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TESCO BUSINESS LEVEL

STRATEGY

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Business Level
Strategy
Author Name

Word count: 1506

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Table of Contents
1.0 Situational Analyses.............................................................................................................2
1.1 SWOT Analysis................................................................................................................2
1.2 TOWS Analysis................................................................................................................3
2.0 Strategic Options..................................................................................................................4
3.0 Strategy Evaluation..............................................................................................................5
3.1 Organic Growth................................................................................................................5
3.2 Growth by Acquisition.....................................................................................................6
4.0 Conclusion............................................................................................................................6
References..................................................................................................................................7

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1.0 Situational Analyses

The situational analysis represents the identification and evaluation of all relevant factors
associated with a specific situation (Weihrich and Cannice, 2010). This approach is suitable
when investigating to discover circumstances which are not in favour of a firm. Using
situational analysis with care can improve sales and profitability levels, enhance marketing
efforts, and make it certain to achieve organisational short-term goals and long-term
objectives. SWOT and TOWS analyses are commonly used to conduct situational analysis.

1.1 SWOT Analysis
Strengths

 Tesco is operating in the USA, UK, and major countries in Europe and
Asia and therefore become third largest grocery superstore in the world
(Datamonitor, 2012). In the UK, Tesco has secured a market leadership
position in food retail sector with nearly 31% market share
(Euromonitor, 2012).
 Tesco has strong financial position showing £63.5bn group revenue with
7.6% average growth from the last year (Tesco Annual Report, 2012).
Tesco aims to retain its customers and also to attract potential customers
using various schemes like club card and loyalty cards. The Tesco’s
online store, insurance, and non-food items add significant value to its

Weaknesses

strengths
 The main weakness of Tesco is the high dependence on UK’s market
which is exposed to many macroeconomic problems
 Tesco is failed to target city centres and also found reluctant to follow

Opportunitie
s

market changes by adopting suitable pricing strategy (Butler, 2012)
 Tesco may consider entering in new emerging markets in Asia such as
China and India by following merger, acquisition, or joint ventures
strategy.
 A survey study reveals that food sector in the UK will grow up to £145
billion in next two years (Euromonitor, 2012). This could be a better

Threats

opportunity for Tesco to expand organically.
 The Tesco’s too much reliance on the UK economy may create problems
in future as the superstore was affected in 2008 when UK was badly hit
by the global recession.
 Currently, Tesco is holding leadership position in the UK’s grocery retail

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market due to large market share, but it may affect in future due to fierce
rivalry with big superstores such as ASDA, Morrison, and Sainsbury.

1.2 TOWS Analysis

In this section, TOWS matrix analysis is used to discover negative factors and find out the
ways to turn them into positive aspects.
Table 1 – TOWS matrix of Tesco
OPPORTUNITIES

External
Factors

o
o
o
o

Internal
Factors

STRENGTHS

o
o
o
o
o
o
o
o
o
o
o

WEAKNESSES

o
o
o
o
o
o
o

Strong financial performance
Low cost leadership
UK market leadership
International diversification
Online channel
Non-food retailing market
Brand value
Increasing market share
Insurance
Customer retention using schemes like
club card and loyalty card
Failure to target city centres
Reluctant to follow market changes by
adopting appropriate pricing strategy
Exposed to macroeconomic problems
High dependence on United Kingdom’s
market
Poor CSR and community impact
Debt reduction
Signs point to serial acquisitions

Health and beauty
Transportation
Further overseas growth
Reducing overall cost by
using latest technology i.e.
mobile applications for
buying Tesco products
Non-food retail market
growth
SO (Maxi-Maxi)

1.
2.
3.
4.
5.

THREATS

o
o
o
o
o

o

Fierce rivalry
Financial crisis
Unemployment
Income decline
Political
opposition to
supermarket’s
powers
Overseas returns
could fall
ST (Maxi-Mini)

Expand organically
Merger or acquisition
Use differentiation strategy
Complementary services
Growth in non-food
business

WO (Mini-Maxi)

WT (Mini-Mini)

6. Expand to Asian markets
7. Establish convenience
stores near/in city centres
8. Diversification to other
sectors

2.0 Strategic Options
Investigating and understanding strategic options is a crucial step that can be completed using
different tools. Ansoff matrix is a tool which is commonly used to develop market options

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and also understanding related risks using four growth strategies such as market penetration,
market development, product development, and diversification (Stone, 2011). The
product/market grid is the term also used interchangeably with Ansoff matrix. In this section,
Ansoff matrix is used to develop appropriate strategic options available to Tesco to expand its
market share as well as to increase sales and profit margins. Table 2 shows 8 strategic options
available to Tesco identified in table 1 to prevail over its weaknesses using its internal
strengths and benefiting from external opportunities. Many of these strategies are already
utilised by Tesco; for example, organic expansion, acquiring a competitor, differentiation
strategy, complementary services, and growth in non-food business. Therefore, it would be
easier for the superstore to implement experienced strategies.
Table 2 – ANSOFF Matrix
Strategy
Market Penetration

