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. Political 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 . 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 customer, and 2. Treat people as we like to be treated With their “Every little helps” strategy, they regularly ask their customers and staff “what we can do to make shopping with us and working with us that little bit better” (Tesco. com) 4 Tesco UK Tesco UK is the first and largest operations under Tesco PLC. Tesco UK contributes approximately 70% to the group’s sales and profit. Its business is significant in the UK, with over 285,000 employees and over 2,200 stores.

UK business’s growth comes from new space, extensions to existing stores and a multi-format approach. The overall growth in UK was contributed by the sales of non-food, which forms another key part of Tesco strategy. Tesco customized their store formats to satisfy customers’ needs. It has more than 1960 Express stores offering a range of approximately 7000 quality, great value, and fresh food close to where customers live and work. Tesco opened its first Metro in 1992 catering to the needs of busy customers, bringing Tesco nearer to customer in town and city centre locations.

The superstores which began in the 1970s is an ongoing program of extending and refreshing their superstores to improve the overall experience for customers, including introduction of new non-food ranges such as DVDs and books. Since 1977 the one-stop Extra destination store has proved extremely popular and Tesco now have more than 175 Extra stores offering the widest range of food and non-food lines. The 10 Homeplus stores (approx 35000 to 50000 sq ft) are dedicated to non-food, including clothing, with more available through Tesco Direct order and collection points.

In addition to array of formats, Tesco continually innovate and invest in new lines to increase choice for their customers, such as, lifestyle ranges like organic, healthy living. Various own brand also enable customers to purchase product to compliment their lifestyle. Value-adding service, such as Tesco nutritional ‘signpost labeling’ targets to provide customers with the key information they need to help them choose a balanced diet. Tesco innovatively counteract the recession challenge by launching around 500 new ‘discount brands’ products because customers were shopping around for best prices without compromising on quality.

The Macro Environment Analysis The Macro environment gives organizations their means of survival as well a source of threat. Understanding the strategic position is concerned with identifying the impact on strategy of the external environment, an organizations strategic capability and the expectations and influences of stakeholders. Organizations exist in the context of a complex political, economic, social, technological, environmental and legal world. The PESTEL framework will be used on Tesco UK to identify how future trends in these environments might impinge on the organization.

This analysis aims to provide the broad data from which to identify key drivers of change and understand the interconnectedness of the macro environment. (Johnson, Scholes, & Whittingon, 2008). 1. 2. 6 Political Factors Even though, this paper is concerned with the Strategic perspective of Tesco UK, it is important to consider the global political scenario considering Tesco’s scope of operations. The company has over 3000 stores in 13 different markets outside the UK including Europe, North America and Asia.

Tesco therefore, is greatly influenced by political and legislative circumstances among these countries as well as European Union (EU). ‘As Tesco grows ever bigger in more countries, it has inevitably faced criticism from consumer activists and environmental groups and also regulators. Brussels recently referred Tesco’s acquisition of three stores in Slovakia to domestic regulators, claiming the deal could potentially reduce competition in certain areas. ’ (BBC 2006) Another important aspect to consider is the policies and regulations governing monopolies and dominant market shares within the EU.

Even though, Tesco is yet to be recognized this way, it is an important factor to note considering it’s scope of operations. In the UK, planning permission is an important political factor. There have been several cases where Tesco’s request to build new stores in the UK have been denied by the Town councils due to oppositions by the public. Therefore, careful analysis of the political factors when opening stores in UK is critical. 7 Economical Factors Considering that Tesco is UK’s largest private sector employer, economic factors such as unemployment rates and purchasing power are important factors to take note of.

The recessional period that the world has been experiencing has had quite an impact on western countries such as the US and UK with high job lay off’s etc. Unemployment rate in the UK has increased by 2% when compared with 2008. (National Statistics UK 2009). Unemployment rates affect Tesco in two ways. One is that it reduces demand for products and can affect Tesco’s sales. However, average earnings including bonuses rose by 1. 2 per cent in the year to September 2009 which is an indicator that the UK economy is picking up.

