Sample Business Paper on A strategic management analysis on how Tesco can retain its competitive advantage in the supermarket industry in the United Kingdom

Abstract
Overtime, Tesco has retained the leading position in the supermarket industry in the United
Kingdom. However, with new entrants and consistent innovations in product development, the
company is currently under high pressure to retain its top position, as close competitors such as
ASDA, Sainsbury’s, Morrison’s, Aldi, Lidl and Waitrose rush to gain the top position in the
industry. Tesco’s must outline a strategic management plan that will help them retain customers
through product differentiation, quality provision and considerate pricing of products. To define
the strategy, the management needs to review the external business environment to evaluate the
weaknesses that they need to address and plausible opportunities that they could utilize to beat
over its competitors. This report presents a strategic analysis of the business environment in
which Tesco operates and recommends a plausible change plan that would assist the company to
retain its top competitive position among the chain of supermarkets in the United Kingdom.
The essay is divided into three parts. The first part entails the introduction of the company. The
second part includes an analysis of the business environment at Tesco supermarkets to identify
the strategic route that the company might use to become more competitive. This section entails
an analysis of the strengths, weaknesses, opportunities and threats through SWOT analysis. It
also contains a PESTEL analysis that includes the political, economic, social, technological,
environmental and legal factors affecting the productivity of the company. The section also
analyzes five competitive forces likely to affect the company through Porter’s Five Force
analysis. The third part entails a recommendable strategic change plan that will assist the
company to retain its competitive position based on the revelations of the environmental
analysis.

Introduction

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Tesco is a British multinational grocery retailer that offers food products, apparels and other
merchandise. Its headquarters are located at Hertfordshire in England, United Kingdom. The
supermarket holds the third position globally in terms of market share and is the leading
groceries market in the United Kingdom (Hong 2010). By October 2019, the company reported a
market share of approximately 17.7%, a drop from the previous year’s 24.8% (Wang 2019).
However, with the rising consumer demands of freshness, punctuality and accuracy in the retail
market, upcoming retail markets are slowly attracting customers from Tesco and significantly
rising in terms of competitive advantage. Today, Tesco closely competes with ASDA and
Sainsbury’s, which have risen ranks to obtain a 17% market share in the United Kingdom (Guo
2019).
Further, these companies are still launching convenience stores to enhance better service delivery
to overtake Tesco from the top position. Other upcoming close competitors include Morrison’s,
which uses the vertically integrated structure to reduce costs and attract customers and the
Waitrose supermarkets (Wrigley 2016). These risks demand Tesco’s management to adopt a
competitive strategy that will help them retain their market share and attract more consumers for
an enhanced competitive ability. The report reviews strategic management practices that Tesco
needs to adopt to maintain its position following a review of the company’s business
environment to determine its competitive threat and plausible investment opportunities.

Tesco business environment analysis.
The section entails a business environment review performed through three analysis models
namely SWOT analysis, PESTEL analysis and Porter’s five analysis to assist the management in
formulating strategic plans that will help the company to retain its competitive position.

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SWOT analysis

A SWOT analysis is a strategic planning tool used to determine the strengths, weaknesses,
opportunities and threats on a company.
Strengths
 Leading market share- Tesco
dominates the grocery market share in
the United Kingdom, with over 27%
of the total population. Further, it is a
leading supermarket in the
international community with its fame
highly spread across Ireland.
 It is the biggest grocery retailer in the
UK- Tesco is the leading grocery store
in terms of employees, revenue,
market share and number of
employees. The company has reported
a consistent rise in profits over the
years.
 Tesco is globally diversified- the
supermarket has over 6500 thousand
stores across fourteen countries in
Europe, North America and Asia Guo
2018).