Current Products – Current Markets

Product
Development

Option
Expand organically

Risk
Low

Growth in non-food business

Medium

Differentiation strategy

Low

Merge with or acquire a competitor

Medium

Complementary services

Medium

Expand to Asian emerging markets e.g. China

High

Establish convenience stores in city centres

High

New Products – Current Markets)

Market
Development

Current Products – New Markets

Diversification

Diversification to other sectors e.g. health &
beauty or transportation

High

New Products – New Markets

Tesco may penetrate the market in the next five years by adopting an organic growth strategy.
By adopting this option, Tesco can make available more food and non-food items for
customers. In order to implement this strategy, Tesco may expand its storage capacity in two

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ways: (1) by making existing stores bigger to create more space; and (2) by establishing new
stores all over the UK particularly where people most need them, for instance, near town
edges or in villages where no superstores are operating.
The second option to penetrate the market is to adopt merger and acquisition strategy. For
example, Tesco may acquire or merge with LIDL, ALDI, or Iceland stores to enlarge its
existing capacity. However, this strategy requires extensive market research and Tesco may
need to negotiate with stakeholders, banks, other financial institutions to arrange funds.

3.0 Strategy Evaluation
Two strategies are recommended to Tesco for the next five years that are according to its
vision and also fulfil changing needs of the customers. These two options are: expand
organically, and acquire a competitor. In this section, the chosen strategies are critically
reviewed using Suitability, Acceptability, and Feasibility criteria suggested by Johnson et al.
(2008).

3.1 Organic Growth
Suitability

Organic growth strategy is suitable as it is well-matched with the current
strategy of Tesco and also this strategy has been implemented by Tesco in the
past. Although, Tesco is the market leader in the UK but the superstore is
facing weak profitability in some food and non-food items for the purpose to
compete with its major rivals i.e. ASDA, Sainsbury, and Morrison. Thus, this
strategy is strategically fit for Tesco for the next five years in terms of
retaining its leadership position and also to improve sales and profitability

levels.
Acceptability As this strategy deals with expansion of core business activities, so Tesco will
not face any major risk in adopting and implementing this strategy. In
addition, it is an easy decision of the stakeholders to accept this strategy as
they are aware of the success of business. But initially, some major costs of
Feasibility

extensions may affect the overall profitability and productivity levels.
As compared to other strategic choices, organic expansion is the simplest and
easiest option for Tesco in terms of HR, finance, and technology. The
superstore has greater skills and human, technological, and funding resources
to implement this strategy. This strategy is also feasible due to average

expansion activities.

3.2 Growth by Acquisition
Suitability

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gearing ratio because it is not difficult for Tesco to arrange capital for

Tesco may plan to acquire or merge with its smaller-scaled competitors (e.g.
LIDL, ALDI, or Iceland) in the next five years. This strategy is suitable for
Tesco as the superstore successfully executed it in the past. But Tesco needs
to perform extensive market research in this regard. The growth by
acquisition strategy using horizontal integration is appropriate at this time

when recession effects are high and small stores are struggling to survive.
Acceptability Acquiring a competitor will open new doors of opportunities for Tesco which
will add a significant portion to the level of superstore’s profitability. Growth
by acquisition bears medium risk as the expected synergies should not be
hard to deliver because of horizontal integration. Also, stakeholders will
support this strategy due to the existing low level of profitability in few
Feasibility

product lines.
It would be feasible for Tesco to implement an integration strategy in order to
achieve pre-determined goals of acquisition. Tesco is financially sound and
therefore quite capable of acquiring a competitor. Additionally, the superstore
has skilled workforce and employs the latest technology to manage its
resources and day-to-day operations.

4.0 Conclusion
From the above evaluation through SFA criteria, it can be said that both strategic options are
in favour of Tesco in order to retain its leadership position. But compared to the second
option i.e. merger or acquisition, it is more suitable for Tesco to expand organically as it
embraces low risk, fits well with existing strategy, compatible with corporate growth
objectives, and requires less capital. Also, the organic growth strategy is acceptable for
stakeholders and feasible in terms of quick return.

References
Butler, S. (2012). Fresh, but not so easy: Tesco joins a long list of British failure in America.
The Guardian, 9 December 2012.

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Datamonitor (2012). Company profile – Tesco. Data monitor Europe.
Euromonitor (2012). Industry profile - food retailing. Euromonitor
Johnson, G., Scholes, K. and Whittington, R. (2008). Exploring Corporate Strategy, 8th
edition, Prentice Hall
Stone, P., (2001). Make marketing work for you: boost your profits with proven marketing
techniques. How to Books Ltd
Tesco Annual Report (2012). Annual report and financial statements 2012. [online]. Available
from: http://www.tescoplc.com/files/reports/ar2012/files/pdf/tesco_annual_report_2012.pdf
[Accessed: 22 April 2013]
Weihrich, H. and Cannice, M.V. (2010). Management. Tata McGraw-Hill Education