The other issue is that with Tesco being the leading private sector employer, it will be under severe pressure on job lay off’s. Tesco’s strategy of catering to many segments of the market has been able to keep them afloat in the rise of the economic recession. According to the research firm TNS WorldPanel, The UK number one, who has reaped the benefit of its double Clubcard points promotion, took 30. 7% of the grocery market in the 12 weeks to 1 November 2009. (Press Association 2009) The recessional period is slowly picking up with UK’s retail sales showing an increase of 2. % as of September 2009 when compared with the previous year which indicates a positive outlook for Tesco. (National Statistics UK 2009). 8 Social/Cultural Factors UK has a population of 61. 4 million and considered an ageing population with a relatively equal split between male and females with 62% representing the workforce. The proportion of people aged 65 and over is projected to increase from 16 per cent in 2008 to 23 per cent by 2033. (Statistics online). Therefore, Tesco will have to consider this an important aspect of future strategic direction.

The increase in employment among older people and females have created a demand for value added products and convenience goods and meals The need for bulk purchasing and one stop shopping has prompted Tesco to have more non food items available for sale. However in recent times, there seems to be a decrease in this trend as more and more people are pinching their pennies in times of recession and reducing the use of such convenience products. While money is tight, women will feel obliged to forgo the price premiums they have been paying for this kind of help and take on the labour themselves. Euromonitor 2009). Therefore moving into house brands with different market segmentation and the focus on own label share of the business mix and supply chain which reduces cost as Tesco has done is an important element of their corporate strategy. According to Eurominitor international, Value rather than cheapness will now count when consumers have to choose between brands when making purchasing decisions in the year ahead. Hence consumers will reward brands focusing on quality with loyalty. (Euromonitor 2009) Tesco’s focus on retaining customers is evidence to this trend.

Another important socio cultural aspect to consider is the migration of eastern Europeans and Asians to the UK. There is a large community of Indians living in the UK. Tesco needs to ensure that they are able to cater to this segment with product differentiation. Consumers in UK are also being more health conscious and therefore increased their use of organic products. Also offering products which has been manufactured in an ethical and socially responsible way is also becoming increasingly important in the UK consumers mind. 9 Technological Factors

Technology is an important macro environmental factor that affect any organization. Tesco has been successful at exploiting the widespread phenomena of internet purchasing. Their comprehensive website and online catalogue with easy checking out options have boosted their sales. To retain their competitive advantage it is important for Tesco to always reinvent and re-innovate and to be abreast of the rapid technological changes. Adoption of technologies such as intelligent scales, electronic shelf labeling, self checkout and RFID as helped the company to maintain its competitive advantage.

In order to make maximum use of strategic capabilities, Tesco UK has transferred their IT support structure to Bangalore India. 10 Environmental Factors Today, environmental issues play a key role in business. Matters such as global warming and pollution have pressured companies into being more socially responsible towards the environment they operate in. Tesco has been instrumental in supporting carbon reduction and has created a a ? 100 million Sustainable Technology Fund for this purpose. In order to be carbon free, Tesco is revamping their own stores and building new low carbon stores.

Their target is to halve carbon emission totally by 50% by the year 2020. Tesco is also encouraging their customers to go green by introducing a new ‘Greener Living’ brand. The range comprises 200 products as diverse as energy-saving light bulbs, paper goods and kitchenware TESCO’s corporate social responsibility exceeds the minimum expectation levels set by the industry. 11 Legislative Factor In 2000, the government introduced legislation that allowed schemes, set up in line with the regulations, to offer employees savings on tax and national insurance contributions when buying and selling shares in the employing company.

Tesco has used this legal framework to provide comprehensive share schemes and has had considerable success in retaining their employees as shareholders and potentially reaping the benefits from their increased commitment to the company. (Eurofound 2008) The UK’s Competition Commission is to introduce a code of practice for supermarkets in a bid to ensure the fair treatment of suppliers and address issues hindering competition in the market. The commission believed that this food control the buying power of certain supermarkets. (Justfood. com 2009).

This affects both Tesco and the industry in general; in terms of higher cost. 12 Overall impact of the PESTEL factors Identifying the PESTEL factors for Tesco, has given insight to the environment they operate in and the interconnectedness of these factors. Identifying these factors are important in creating future strategic direction and growth. The political impact of the EU and the UK is an important factor for this British Retail giant in terms of market growth and monopoly. The present economic crisis has increased unemployment levels which is a negative indication.

