most liquid assets (excluding inventory) has decreased. This could be due to an increase

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in short-term liabilities or a decrease in cash and receivables.

3.6 Inventory Turnover Period:

The average number of days it takes a business to sell and replace its inventory is known as the inventory
turnover time, and it is a measure of the effectiveness of inventory management.The Inventory Turnover
Period increased slightly from 25.4 days in Year 1 to 26.9 days in Year 2. This suggests that Tesco took
slightly longer to sell its inventory in Year 2. This could be due to slower sales or increased inventory

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levels(Desklib,2023).

3.7 Settlement Period for Trade Receivables:

Trade receivable settlement period calculates the average number of days it takes a business to get paid
for credit sales, evaluating the efficiency of credit and collection procedures.The Settlement Period for
Trade Receivables decreased significantly from 9.4 days in Year 1 to 4.8 days in Year 2. This suggests
that Tesco was able to collect payments from its customers more quickly in Year 2. This could be due to

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improved credit control procedures or changes in customer payment habits.

3.8 Settlement Period for Trade Payables:

A company's average trade payables settlement period reflects its payment policies and supplier
connections, as well as how long it typically takes to settle trade payables..The Settlement Period for
Trade Payables increased slightly from 25.2 days in Year 1 to 27.7 days in Year 2. This suggests that
Tesco took slightly longer to pay its suppliers in Year 2. This could be due to changes in supplier payment

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terms or cash flow management strategies.

3.9 Gearing Ratio:

By comparing a company's long-term debt to equity, the gearing ratio evaluates financial risk and shows
how much of the funding is provided by debt..The Gearing Ratio decreased from 1.012 in Year 1 to 0.907
in Year 2. This suggests that Tesco’s level of debt relative to its equity has decreased. This could be due to
repayment of debt or an increase in equity.

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3.10 Interest Cover:
By comparing operating profit to interest expenses, interest cover assesses a company's capacity to pay
interest on its debt and offers information about risk management and financial health..The Interest Cover
decreased from 5.941 in Year 1 to -7.533 in Year 2. This suggests that Tesco’s earnings were not sufficient
to cover its interest expenses in Year 2. This could be due to lower earnings or higher interest

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expenses(Fitch Ratings,2021).

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 4. Task 4
4.1 Core Economic Concepts for Tesco PLC Decision Making:

1. Margin:

● Product-Level Analysis: Tesco constantly analyzes product-level margins to identify the most
profitable items. This enables them to adjust pricing strategies, negotiate better deals with
suppliers, and optimize product selection based on profitability. For example, their own-brand
products often offer higher margins compared to national brands.
● Category Management: Tesco employs category management, grouping similar products to
analyze overall category profitability. This helps them identify underperforming categories and
implement corrective actions like promotional campaigns or improved product assortment.
● Dynamic Pricing: Tesco leverages dynamic pricing to adjust prices based on real-time data like
demand, competitor pricing, and stock levels. This ensures they maximize margins while
remaining competitive.

2. Equilibrium:

● Market Monitoring: Tesco closely monitors market equilibrium for key products to understand
price trends and anticipate competitor actions. This allows them to adjust their own pricing
strategically, maintaining competitiveness while protecting margins.
● Promotional Strategies: Tesco uses targeted promotions and discounts to influence market
equilibrium, potentially creating temporary surpluses to attract customers and stimulate sales in
specific categories.

3. Cost-Benefit Principle:

● Store Expansion: Tesco carefully evaluates the costs and benefits of opening new stores,
considering factors like potential customer base, rental costs, staffing requirements, and projected
sales. This ensures they expand into profitable locations that align with their overall growth
strategy.
● Marketing Campaigns: Tesco employs the cost-benefit principle to assess the effectiveness of
marketing campaigns. They measure campaign performance against metrics like sales uplift,
customer engagement, and return on investment (ROI) to optimize their marketing spend.
● Product Launches: Before launching new products, Tesco conducts thorough cost-benefit
analyses, considering production costs, marketing expenses, expected sales volume, and potential
profit margins. This helps them prioritize product launches with the highest potential for success.