Weaknesses
 A consistent decline in market share-
in 2018, Tesco had a market share of
28.4% in Europe. However, the share
dropped to 27.7% in 2019 business
reports (Wang 2019).
 Failed operations in some
international markets- Tesco has
consistently failed to launch services
in the US and Japan, forcing them to
incur losses and close their stores in
the two regions.
 Low-cost strategy leading to
decreased operating profit- being a
price leader in the UK, the low cost
strategy has made the firm incur
significant losses with operational
profits declining by 9% in 2018
(Wang 2019).
 Fraud trial and accounting scandal-

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 Tesco is the largest private employer
in Europe- the supermarket has been
ranked as the top opportunity builder
across Europe, having created over
seven hundred thousand employment
opportunities (Hong 2010).
 Superior tech application- the
supermarket is innovative in that it has
integrated all its business process to
be controlled technologically.
Products from the company are
encoded with a radio frequency
identification barcode to count and
facilitate easier distribution (Wills
2019).
 Diversified stores in terms of number
and naming- Tesco has around 6966
stores that operate in different names
such as Tesco Homeplus, Tesco
Metro, Tesco Extra, Tesco Express
and Tesco Superstores (Wang 2019).

the supermarket has had legal issues
whether they were heavily fined for
false accounting declaration and
misinterpretation of profits.

Opportunities
 Online shopping- Tesco can expound

Threats
 Destruction of reputation by the fake

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its sales activities by upgrading its
online activities such that clients can
purchase and request for deliveries via
online platforms (Helms 2010).
 Emerging markets- despite failing in
launching stores in Japan and the
United States, Tesco can expand its
business in emerging countries such
as South Korea, Turkey, Indonesia as
they present a favorable business
environment
 Expanding Jack’s business- through
developing the new discount store, it
can effectively compete with low cost
rival supermarkets in the United
Kingdom such as Aldi and Lidl.
 Engaging in joint ventures- Tesco
should identify regions where their
stores are underperforming, or where
they have completely failed to launch
business operations and form business
joints through franchising with
established ventures

farm legal threat- in 2017, Tesco faced
legal accusations against misleading
consumers with fake farm brand
names and marketing products under
fake names of Woodside Farms.
These cases have since then destroyed
the reputation of the company with
some customers running away with
claims that its products are fake.
 The controversy rising from the
Christmas advert- also, Tesco
launched a Christmas ad that appeared
rather disrespectful to the Christian
religion. This contributed to a heavy
social media backlash, forcing some
customers to boycott products from
the supermarket.
 Competitive supermarket giants in the
UK- Tesco faces stiff competition
from upcoming supermarkets such as
ASDA, Carrefour, Aldi, Walmart that
threatens to overtake the company’s
market position. The company has

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 Incorporation of artificial intelligence
in retail- Tesco should seek to
introduce artificial intelligence in
supply chain planning, demand
forecasting, consumer intelligence,
pricing and running store operations
such that they can always have prior
information on the product to avail in
the market.
 Consumer engagement through
augmented reality- incorporation of
artificial intelligence will assist the
supermarket in revolutionizing the
retail sector where consumers can
virtually try on 3D versions of
products before making purchases.
Through these, customers can review
how products such as shoes and
electronics will look at their homes
(Pollard et al. 2018). This will assist
the company spread awareness on
available products.
 Strategic alliances with other brands-

over the last two years faced
consistent decline in market share.
 Economic and credit crunches

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joining with reputable companies and
introducing their product at Tesco will
assist Tesco in increasing the number
of products on offer hence attracting
more customers.

PESTLE ANALYSIS

Pestle analysis is a strategic business analysis tool that analyzes the uncertain and unpredictable
external business environment factors in the bid to formulate a strategic formula to combat them
and retain a competitive advantage. PESTEL analysis entails the political, economic, social,
technological, environmental and legal factors affecting a business entity.
Political factors
Political factors that are likely to affect a business firm include taxation laws, exchange rates,
political stability, intellectual property rights, and risks of military invasion, among others
(Akhmadeev 2015). Being multinational firms, political factors affecting Tesco supermarkets
vary according to areas of operation either in Asia, China and the United Kingdom. The most
crucial factors likely to affect Tesco include taxations on imports and exports. The company at
times, exports products from the United Kingdom to its branches in China and East Asia. As a
result, the company must be considerate on the import duty rates to prevent incurring losses.
Political stability is favorable in the three regions since there are no reported political faults
among them. Also, the Tesco Tax proposed by the local council in the United Kingdom is likely
to incur losses should it be signed into law (Guo 2019). Also, the company needs to be
considerate on exchange rates while deciding on the currency forms to use across the three

