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EXTENDED PROJECT

INDIVIDUAL ASSIGNMENT

Word count: 2181

TESCO

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Contents
EXTENDED PROJECT.......................................................................................... 1

INDIVIDUAL ASSIGNMENT................................................................................1

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

Overview of Tesco Company...................................................................................... 4

Porters Five Forces Analysis...................................................................................... 5

Threat of substitute products and services.................................................................5

Threat of new entrants............................................................................................ 5

Rivalry among competitors...................................................................................... 5

Bargaining power of buyers..................................................................................... 6

Bargaining power of suppliers.................................................................................. 6

PESTEL Analysis...................................................................................................... 6

Political................................................................................................................ 6

Economic............................................................................................................. 6

Social................................................................................................................... 8

Technological........................................................................................................ 8

Environmental....................................................................................................... 9

Legal................................................................................................................... 9

Value Chain Analysis............................................................................................... 10

Inbound Logistics................................................................................................. 11

Operations Management....................................................................................... 11

Outbound Logistics.............................................................................................. 11

Marketing and Sales............................................................................................. 11

Services............................................................................................................. 11

Conclusion............................................................................................................. 13

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References;........................................................................................................... 14

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Introduction
This report is written in the aim of analysing Tesco Grocery business. The strategic
analysing tools such as SWOT, Value Chain, PESTEL and Porters Five Forces
analysis will be used to achieve this instant. It will be proven in this report that Tesco
is still the leader of its kind and making the good profit, despite the negative publicity
and accusation in the last three years horse meat example.

Overview of Tesco Company


Tesco was founded in 1919 and started their business in 1929 Edgware, London,
UK. They had evolved over the year since than to be one of the biggest retailers in
the UK Grocery retail industry (Datamonitor, 2016). expand to north America, EEC
and Asia they choose Hertfordshire UK as a head office. Tesco Grocery is One of the
biggest retailers if not the first. They now have 4331 stores round in 14 countries
worldwide, Tesco Is one of the largest international grocery retailers with overall
income of 54 billion in 2009 and 470,00 employees (Tesco, 2016).

Reported by Datamonitor (2016), Tesco commercial portfolio of Express stores chain


of 960 branches, trading of 7000 item of multiple source. Also 170 Metro Stores and
450 superstores which the later one is trading in wider field of products such as Dvds
books and so on.

The following shows the competitive position of Tesco (Euromonitor, 2016):

Tesco have Click and collect as online grocery retailing service Tesco.com they
also have Tesco Direct in addition, Tesco have free Wi-Fi for the shoppers while
they are shopping also they have Tesco Finance (TPF).

Figure 1

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Porters Five Forces Analysis
To find effective sources of competitive advantage we need to carry out the structural
analysis of business (Narayan, B. et al., 2014). Porter s five forces analysing
strategic tool will be used in this report beside other tool to analysis the competitive
environment of Tesco.

Threat of substitute products and services


This low threat for this sector not like any other sectors. The substitution by small
chains of convenient stores for the or of licences and others are not seen a threat by
big supermarkets i.e. Tesco supplies high quality products for lase money also Tesco
opening more convenient stores in local towns also city centres making it harder
competition for the local shops. (Financial Times, 2016). But still for every market
player getting their share and still in business, moreover, the non- food items are
sufferings more than the food item due to the high substitution ability. At times of
recession, buyers will be on the hunt for best deals so Tesco and other giant super
markets are the real worries of the speciality shops.

Threat of new entrants


The threats by small new arrivals are very low, to the well-established business of
the main market leaders of the sector. To be considered a competitor they need to
have large capital to by worthy rival. Tesco, Sainsburys, Morrisons and Asda they
have more than 84% of market share grocery sector in the UK (Mintel, 2016). Also
the time taken to establish a business and get the right permits.

Rivalry among competitors


A fierce competition in the grocery sector mainly by ASDA also other major retailers
like Sainsburys, Morrisons and Waitrose, they are trying to increasing their share of
the market by reducing their prices and improving the quality of their products.
products and promotions intermittently. within the main giant of the sectors so the
market share is shifting between them. Tescos main competitor is ASDA. It is
considered to be main competitor in the sector. So these super Tesco have the price
match also other deals to gain more customer, which it proves very difficult in this
economy. To gain the position of batter deals and lower prices they should have
more suppliers.

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Somerfield and Co-op are picking the rural areas also the town centres. Lidl and Aldi
are taken town centres and the had gained segment of 25% of the market due to the
recession (Keynote, 2016).

Bargaining power of buyers


Due to the recession the buyers power is getting fierce, so customers are easily
changing between brands where slight variation in the products and standardisation
of products. Customers are always looking for better deals all the time, that means
the customer loyalty is reduced to minimum. Attracted by low prices customers have
extended their bargain hunting toward the online retail shopping.

