Tesco

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Executive Summary

Starting from a small stall in the east end of London, Tesco today is the largest retailer in the UK with over £59 billion sales in 2008. In this dynamic environment, Tesco has managed to stay ahead of its competition through focus on people, both customers and employees. However, in today’s rapidly changing globalised environment, anything could happen. Companies today need to always innovate and reinvent themselves in order to maintain their competitive advantage. The macro environment that Tesco operates in provides both opportunities and threats. Therefore, for sustainable growth and development, Tesco needs to have proper strategic direction that addresses these macro environmental challenges.

Though the company has extensive operations worldwide, Tesco’s largest market is still the UK. This report analyses the macro environment that Tesco UK operates in using the PESTEL framework and its interconnectedness to external opportunities and threats. Competitiveness of Tesco UK is analyzed by applying Michael Porter’s five forces model. The paper is further expanded by linking both the PESTEL framework and the 5 forces to understand Tesco’s dynamic macro environment. A stakeholder analysis is carried out in order to understand the expectation of Tesco’s stakeholders. Strategic capabilities of Tesco are explained through the identification of core competencies of the firm. Justification of these competencies explains how Tesco manages to stay ahead of its competitors.

Table of Contents

1.Introduction to Tesco Plc6

1.1.Tesco UK7

2.The Macro Environment Analysis8

2.1Political Factors8

2.2Economical Factors8

2.3Social/Cultural Factors8

2.4Technological Factors8

2.5Environmental Factors8

2.6Legislative Factor8

2.7Overall impact of the PESTEL factors8

2.8Potential opportunities from the external environment8

2.9Threats from the external environment8

3.Competitive Analysis on Tesco Using Porter’s Five Forces Model8

3.1.Threat of New Entries8

3.2.Competitive Rivalry8

3.3.Substitutes8

3.4.The Power of Supplier8

3.5.The Power of Buyer8

3.6.Summary of the 5 Forces Model8

4.Stakeholder analysis8

5.Core Competences8

5.1Value8

5.2.Rarity8

5.3.Inimitability8

1.4.Non-substitutability8

6.Conclusion8

7.References8

Introduction to Tesco Plc

Founded in 1919 by Jack Cohen, Tesco Plc is the largest British based international grocery and general merchandising retail chain, and is the world’s third largest retailer, after Wal-Mart of the US and France’s Carrefour.

The Tesco brand first appeared in 1924. The first store was opened in 1929 in London. Tesco floated on the London Stock Exchange in 1947 with a share price of 25p. During the 1950s and the 1960s Tesco grew organically, and through acquisitions. Most of this early growth was in and around London. The “pile it high, sell it cheap” strategy of Cohen had left the company “stagnate” which resulted in his resignation in 1973. In 1977, Tesco launched “operation checkout” which included price reductions and centralized buying for all stores. The result was a rise in market share of 4% in two months. Today, the company operates over 3000 stores in several countries including the U.S ad Japan with over 440,000 employees. Tesco has diversified their business into other areas such as clothing, consumer electronics, financial services, telecommunication, insurance schemes etc.

With their core purpose of “create value for customers to earn their lifetime loyalty”, the company has been able to build a multibillion-dollar empire. Operating income for 2008 was £3.12billion. (The Guardian 2009). The ability to appeal to all market segments through their own brand products with up market and low price value range has been a key element of their success.

The two key values of Tesco are

1. No-one tries harder for...
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