Industry analysis

The UK retail and grocery market is highly featured by an oligopoly as a result of a few firms such as,
Tesco, Asda, Sainsburys and Morrisons having nearly 75% of the total share (see appendix 1). The
UK grocery market is increasingly growing; it has grown by 3.7% from 2012 and is now worth 169.7
billion. Tesco operates primarily in the USA, Europe and Asia and their Head Office is based in
Hertfordshire, UK. Tesco also provides online retailing services through their website tesco.com and
Tesco Direct. In addition, they provide broadband internet connections and financial services
through Tesco Personal Finance (TPF). Tesco was founded in 1919 and launched its first store in
Edgware, London, UK in 1929 (Tesco, 2010).
Macro environment
PESTEL
There are several factors that can affect the food industry; these include both external and internal
factors. Its important to access the external environment because this gives organisations
competitive advantage and gives them the opportunity to develop flexible strategic plans. For
instance, economically, if there was another economic downturn, this could affect Tescos profits
and its consumers and their prices will continue to rise. Consumers way of living will also change
and they will spend less or go to cheaper supermarkets, Aldi/Lidl, if there was to be a another
economic down turn. Additionally, if minimum wage rose then this will have an impact on Tescos
sales and their sales will drop. Political changes can also impact Tescos sales; for instance the
implementation of Scotlands independence referendum. If this gets implemented the Scottish
government will have to raise their taxes and cut on their spending to create a sustainable economy.
This would mean that the prices of Tesco products in Scotland will increase and this will have a
negative effect on consumers buying behaviour.
Socially, there has been a dramatic change in consumers attitude towards food. These changes
include a bigger awareness to healthy diet, and a shift to organic and fair-trade foods. An increased
awareness of obesity and health issues could affect Tesco if healthier alternatives are being sought
by more by consumers. This shift in eating habits will mean that Tesco will lose its consumers and its
sales will therefore drop. Technology is one of the most blooming changes in todays day and age.
Tescos have to be alert to any technological advancement that can improve their services or
increase their sales. This includes improvements in industrial machineries that they can use which
could increase their sales. Additionally, Tesco.com is growing rapidly, which has provided an
opportunity to the company to attract new customers and reduce the overall cost resulting in more
profit. This area represents a major area of opportunity for Tesco. (More about pest analysis on
appendix 2)
Turbulence
One of the most effective tools that can be used to access the opportunity and the threats in the
external environment is turbulence. The dynamics of the environment is one of the key forces
driving strategic change. Tescos environment is highly changeable because its dynamics of the
environment is complex; it can be affected by internalisation, and other factors like technological,
social and political complications. Furthermore, because of Tescos globalisation, many new
situations/ issues could arise that could impact its sales therefore its considered to be of a high
novelty. The UK food retail industry is subject to a lot of changes but as years have gone by, these
changes have become predictable and customers eating habits were easier to predict despite the
rapid rate of environmental change. This is mainly down to increased visibility of the future which
makes it easier to predict the future (Appendix 3 summarises the spectrum of turbulence). The tool
has highlighted some threats and opportunities. To overcome this turbulence Tesco should take this
as an opportunity and further expand into growing markets in Asia, such as India, Vietnam and
Indonesia and China. By doing so its growth will cover up their loses. Tescos major threat is its
national competition from growing supermarkets like Aldi and Lidl.
Porter 5 forces

Porter 5 forces analysis is a tool that analyses the forces driving industry competition. Tescos is not
and will not be affected by any threats of new entrants and this is because of its sheer size. This
consequently means that any new entrants will have to raise a substantial amount of capital to open
up a new firm. The biggest force driving the competition is currently rivalry amongst existing firms
which poses a threat to Tescos. The UK grocery market is mainly dominated by competitions
amongst the major brands of Tescos, Sainsburys, Morrisons, and Asda, that take a market share of
75% and small chains of Waitrose and Co-ops with a further 10%. Additionally because of Tescos
size, the power of Suppliers is low as suppliers tend to stay loyal to big retailers like Tescos as they
make up a substantial percentage of their shares. Threat of Substitutes refers to especially product
substitution and the threat of consumers switching to the alternatives. In the grocery manufacturing,
this in the form of the consumers substituting the product they need and getting it elsewhere. Tesco
should take its existing scale as an opportunity and open Tesco Express and Metro stores in city
centres and local towns.


Conclusion
Overall, Tescos environment is considered to be of a more turbulence and despite it being highly
predictable its high level of changeability renders the prediction useless. Because of that that, this
tool is not useful because of the markets volatility which means that it is not useful for long term
strategic planning. Additionally, PESTEL tool was useful but the findings were too generic and not
specific enough and limiting in that its scope covers areas that Tesco, or any company, has little
change making potential. Furthermore, future predictions are based on trends and assumptions
rather than concrete evidence. The tool porter 5 chain, like many other tools, has its own
limitations. For instance, the focuses on narrow segment of the industry and understates the
importance of the customers and it has to be used in conjunction with other tool for a
comprehensive overview.

Microenvironment
Value Chain Analysis
Internal analysis is important as it highlights everything that happens inside the organisation.
Analysis tools that explore the dimensions of the internal environment helps the organisation
identify their own strengths, weaknesses and core competences. One of the tools used to analyse
internal environment is value chain analysis. This is comprised of primary and support activities. The
primary activities is sub- divided into; inbound logistics, operations, outbound logistics, sales and
marketing and finally services. Inbound logistics deals with handling goods from suppliers and the
transportation of goods within the company. The inbound logistics Tescos exploit is its top market
position and its economies of scale to get a lower cost from its suppliers. This clearly highlights
Tescos strengths which is further emphasised by their outbound logistics; having a range of
different store types to target the maximum amount of customers. To maximise their sales, Tescos
have adopted the loyalty card scheme and the greener living schemes to accommodate for the
consumers wants.
Competence
Competence is defined as attributes specific to a particular organisation that allows it to over
perform. Tesco is in the lead of the UK retail market and that is mainly because of their customer
services making sure that customers are at the heart of all their services. A human-resource-led
business strategy has helped Tesco to take the lead over its rivals in the fiercely-competitive UK
supermarket sector. Because of that Tescos emphasises on the importance of increased training for
employees.
Tescos use their size to ensure that they have what they need to enter new stores and survive in the
market. This involves taking advantage of the latest technologies and all the network available to
maximise their output. They also use their revenues to ensure that their employees are skilled
enough and to ensure that they have the job security necessary to motivate them to reach their
optimum capacity. Tescos managers have adopted a highly integrated human resource to their
plans ensuring that all their employees are involved in their plans.

Conclusion
Value chain analysis and competence tool are both good tools that have highlighted Tescos main
strengths; its size and its dedication to their customers. However, this tool was quite limited in the
sense that information to the public was limited and because of that it is hard to analyse internal
environment effectively.