However recent reports on increased sales and changes in socio cultural patterns are an indication for new prospects for Tesco. 13 Potential opportunities from the external environment The recovery of the economic situation means that there will be increased market potential and increased spending power. This is already in evidence by the increase in sales of Tesco UK in September 2009. The demand for non-food retail items is increasing and is in favour of Tesco. Their health and beauty products are top of the range and there is further potential to grow.

The increasing population of Asians and Eastern Europeans is also an opportunity for Tesco to explore this particular market segment. Increased focus on ‘going green’ is beneficial to the company considering their many steps towards this process both in terms of influencing the consumer and improving the processes within the company. The increased use of online purchasing means the reduction of related costs and processes could be more efficient. This would also enable Tesco to provide other services such as banking, delivery etc. 14 Threats from the external environment

Consumer behavior patterns are slowly changing towards organic and ethically produced goods. This creates both opportunity as mentioned above as well as threat. More and more research and capital will need to be allocated to sourcing these products. The company has made substantial investments in energy saving projects around the business. The price war between the supermarkets is another cause for concern which will be later discussed under competition. The possibility of increased regulation in terms of pricing is a threat to Tesco and other supermarkets in the industry.

Competitive Analysis on Tesco Using Porter’s Five Forces Model Porter’s five forces framework were developed to determine the competitive intensity and market attractiveness of an industry. (Porter, 2001) Market attractiveness refers to whether a company will have the profit potential in an industry. Porter’s five forces structure (as shown below) constitutes of the threat of new entrants, the threat of substitute, the power of suppliers, the power of buyer and competitive rivalry. [pic] 16 Threat of New Entries

According to Johnson, Scholes and Whittington (2008), threat of entry depends on the extent and height of barriers to entry such as economic of scales and experience, access to supply or distribution channels, legislation or government action and differentiation. The combination on two factors: Tesco, having 85 years of retail experience since the “TESCO” brand name started and with the existance of the incumbent retail giants (i. e. Asda, Sainsbury, Mark & Spencer) make it difficult for new entrant to penetrate into the UK retailing market.

Potential entrants will find that barriers are imposed on them, either explicitly or implicitly, by the conglomerate incumbents. (Tesco Porter’s Five Force Model , 2008) Tesco, as the largest retailer in UK has control over supply and distribution through customer or supplier loyalty. They have the established loyalty program such as offering loyalty card, point card, advantage card or club card to attract and retain the customers. Besides that, Tesco has direct ownership (vertical integration) for some of the products that they are selling with the brand “Tesco”.

The new entrants will find it challenging to find the new supply and distribution channel as the more common ones had been cornered by Tesco and other giant retailers in UK, who have the advantage of economies of scale. While the new entrants find it easy to enter into UK market, they may face many challenges in the operating environment. Therefore, it can be said that Tesco has a considerately low threat of new entrants in UK. 17 Competitive Rivalry Competitive rivalry refers to the direct competition between organizations that sell the similar products aimed at the same customer group. Johnson, Scholes, & Whittington, 2008) Tesco has many direct competitors who do the same business as them, namely the Asda Group Limited, Carrefour S. A, J Sainsbury PLC, Marks and Spencer Group PLC, The Big Food Group PLC and etc. As the number of competitors increases and become roughly equal size, the rivalry become intensified and competitors attempt to gain dominance over others. Though Tesco is presently the largest retailer in UK, many other upcoming retailers mentioned above are trying to gain more market share by dominating the market.

Rivalry is also stronger when demand for the product is growing slowly. (Tesco Porter’s Five Force Model , 2008) With the rivalry intensity, each competitor is tempted to use price cuts to boost unit volume and hence create price war between rivals. Besides that, Tesco’s business and products are also weakly differentiated that customers do not require any cost switching from one retailer to another. The intensity of rivalry in the retailing industry where Tesco belongs to is great. Therefore the threat of competitive rivalry is high for Tesco. 18 Substitutes

The accessibility and availability of acceptable substitutes for products that Tesco offers are easy and abundant. For example, Sainsbury can match the low prices that Tesco offers in the market and even equal the quality of products they offer, making the substitute force high in the retailing industry. (Tesco Porter’s Five Force Model , 2008) This drives Tesco to upgrade the product quality, reduce prices and differentiate their products from its substitute in order not to be affected by the threat. The upcoming trend of online shopping and free delivery also pose a substitute threat for the conventional shopping.