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4. Opportunity Cost:

● Resource Allocation: Tesco prioritizes resource allocation across different departments and
initiatives based on opportunity costs. They weigh the potential benefits of each option against the
forgone benefits of alternative investments.
● Store Closures: When faced with underperforming stores, Tesco considers the opportunity cost of
keeping them open versus the benefits of closing them and reallocating resources to more
profitable ventures.
● Supplier Selection: Tesco carefully evaluates potential suppliers, considering not just price but
also factors like reliability, quality, and delivery terms. They weigh the opportunity cost of
choosing one supplier over another based on the potential impact on overall costs and business
objectives.

4.2 Factors Affecting Demand in the Short and Medium Term:

Several microeconomic and macroeconomic factors can influence the demand for Tesco’s products in the
short and medium term:

1. Consumer Preferences: Changes in consumer tastes and preferences can lead to shifts in
demand. Tesco must stay attuned to these trends to offer products that meet consumers’ evolving
needs.
2. Income Levels: Consumers’ income levels affect their ability to purchase goods. Economic
conditions that lead to changes in disposable income will impact the demand for Tesco’s products.
3. Substitute and Complementary Goods: The availability and pricing of substitute and
complementary goods can affect demand. Tesco must consider the competitive landscape and
how other products in the market influence consumer choices.
4. Government Policies: Fiscal and monetary policies can affect economic activity and consumer
spending. Tesco must be aware of policy changes that could influence demand for its products.

4.3 Tesco’s Influence on Pricing:

Tesco has some degree of influence over the pricing of its products, but it must also consider external
factors:

1. Cost-Based Pricing: Tesco considers the costs of production, distribution, and marketing when
setting prices. The company aims to cover these costs while offering value to consumers.
2. Value-Based Pricing: Tesco may also use value-based pricing, setting prices based on the
perceived value of its products to consumers. This approach considers factors like brand
reputation and product quality.
3. Competitive Pricing: In a competitive market, Tesco must price its products in line with or
below competitors’ prices to attract price-sensitive consumers.

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In conclusion, Tesco PLC, like any other company, relies on a range of economic concepts and factors to
inform its decision-making process. By understanding and applying these principles, Tesco can make
strategic choices that enhance its competitiveness and profitability in the market.

5. Task 5:
Tesco PLC, as a leading global retailer, faces a dynamic and competitive market landscape. To navigate
the next five years successfully, the company can implement a comprehensive set of strategies focusing
on market expansion, technology integration, sustainability, customer experience, and operational
efficiency.

5.1. Digital Transformation and E-commerce Dominance:

Tesco can accelerate its digital transformation by investing heavily in e-commerce capabilities. The next
five years are likely to witness an increasing shift towards online shopping, and Tesco can position itself
as a dominant player in this space. Strengthening its online platform, improving website and app
functionalities, and ensuring a seamless shopping experience can attract and retain a growing base of
online customers. Expanding delivery infrastructure and introducing innovative last-mile delivery
solutions can further enhance the convenience for customers.

5.2. Data Analytics for Personalization:

Leveraging data analytics to understand customer behavior and preferences can empower Tesco to offer
highly personalized shopping experiences. By analyzing purchase history, online interactions, and
demographic data, Tesco can provide targeted promotions, personalized product recommendations, and
exclusive discounts through its Clubcard loyalty program. This not only enhances customer satisfaction
but also drives increased sales and customer loyalty.

5.3. Sustainable Practices and Green Initiatives

In response to the growing global emphasis on sustainability, Tesco can intensify its commitment to
environmentally friendly practices. This includes reducing plastic packaging, minimizing carbon
emissions in the supply chain, and sourcing products from sustainable and ethical suppliers.
Communicating these initiatives transparently to consumers can not only attract environmentally
conscious customers but also contribute to Tesco's reputation as a socially responsible brand.

5,4. Diversification and Innovation in Product Offerings:

Tesco can explore diversification by introducing innovative and niche product lines. This could involve
expanding into health and wellness products, organic foods, or plant-based alternatives to meet the
evolving preferences of health-conscious and environmentally aware consumers. Collaborations with
local producers and suppliers can also contribute to a diverse product range, fostering customer interest
and loyalty.