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regions. With the accession of China to the World Trade Organization guidelines, the company is
now free to venture into the wide market presence in China.
Economic factors
Economic factors influence the buying behavior of consumers. They include employment rates,
labor costs, domestic growth product of the country and the level of disposable income among
consumers. There is a relatively low rate of unemployment in the United Kingdom. This suggests
that the buying power of the consumer is relatively high due to higher disposable incomes (Hong
2010). However, the company must spend more to acquire labor. For instance, in 2018, the wage
rate was increased by 4.4%, meaning that Tesco has to pay more to gain employees Guo (2019).
Further, following the fears of the recent economic recession in 2008, people still fear to
overspend cash. This means that most consumers opt for meals prepared at home. These are
good news to Tesco since consumers will purchase more groceries.
Social factors
Social factors entail the cultural beliefs and values that determine the population’s way of life. It
also entails health status, education background and demographics (Akhmadeev 2015). An
analysis of the United Kingdom population presents that a high number of the population are
aged. Aged people rarely take meals from outside. Thus this increases buying rates of groceries.
Also, with a high education background in the UK, most customers will be wise enough to select
quality products. However, the rise of infectious Coronavirus could reduce sales significantly
since customer movement is restricted (Guo 2019). However, since most of these customers will
opt for a one-time shopping, the company should establish consumer trends to identify the days
to avail massive stock amounts. Also, the company need to segment services in terms of age

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since most of the aged people will opt to ask for home deliveries rather than travel to
supermarkets.
Technological factors
Online platforms are likely to affect the operations of the supermarket, with most people opting
to order online deliveries. Further, the company should integrate its advertisement strategies to
online platforms. The company could also introduce online loyalty programs such as capons to
discourage consumers from shifting to consumers.
Environmental factors
Customers are enlightened enough to select socially responsible organizations. Tesco must,
therefore, ensure environmentally friendly practices in terms of distribution and packaging.
Further, the company should avail reusable bags to reduce plastic bag pollution, save consumer
spending and also present Tesco as an environmentally friendly company. Furthermore, Tesco
has introduced the Greener Living Scheme that guides consumers on environmental friendly
terms such as reduced food wastage and carbon footprint during meal preparations (Lalwani
2012).
Legal factors
Tesco needs to identify employee protection laws and abide by them to prevent legal actions
against them. Recently, Tesco has been a victim of legal actions for accounting frauds,
misleading investors and disrespecting religion. The company should stick by the provisions of
Food Retailing Commission to prevent the occurrence of such cases that cost the supermarket
twelve million dollars’ worth of fines and also destroyed the reputation of the industry.

PORTER’S FIVE ANALYSIS

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Bargaining power of suppliers
Most products from Tesco rise from the farm. This means that there are numerous suppliers who
Tesco could turn to should a supplier pose a high bargaining power. Since large supermarkets
order these products in large quantities, they manage to convince the suppliers to avail the goods
at low prices that are unmatchable by the small firms, weakening the bargaining power of
suppliers against Tesco. Also, with the plausibility to source these products from abroad, the
bargaining power of supplier is further weakened. Therefore, the bargaining power of Tesco
supplier is weak.
The threat of new entrants
The UK grocery market consists of a few dominant competitors such as Tesco, Asda,
Sainsbury’s and Safeway with other upcoming small chains such as Waitrose and Somerfield,
occupying only ten per cent share of the market. The United Kingdom grocery market have had a
dominance of a chain of supermarkets over the last three decades due to operating efficiency
resulting from the availability of a wide range of products (Martinette 2013). As a result, small
retail shops in the UK are no longer efficient in operation as the chain of supermarkets has
absorbed most consumers. These weaken the strength of incoming entrants who might wish to
cause competition on existing grocery markets since they have already been established. Further,
with the economies of scale and product differentiation, it would be almost impossible for a new
entrant to gain roots in the grocery industry in the United Kingdom.
Bargaining power of consumers
With standardized prices adopted at most Tesco stores, the company has significantly managed
to retain customers, denying them a chance to complain or shift to close competitors. Further,
Tesco’s famous loyalty card is a successful consumer retention strategy. The company has