Busy working adults can order their groceries or anything they need with just clicks on the PC. E-bay for instance, can offer a wide range of products from all over the world to its customers. However, Tesco had anticipated this new trend and has an online shopping website to cater the needs of this group of people. Hence, Tesco faces low threat on substitutes looking at the fact that Tesco affords to go on the price war since they are the biggest retailer in UK and most of the people still would want to go on the conventional way of shopping. 9 The Power of Supplier The factors increasing supplier power are the converse to those for buyer power and the supplier power is likely to be high where there are concentrated suppliers, high switching cost and supplier competition threat. (Johnson, Scholes, & Whittington, 2008) However, this is not the case for Tesco who has the power over the suppliers. Suppliers are clamoring attention from giants like Tesco to buy their products. Suppliers understand that the purchasing volume from Tesco will be enormous if they clinch on any deal with them.

With this, giant retailers have the overwhelming advantage to dictate the price and if the suppliers do not give in to the price that they are willing to pay, the suppliers are left only with the small supermarket chains that do not give them huge orders. Besides that, suppliers will have to maintain good services and prices with Tesco to sustain the order. This is due to the fact that switching cost from one supplier to another is low and therefore creating stiff competition among suppliers.

With the above explanation, it is clear that Tesco faces low threat from the suppliers as they has much more negotiating power than any others would have. 20 The Power of Buyer Customers are essential for the survival of any business and buyers will normally have strong position when there are only a few concentrated buyers who buy in bulk and low switching cost from one supplier to another is low. (Johnson, Scholes, & Whittington, 2008) In the retailing business, the number of customers is very large and they do not purchase in bulk. Therefore, the buyer’s power is not that strong. However, the switching cost for a buyer is virtually none.

Buyers have the freedom to choose supermarket that can offer good prices since the things that all supermarket sells are almost the same. Fortunately for Tesco that all competitors have a disciplined approach in price setting, partly due to the government regulations. (Tesco Porter’s Five Force Model , 2008)The prices may differ, but it would not be a huge difference. Therefore, it will be more economical for customers to buy all the things they need in one place, rather than hopping around for the retailer that sells the cheapest in certain items. With the mentioned reason, it can be said that the threat of buyer is relatively low. 1 Summary of the 5 Forces Model |Porter’s Five Forces |Level | | |High |Low | |Threat of New Entries | |v | |Competitive Rivalry |^ | | |Substitute | |v | |The Power of

Buyer | |v | |The Power of Supplier | |v | From the above analysis, Tesco clearly has a strong position in the retail industry in UK. The business is attractive to Tesco in UK and Tesco is enjoying the profit from the business. The only high threat that Tesco faces is the threat of competitive rivalry from the rivals. The following statistic shows the market share of the closest rivals that Tesco has. Supermarket in UK |Market Share | |Tesco |30. 6% | |ASDA |16. 6% | |Sainsbury’s |16. 3% | |Morrison’s |11. % | |Somerfield |5. 4% | |Waitrose |3. 7% | |Iceland |1. 8% | (Source TNS cited by BBC 2006) Though Tesco has the largest market share, other retailers are coming up quickly.

Tesco must keep an eye on these rivals so that the threat of substitute will not become high over time. Besides that, the easy entrants to UK also increase the rivalry for Tesco. It is good that Tesco is already well established in UK and the new entrants will require time to build up their experience and network to compete with Tesco. The rivalry forces can also affect the power of buyer. For example, if ASDA does some promotion that can attract the customer, Tesco will lose some of the market share to their rivals.

Therefore, it is clear that Porter’s five forces are inter-related to each other and Tesco must always be alert to any of the forces. The macro environment give an impression of the political, economic, sociological, technological, legal and environmental factors that influence Porter’s five forces. The government regulation on the price setting actually had help Tesco to manage the threat of rivalry and substitute. UK is also getting more open in their economy, hence, Tesco is able to source from the cheaper suppliers from other countries and lower the threat from local suppliers.

The buyers are now consisting of diversified people and Tesco must take into consideration of the new goods that can be sold to this group of people. This is one of the tactics to reduce threat from buyer and rivalry from other retailers who had catered into this new need. In addition to that, Tesco can make use of the latest information technology to sell their products online to avoid the substitute threat from retailers who do online business. Stakeholder analysis ‘Stakeholders are people or groups with a legitimate interest in a company.

