Strengths

Biggest grocery retailer in the UK – Tesco is the leading grocery retailer and No.1
supermarket in the UK. It has higher sales and revenue as compared to other supermarket
chains in Great Britain. According to its 2018 annual report. Its annual operating profits rose
28%.
Leading market share – Amongst the big four supermarkets, Tesco dominates the grocery
retail market of Great Britain with 27% of market share. It has recently become the most
popular supermarket in Ireland.
Geographically diversified – Tesco has a thriving global presence with more than 6800 stores
in 14 countries. Apart from Europe and North America, it has a huge market share in Asian
markets as well.
A growing number of stores – From 3,751 stores in 2008, Tesco now operates 6,966 grocery
retail stores worldwide. Its revenue is increasing every year because of the addition of new
stores in its operational chain.
Diversified stores – Tesco has launched different forms of stores. Its diversified divisions of
stores include Tesco Homeplus, Tesco Metro, Tesco Extra, Tesco Express, One stop, and
Tesco Superstores.
Diversified market and product range – Tesco’s diversification strategy has proven to be
quite successful for the company. It has clothing range, home-ware items, mobile phones
business, music downloads and DVD rentals, school uniforms, financial and telecom
services, and cotton fair-trading across the globe.
Europe’s largest private employer – Tesco offers more than 743K jobs opportunities for
employees worldwide. It has been acclaimed as the largest opportunity builder in entire
Europe.
Obtained several international awards – Due to its successful commercial performance, Tesco
has achieved several awards. These include British’s Favourite Supermarket (among BIG
FOUR), The Grocer’s Own Label Food and Drink Awards (25 awards), The Grocer of the
Year, ‘Waste Not Want Not‘ Award, and Best Grocer Award (2018).
Superior technology usage – Tesco uses technology in the best optimal way to enhance the
shopping experience of its customers. It has introduced a new RFID-enabled barcode system
to count the products automatically. It also has advanced M-commerce facility and mobile
payment app.
Efficient supply chain network – With a simplified business model, reduced incurring costs,
and efficient waste management policies, it has created a reliable and efficient supply chain
network. Tesco bears profitable relationships with suppliers.
Tesco’s Weaknesses
Failed operations in the US and Japan – Tesco had to exit from the American and Japanese
markets in 2012. Its failed export operations forced the company to close stores in Japan after
nine years and the US after 5 years.
Fraud Trial and Accounting Scandal – In 2017, Tesco was charged with fines due to the false
accounting declaration and misrepresentation of profits.
Decrease in operating profits – As of Oct 2018, the share prices of Tesco fell more than 9%
due to the decline in operating profits. It has proved to be the worst performance for the
company since the Brexit Referendum.
Financial errors – Due to its high debts and credit card liability, Tesco’s financial profits are
profoundly affected.
Low-cost strategy – Although Tesco is the price leader in the UK market, its low-cost
strategy can lead to reduced profit margins.
Poor operational performance in specific markets – Few stores and grocery outlets of Tesco
are not performing well in certain countries. Experts suggest that Tesco didn’t carry out
sufficient market research before entering into these markets.
Clubcard controversy – In January 2018, Tesco switched up its Clubcard scheme (in which
points could be doubled or quadrupled) without giving prior notice to customers. It faced a
massive backlash from angry customers.
Tesco’s Opportunities
Expanding Jacks’ business – Tesco has recently introduced Jacks, a new discount store which
has shown significant growth. It has an opportunity to grow this business and can
successfully compete as a low-cost rival with Aldi and Lidl.
Strategic alliances with other brands – Developing strategic partnerships with reputed
companies can offer an excellent opportunity for Tesco. It will enable Tesco to offer more
products and attract more customers.
Joint ventures – There is an opportunity for joint ventures in the regions where Tesco stores
are underperforming. The local companies can provide profound market knowledge which
can help in improving performance in such regions.
Online shopping – Tesco can avail the opportunity by growing and upgrading its online
shopping business as well as home delivery services.
Emerging markets – Although Tesco has stores in many developing countries but expanding
its business to emerging countries like South Korea, Turkey, and Indonesia can be a
profitable opportunity for the company.
Tesco’s Threats
Christmas ad controversy – Tesco faced social media backlash when it launched its
Christmas ad in 2017. People boycotted the store claiming a disrespectful act from Tesco
against Christian faith.
‘Fake Farm’ legal threat – Tesco was accused of misleading customers with fake farm brand
names and marketing its food products under fake name of “Woodside Farms.” It faced
severe legal threat proceedings over the issue in 2017.
Brexit Referendum – With Britain no longer in the European Union, the trade deals and cost
matters have posed a threat for Tesco.
Competition with supermarket giants – With rising growth and performance of WalMart
(with ASDA acquisition), Carrefour, and Aldi, Tesco’s biggest competitors, Tesco’s market
position can be threatened.
Economic crisis and credit crunches – Government regulations, legal and tax matters, credit
crunches, and economic upheavals can affect the operational efficiency and performance of
Tesco stores in critical regions.