Bargaining power of suppliers


Suppliers have the lower hand when it comes to Bargaining. Suppliers prefer the
larger retailoring firms and the do not like to losing their business contracts. So Tesco
and other super markets have the upper hand in setting the prices so they are
getting the lowest prices.

PESTEL Analysis
The PESTEL Analysis tool looks into the framework of business, it will be use in this
instant to dynamically analysis Tescos operational environment, by recognising the
forces that effects performance.

Political
Tesco is an international company which operates in number of country. So Tesco is
greatly influenced by the global political factors. These factors consist of acts of
legislation, tax rats, minimum wage, contrary economic and political stability. Most of
the country in the world encourage the retailers to start their businesses in their
counties to employ their people and bring prosperity to the market and their
economy. In doing so Tesco gain by diversifies its working force by creating
employment

Economic
The buying profile of the customers directly impact the economic factor which it is a
big concern of Tesco. Since the recession in 2008 the government reduced the
interest rates which helped in great amount the economy by reducing the

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unemployment in 2009 (Euromonitor, 2016). This lead to the confident of consumer
in their financial state, this resulted in the rising of consumers spending power.
However, they had some uncertainty of the financial state this lead the consumers
are hold on back ready prepared meals, premium products and encompassing
organics, which have negative impact on both sales value and margins (Keynote,
2016). Also recession made people eat at home more than eating out so this have
positive impact on the grocery retailers such as Tesco (Guardian, 2016). Also to take
in consideration that food is primary item human nature will not be cutting down on it
easy. This resulted increased spending on food sharply over time (Euromonitor,
2016).

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Figure 2

Social
By looking into the population trend of The UK have more senior people than young
people the later represent the population growth (Herald Scotland, 2016).

This is upsetting the food retailers due the tendency of older people eat less. This
trend of the population means the older generation will travel less to go to
supermarkets and tend to shop online popular choice for them. But the small
deliveries will cost consumer more. Consumer trend of food is changing to healthy
food types. Also the demand for the organic products are increasing more, which it is
accommodated by Tesco to coup with the demands of the market. Tesco were the
pioneers in making the payment by cheques and cash is possible (Tesco, 2016).

Technological
Technology plays vital part of the micro environment and it is effected directly by the
processing of the food products, supply chain and retailers technology. Inter net
shopping has a great impact on the grocery retailers business in a positive way and
it is growing steadily, and it had growing by 50% and it is expected to reach 75% the
UK population (Office for National Statistics, 2016).

Technology facilitate the use of the loyalty program which helped in encouraging
costumer to keep shopping from Tesco and stayed loyal (Sun, 2016). Also the use of

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the mobile apps such as the wine App which is made by Cortexica Vision Systems,
which Tesco started using in 2009 and still going which cleverly direct the wine online
sales to Tesco stores to an able them buying from their mobile phones (Anon, 2016).

A finding of Ons.gov.uk, (2016) state that as improvement of the broadband and the
increase use, it become 15.5 million users this meant that 70% of the whole market.
so this meant that it become more popular, this lead to the increase in online retailing
for Tesco and other retailers.

Environmental
The 5 p a bag and the reuse shopping bags also the reduced products packing have
been in cooperated in Tesco policy has been environmentally.

Figure 3 (BBC, 2016)

Tesco also introduced the Carbon footprint scheme also to give advice to consumer
about healthier and greener living by reducing the carbon footprint when preparing
and so on. Also Tesco is encouraging the recycle by introducing the recycle areas on
their sites (Tesco, 2016)

Legal
The increase of the minimum national wage means increases in the running cost of
the business and it is going to by 9 by 2020 (Hope. C, 2015), also the rise of the

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VAT of 20% back in 2009 this put extra cost on the non-food sector on the 4th Jan
2011(Gov.uk, 2016).

figure 4

Value Chain Analysis


It is every step taken in business which it is made by the whole series of activities
taken into making it. The total value which it is made up of the whole process of
delivering the final product to the consumer. This concept was developed by Michael
Porter in his 1980 book 'Competitive Advantage (The Economic Times, 2016). It has
been used as an analysing tool to clarify the strength and weaknesses in value
adding activities (Audrestsch, D.1995). the following figure 9 diagram shows the
value chain for Tesco;

figure 5

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Inbound Logistics
Tescos lean and agile logistics function for the inbound is reflected by the overall
cost leadership strategic management. Thangavelu, S. (2016) clams that in the
process of bargaining for lower prices the company employees it is leading market
position and its size as bargaining power. The continuity of upgrade of their IT
systems meant that the ordering and stock in store become more accurate and
efficient, this in turn it improved the operation of inbound logistic for the and
approved and up to date vendor lists Tesco.