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succeeded in satisfying consumer demands through better product choices, constant promotions,
and customizing products. However, consumers still have dominant bargaining power against
Tesco, considering that there is a wide range of supermarkets offering similar products. This
means that should Tesco fail in high product provision at a single chance. They would risk losing
a significant number of customers. Therefore, the bargaining power of consumers against Tesco
is medium.
Threat of substitutes
Availability of substitutes reduces demand for certain products as it presents consumers with an
option to try on a new product. Most products at Tesco have a product for product substitute,
where consumers can opt to leave beef from Tesco and obtain pork or chicken from an upcoming
store. To counter this force, Tesco has strived to avail most substitute products in their stalls. For
instance, the company offers both margarine and butter and offers different forms of milk such as
fresh, condensed, and powdered milk. Through this, Tesco has wholly weakened the threat of
substitute products making the threat irrelevant.
Threat of competitors
This can be termed as the most significant threat to Tesco, due to the huge number of powerful
supermarkets in the United Kingdom. Though Tesco boasts of a leading position in terms of
market share, these supermarkets are posing significant pressure through lavish advertisements,
cost reduction among other marketing techniques. For instance, the company has lost a
substantial number of consumers to Aldi and Lidl as they have launched price wars with Tesco,
whereby they offer products at significantly low prices. Tesco’s efforts to counter the price wars
through a discount chain known as Jack’s have been thwarted due to a limited number of stores,

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poor sales and extensive job losses. Therefore, the rivalry among existing Tesco’s competitors
poses a significant threat to the competitive ability of the supermarket.

Recommendations
Based on the above analysis, it is clear that Tesco faces a significant threat of losing its market
position by its close competitors. However, Tesco might evade such situation by incorporating
some strategic management practices as recommended below.
i. Incorporation of artificial intelligence to enhance online shopping and consumer
engagement through augmented reality- the company, should integrate its processes via
the artificial intelligence system to facilitate online business activities where consumers
can check, order, pay and request for deliveries through online platforms (Wang 2016).
Further, AI will promote consumer engagement where consumers can test Tesco’s
products via virtual reality. This will assist the company in attracting and retaining
customers while at the same time passing information on available products at the firm.
As a result, the company will have increased its competitive advantage
ii. Enhanced corporate social responsibility. Today, most customers support organizations
that are into community development programs (Herrera 2015). Tesco needs to improve
its CSR strategy by engaging in communal activities such as fundraising, environmental
conservation campaigns and disaster management strategies to attract more customers.
iii. Perform in-depth market research and market analysis before entering a new market to
avoid failure and losses.
iv. Exploring emerging markets in Asia and Africa before expanding its operations- as per
the SWOT analysis, Tesco has reported failed business operations in the US and Japan,
mainly due to failed market research (Wrigley 2016). The company should conduct

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extensive market research in any emerging market before deciding the penetration
strategy to adopt in the new market.

Conclusion
Despite having a top share in the UK market, the report has established that Tesco needs to
reinvent its strategic management practices to retain the position else they risk being overtaken
by close competitors such as Sainsbury’s and Morrison’s. The report has conducted a business
environment analysis through Pestle, SWOT and Porter’s five analysis to identify the market
position of the company and recommend a change plan that could assist the company to retain its
position. The analysis has identified weaknesses such as failed market analysis, inaccurate
accounting reporting and misguiding consumer reports that have made them lose a certain
percentage of market share. Based on the presented opportunities, the report recommends that
Tesco could retain its competitive advantage and attract more customers through artificial
intelligence, market research, and an enhanced corporate social responsibility. The management
should seek to incorporate these strategic changes to help the supermarket attract more customers
and retain its competitive position.

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