Recommendations
Tesco has a huge market potential in the grocery industry. With strategic decision-making
and effective marketing tools, Tesco can increase its revenues and compete effectively with
its rivals. Here are some recommendations for Tesco:

Explore the emerging markets and expand its stores in Asian and African countries.
Resolve the controversial crisis by addressing the issues quickly.
Perform in-depth market research and market analysis before entering a new market to avoid
failure and losses.
Upgrade its online business and e-commerce sites to provide a pleasant shopping experience
for customers.
Take customer feedback regarding the launches of new ads and schemes. It can prevent any
potential disapproval from the public.
Resolve legal and financial matters including high debts, tax payments, and credit card
crunches.
Boost its marketing and advertising activities to grab more customers than its competitors
Porter’s five forces analysis of Tesco

This is a detailed Porter’s five forces analysis of Tesco. It aims to examine the impact of the
five forces i.e. competitive rivalry, supplier power, buyer power, threat of substitutes, and
threat of new entrants on Tesco which operates in the supermarket industry. Tesco is the
market leader in the UK and operates in a number of countries.
Bargaining power of the buyers/customers of Tesco

Tesco serves millions of customers every week, in its stores and online (Tesco, 2020). The
bargaining power of the buyers in the UK is low as they are not organised, and it is unlikely
that they can be better off if they switched to competitors such as Asda and Sainsbury’s. This
makes the industry attractive for Tesco.
However, some analysists argue that the bargaining power of the grocery customers is high in
the UK as now-a-days they are many competing retailers (notably Aldi, Lidl, and Poundland)
vying for the same customers, and compared to Tesco, some of them are cheap as well. This
requires Tesco to keep its prices low that impacts on the profit margins.
Bargaining power of the suppliers of Tesco

Tesco works with 2,500 suppliers in the UK, and many more thousands abroad. However,
these suppliers cannot exert any significant power on Tesco as there are so many of them out
there. Tesco negotiates very hard with the suppliers to increase its profit margins. However, it
should be mentioned that Tesco has been accused of bullying suppliers over price cuts. Some
people have accused it of behaving like ‘mafia’ for its tactics to squeeze suppliers (Poulter,
2o16).
Threat of new entrants affecting Tesco

The threat of new entrants coming into the UK supermarket industry is very low particularly
because of the capital requirements. Tesco does not need to worry about any new entrants as
it enjoys economies of scale and has its own core competencies. Likewise, would-be
competitors may not have enough money, access to distribution networks, and expertise to
explore the supermarket industry in the UK either.
Threat of substitute products/services affecting Tesco
Tesco offers its customers a wide range of products. It also sells substitutes of the majority of
the products. For example, it sells both butter and margarine. Likewise, it also sells fresh
milk, condensed milk, and powder milk. It is therefore easy to argue that the threat of
substitute products and services for Tesco is mostly irrelevant.
Rivalry amongst Tesco’s existing competitors