Operations Management
Tesco is the leader in low cost leadership strategy due to the implication of the use of
Information technology systems to manage the number of their supply chain. Tesco
(2016) states that they invested more than 76 million in perfecting its operation by
implementing their digital programs, which it is 3 rd generation ERP solution for the
company. This system it improved by minimising the stock holding within the
business, it also Tesco made a profit of 550 million when this system came in use in
2009 alone (Tesco, 2016).

Outbound Logistics
Tesco is a leader of its kind of business in both on line shopping and on high street
shopping they hold the biggest segment of the market share of grocery sector of
22% (Euromonitor, 2016), this is due to their state of the art outbound logistics.
Mintel (2016) clams that Tesco has implemented various store formats and types
and they are placed in a strategic way that would have the maximum customer
exposure. All Tesco stores are formatted accordingly to their size and location.

Marketing and Sales


The use of IT and introduction of the loyalty which helped to dissuade the customer
from shifting to competitors. Also started their new scheme to proposal of healthy
living and how to save the environment by reducing food west and energy used in
preparing the meals.

Services
Cost leadership and differentiation strategy is what Tesco has been pursuing for
some time. It has resulted in an increased reliance placed on customer service. Its

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led to the development of innovative features such as financial services, focused
direct marketing and promotions as well as self-service kiosks.

To understand value chain of Tesco analysis, you must have kept in mind even
without the cost leadership strategy, Tesco has created an increase in the degree of
value, in comparison to its main rivals. The value created by the top biggest
supermarket chains, it is shown below:

figure 6

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Conclusion
From the analysis been carried out and the exploration done, now we easily can
recognise Tesco position in the market which still leading its competitor and have the
biggest segment of 29% of the grocery market as shown in the pie chart figure 1.
Asda is the main competitor for pricing but still Tesco have price match to compete
with its competitor. Analysis will answer all questions and queries of the task sheet.
For Tesco to improve its business and profits, Tesco needs to keep close eye for the
fast changes of the market and trends. Tesco need to reduce prices and make better
deals to compete with its rivals by finding more suppliers to get the better deals. As
seen from the above strategic analysis, it shows that Tesco is the leader of the
extremely competitive grocery retailing sector, where businesses need to be as
profitable and popular choice as possible. Tesco has the good formula for the
market. Tesco gained this prime position due for the lean and agile supply chain
management.

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References;
Anon, (2016). [online] Available at: https://www.keynote.co.uk/kn-search/Online
%20retail%20shopping%20has%20gained%20considerable%20popularity%20due
%20to%20the%20increased%20access%20to%20broadband%20internet%20in
%20the%20UK. [Accessed 17 Sep. 2016].

Audrestsch, D.1995.Google Books. (2016). Innovation and Industry Evolution.


[online] Available at: https://books.google.co.uk/books?
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2016].

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Euromonitor.com. (2016). Grocery Retailers in the United Kingdom. [online] Available


at: http://www.euromonitor.com/grocery-retailers-in-the-united-kingdom/report
[Accessed 10 Sep. 2016].

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rates [Accessed 17 Sep. 2016].

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Narayan, B., AlBadah, R. and John, M. (2014). Porter's Five Forces Model | Strategy
framework. [online] Cleverism. Available at: https://www.cleverism.com/porters-five-
forces-model-strategy-framework/ [Accessed 19 Sep. 2016].

National Living Wage 'will attract more migrants to Britain'. [online] Telegraph.co.uk.
Available at:
http://www.telegraph.co.uk/news/uknews/immigration/11729578/George-Osbornes-
9-per-hour-National-Living-Wage-will-attract-more-migrants-to-Britain.html [Accessed
17 Sep. 2016].

Mintel.com. (2016). Mintel: Global Market Research & Market Insight | Mintel.com.
[online] Available at: http://www.mintel.com/ [Accessed 18 Sep. 2016].

The Economic Times. (2016). Definition of 'Value Chain' - The Economic Times.
[online] Available at: http://economictimes.indiatimes.com/definition/value-chain
[Accessed 17 Sep. 2016].

Tradingeconomics.com. (2016). United Kingdom Consumer Spending | 1955-2016 |


Data | Chart | Calendar. [online] Available at:
http://www.tradingeconomics.com/united-kingdom/consumer-spending [Accessed 16

Herald Scotland. (2016). Dawn of a new age. [online] Available at:


http://www.heraldscotland.com/news/13085202.Dawn_of_a_new_age/ [Accessed 16
Sep. 2016]

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