Since stakeholders are interested in and affected by the organization’s action, they have a ‘stake’ in what those actions are’ (Williams, C. 2000). Therefore it is important to understand the role stakeholders play in terms of Tesco as a business. Applying the concept of stakeholder mapping provides better understanding to the influence of stakeholders on corporate strategy. This can help to identify potential risk, establish the political background to the area, seek to influence the decision-makers, and provide intelligence about competitors, key themes and area of potential risk.

The availability of the source of power determines the extent of power that can be exerted by both internal and external stakeholder group, this includes key position in the hierarchy or the decision-making process e. g. key managers, key role in strategy implementation or important shareholders; control of strategic resources and possession of know-how, or information. At Tesco, a big part of that is listening to the people around them, and making sure they act on their concern.

Engagement helps Tesco identify new risks and opportunities to ensure that long-term strategy is sustainable. In some instances working with stakeholders in partnership can help deliver shared goals. Tesco acknowledge that customers need to be able to trust their business and customers will only trust them if they do the right thing by all their stakeholders Key players: Tesco core value defines “people” as a critical success factor. People includes customer, employees. Customer question time meeting are invaluable to Tesco.

Staff hears customers’ views on everything from how they are being served in their stores to Tesco’s role in the community. Employee gives feedback through viewpoint staff survey, staff question time sessions and staff forum process. Tesco core value is “treat people how we like to be treated”. And its something Tesco applies firmly to their supplier relationships. Tesco loyalty card scheme – “Clubcard” enables Tesco to better understand their customers and show appreciation to customer for shopping with them.

Tesco creative marketing created more than eight million unique coupon variations of Clubcard mailing, to ensure that each Clubcard member receives the kind of offer that is appropriate for them. (Tesco, 2009) Tesco employs more than 285,000 employees in the UK, besides market-leading package of pay and its employees are entitled to fringe benefits such as childcare vouchers and share schemes. (Tesco. com) Tesco shareholders are also key player, the investor relations team regularly meets analysts from the financial institutions which invest in them or represent Tesco shareholders.

Keep Satisfied – Non-Government Organization (NGO) have less power but bear high interest on the organization, regular meetings with NGO to understand and respond to issues of concern will keep this group satisfied as getting their ‘endorsement’ is critical to the success of a strategy. Keep Informed – Rival retail chain and trade magazine also have influencing power to their corporate strategy, therefore need to take them into account. Minimal Effort – This group exerts low power and low interest. Core Competences

Core competences are defined as the “skills and abilities by which resources are deployed through an organization’s activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain”. (Johnson, Scholes, & Whittington, 2008, p. 97) Tesco’s core competence is to create value for customers to earn their lifetime loyalty. Its success depends on people, the people who shop and work with Tesco. If the customers like what Tesco offer, they are more likely to come back and shop again. And if the Tesco team finds what Tesco do rewarding; they are more likely to go that extra mile to help the customers.

To achieve and sustain the competitive advantage, Tesco own its strategic capabilities which are valuable to customers, rare, inimitable and non-substitutable. Value No-one tries harder for customers like Tesco does. Tesco regularly ask the customers how to make shopping in Tesco better. Tesco creates value by listening to what the customers have told them, understand and be the first to meet their needs. Therefore, Tesco has created the “Every Little Helps” strategy which to ensure the aisles are clear, the customers can get what they want with a good price, customers need not to queue and the staff are helpful and great.

With the aim of become the “best value retailer” and customer deserve best value for money, Tesco had worked hard to find ways of keeping the prices down which has resulted in 17% of price reduction between 2000 and 2006. (Tesco 2009) The company has also been successful in creating a great place to work which is “treat people how we like to be treated”. Staffs are treated with respect, managers who always help, opportunities are provided to get on. The better the staffs are treated, the better services they would provide to the customers. 25 Rarity

To win over other competitors means one company must possess a unique and rare capability. Tesco has been so successful in capturing leadership of the market for online grocery shopping by designing and implementing supply systems that effectively link existing shops with Tesco. com web site. (tutor2u, n. d. ) Although online shopping is a feature of competitors such as Wal-Mart and other competitors, Tesco’s ability to design and deliver a “customer interface” that personalizes online shopping and makes it more efficient has resulted the customers valuing the Tesco. com experience highly.