Tesco has a number of powerful competitors in the UK. These competitors spend lavishly on
advertising and other marketing techniques. Though Tesco is the market leader, the pressure
from the nearest rivals is intense. Likewise, price-wars launched by Aldi and Lidl are
affecting Tesco’s profit margins.
Tesco has been exploring appropriate solutions to tackle the problem of intense of
competition. For instance, Jack’s (a discount chain) was opened in 2018 to compete with Lidl
and Aldi. However, its performance has been poor with disappointing sales, job losses, and
fewer stores than expected being opened (Wood, 2019).
HOMEPEST ANALYSISPEST EXAMPLESPESTLE Analysis For Tesco Discusses Its
Business Environment
PESTLE Analysis for Tesco discusses its Business Environment PESTLEanalysis
Contributor Oct 6, 2014
Tesco, a multinational food retailing company, is headquartered in the UK and has stores in
12 countries across the world. It is the second largest retailer after Wal-Mart in terms of
profits made and also holds the title for the second largest retailer considering revenues.
Generally known for selling food and non-food products, Tesco, now also provides finance,
mobile, insurance, hardware services and much more. To get a better understanding of this
multi-platform international retailer, read on, as we analyze it through a PESTLE analysis for
Tesco.

Political Factors
Since the retailing company operates worldwide, global political factors greatly influence the
performance of Tesco. These include, tax rates, acts of legislation and of course, the stability
of the country it operates in. Due to ongoing financial instability in the world, many
governments encourage retailers to create jobs for the domestic population. As Tesco plays
its part in creating employment opportunities, it also, in turn, increases the demand for its
products and diversifies its workforce.

Economic Factors
These factors are the main point of concern for Tesco, as they are most likely to leverage
costs, demand, profits and prices. Therefore, the company should be aware of any changes in
policies, such as changes in taxation or any other factors which could affect the accessibility
of finance. It is important to mention that although the business is growing internationally,
the company is still quite dependent on the UK market where it has a market share of around
30%.

With that said, internationalization and diversification have been two key strategies pursued
by the company over the years, and a major reason for its success. Furthermore, due to
decline in disposable income levels and household incomes, Tesco, has shifted most of its
focus towards advertising its value brands rather than the more luxurious items.

Recommended: Another example of PESTLE analysis: PepsiCo

Social Factors
Due to a variety of social changes, trends indicate that customers in the UK have moved
towards bulk shopping and one-stop shopping. Therefore, Tesco has increased the number of
non-food items offered for sale. The type of goods and services demanded by consumers is
mostly influenced by their beliefs and attitudes which, in turn, are influenced by social
conditioning. Because customers are becoming more aware of health issues, due to which
their approach towards foods is changing constantly, Tesco is adapting to these changes by
accommodating the demand for organic products.

Technological Factors
The advancements in technology have brought various new opportunities for Tesco. Two of
the most distinct ones include, firstly, the development and introduction of online shopping
with facilities for home delivery. Secondly, self-service checkout points have provided
convenience and ease for customers, which in turn have reduced labor costs. Furthermore,
Tesco has also invested a significant amount on energy efficiency projects to fulfill its long-
term objective to reduce its carbon footprint.

Environmental Factors
With increased pressure on companies to address environmental issues and to adopt ways of
operations which what would benefit society, Tesco is clearly committed to reducing its
carbon footprint by 50% by 2020. Also, Tesco is minimizing the waste produced in their
stores by increasing social conscience in customers.

Legislative Factors
Government policies and legislations also directly impact the performance of Tesco. For
example, the Food Retailing Commission (FRC) in 2004 suggested a Code of Practice should
be introduced which would ban many current practices, such as changing prices without
notice or demanding payments from suppliers. To facilitate these policies, Tesco provides its
customers price reductions on the fuel they purchase, in accordance to the amount spent on
their grocery stores. Also, there are several promotion offers where prices are lowered.