5.5. Enhanced In-Store and Online Customer Experiences:

Improving the in-store and online customer experience is crucial for Tesco's success. In physical stores,
innovative layouts, interactive displays, and the incorporation of technology like self-checkout kiosks can
streamline the shopping process. Online, Tesco can invest in augmented reality (AR) and virtual reality

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(VR) technologies to create immersive and engaging virtual shopping experiences. The integration of
these technologies can differentiate Tesco from competitors and appeal to tech-savvy consumers.

5.6. Global Market Expansion and Partnerships:

Tesco can explore strategic partnerships and collaborations to expand its global footprint. Forming
alliances with local retailers or entering joint ventures in emerging markets can facilitate market entry and
mitigate risks. Additionally, strategic acquisitions or mergers with complementary businesses can enhance
Tesco's capabilities and market share in specific regions.

5.7. Supply Chain Optimization and Operational Efficiency:

Streamlining supply chain processes and improving overall operational efficiency is critical for cost
reduction and maintaining competitiveness. Tesco can invest in advanced technologies such as blockchain
for supply chain transparency, predictive analytics for demand forecasting, and automation for efficient
inventory management. This can lead to reduced costs, minimized waste, and increased overall agility in
responding to market demands.

In conclusion, Tesco PLC can position itself for sustained success in the next five years by adopting a
holistic strategy that integrates digital transformation, sustainability, customer-centric approaches, and
operational excellence. By embracing these strategic initiatives, Tesco can not only navigate the
challenges of the evolving retail landscape but also emerge as an innovative and customer-focused leader
in the global retail industry.

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Bibliography
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[https://www.tescoplc.com/investors/reports-results-and-presentations/annual-report-2023
]
2. Bell, D. (2006). Retail marketing. Routledge.
3. Nolan, T., Marshall, J., & Sparks, L. (2007). Retail. Routledge.
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Journal of Research in Commerce & Management, 11(8), 35-42.
5. Shastri, K. (2023). Competitive Analysis of Tesco PLC in the UK Supermarket Industry.
Journal of Applied Business and Economic Research, 13(3), 81-92.
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[https://[desklib.com/document/comparative-industry-analysis/]
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dom-uk-roi/]
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[www.theguardian.com/business/2023/apr/13/tesco-profits-halve-amid-incredibly-tough-y
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Appendix
Here are the calculations based on the financial data provided expressed in numerical values:
Gross Profit Margin: For Year 2: ( \frac{347}{2192} = 0.158 ) For Year 1: ( \frac{536}{2056} =
0.261 )
Operating Profit Margin: For Year 2: ( \frac{-113}{2192} = -0.052 ) For Year 1: ( \frac{101}{2056}
= 0.049 )
Return on Capital Employed (ROCE):2 For Year 2: ( \frac{-113}{496} = -0.228 ) For Year 1: (
\frac{101}{494} = 0.204 )
Current Ratio (Liquidity Ratio): For Year 2: ( \frac{175}{144} = 1.215 ) For Year 1: (
\frac{359}{190} = 1.889 )
Acid Test Ratio (Quick Ratio): For Year 2: ( \frac{175 - 136}{144} = 0.271 ) For Year 1: (
\frac{359 - 106}{190} = 1.332 )
Inventory Turnover Period:1 For Year 2: ( \frac{136}{1845} \times 365 = 26.9 ) days For Year 1: (
\frac{106}{1520} \times 365 = 25.4 ) days
Settlement Period for Trade Receivables:34 For Year 2: ( \frac{29}{2192} \times 365 = 4.8 ) days
For Year 1: ( \frac{53}{2056} \times 365 = 9.4 ) days
Settlement Period for Trade Payables:43 For Year 2: ( \frac{140}{1845} \times 365 = 27.7 ) days
For Year 1: ( \frac{105}{1520} \times 365 = 25.2 ) days
Gearing Ratio: For Year 2: ( \frac{450}{496} = 0.907 ) For Year 1: ( \frac{500}{494} = 1.012 )
Interest Cover: For Year 2: ( \frac{-113}{15} = -7.533 ) For Year 1: ( \frac{101}{17} = 5.941 )

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