Customer’s confidence has been built up with Tesco’s reliable and efficient delivery infrastructure from product picking, distribution to customer satisfaction handling. 26 Inimitability To create sustainable competitive advantage over time is not so straightforward and it must be competitively unique and difficult for competitors to imitate. (Kotelnikov, n. d. ) Tesco PLC of the United Kingdom has greater market share than its rival ASDA Group PLC in Britain. The market share for groceries is 31 percent for Tesco PLC compared to 16 percent for Wal-Mart’s Asda chain.

The supermarket chain has introduced a loyalty program called ‘Tesco Clubcard’ that collects detailed market information. (Advameg Inc. , 2008) Tesco pioneered the Clubcard rewards program to gather customer detail information, which it then used to accommodate to specific customer needs and potential desires. When shoppers signed up for the card, their age, gender, and income are automatically provided. Tesco was then able to segment their shoppers based on these factors. As long as the shopper used the card when shopping online or in-store, purchased product information was automatically captured into Tesco database.

This enables Tesco to collect data about the spending habits and product choices of the customers allowing Tesco to target goods and services effectively such as grocery delivery services. (Knowmore. org, 2008) Apparently Tesco has done significantly better than competitors in winning customer’s loyalty. 27 Non-substitutability In order to maintain a big market share in this competitive environment, Tesco has to provide value to customer and possess competence which is non-substitutable over time.

Hence, Tesco has evolved from merely food supply store (Tesco Express and Tesco Metro) to a wide range of food and non-food provider (Tesco Superstore, Tesco Extra and Tesco Homeplus). In addition to a variety of store formats, Tesco also provides a broad appeal by continually innovating and investing in new lines to increase options for customers. “From Value to Finest and lifestyle ranges like Organic, Free From, Healthy Living and Wholefoods, our various own brands enable customers to buy products to compliment their lifestyle.

Our nutritional ‘signpost labeling’ aims to provide customers with the key information they need to help them choose a balanced diet. ” (Tesco 2009, The recent recession has shown a new challenge to Tesco because although customers tend to shop around more for the best prices when times are hard but it doesn’t mean they want to compromise on quality of the shopping trip or on choice. “That is why last year we made the biggest change to our range in a decade, launching around 500 new products as part of our ‘Discount Brands at Tesco’ initiative. (Tesco 2009) This new range of products enables customer to match their budget without compromising on quality or choice. This act managed to retain the customer to continue to stay on Tesco. Core Competencies need to be flexible and evolve overtime with adaptation to the environment. As a business evolves and adapts to new circumstances and opportunities, so its core competencies which underpin the success will have to adapt and change. With the capabilities of which are valuable to customers, rare, inimitable and non-substitutable, Tesco manages to sustain as British largest retailer over its competitors.

Conclusion Today, companies operate in a dynamic global environment whether they are domestic or international players. In order to stay competitive, companies need to innovate. ‘Innovation requires pressure, necessity and even adversity. The fear of loss often proves more powerful than the hope of gain’. (Porter, 1999,p. 164). In these changing times, Tesco has been able to maintain their position as Britain’s number one retailer through innovative approaches in all aspects of their business, from customers to employees to supply chain management.

The dynamic macro environment that Tesco UK operates in provides both opportunities and threats. The present economic situation in UK is an important indicator that would and is affecting Tesco’s operations. Though the country has been experiencing high unemployment rates presently, recent statistics show an improvement in sales figures which is an indication for future growth. Changes in consumer behavior patterns and socio cultural changes such as increased migration will no doubt play an important role in creating strategies to have a sustainable competitive advantage for the company.

Through Porters 5 Forces Model, we have gained a better understanding of Tesco’s competition. The biggest threat is the existing rivalry in the UK between the supermarket giants such as Asda, Sainsbury, Safeway, Marks and Spencer ad Tesco. Price competition is still the main form of competition existing within these giants. However, Tesco has understood the importance of their stakeholders, mainly consumers and employees and focused their strategic direction towards creating a loyal consumer and employee base with long term commitment.

Constant changes to meet customer demands and high response to consumer feedback are important core competencies of the company. Value for money and being able to cater to all market segments have also been vital in maintain their competitive advantage. With the identification of these competencies and the environment analysis, Tesco now could align their future strategic direction to achieve long term sustainable growth as a responsible leader in the UK retail industry. References Johnson, G. , Scholes, K. , & Whittington, R. (2008). Exploring Corporate Strategy.

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