Swot, Pestel, Porter's Five Forces and Value Chain Analysis of Tesco

Introduction

This report is aimed at critically analysing the macro, meso and micro business environment of Tesco, one of the largest food and grocery retailers in the world, operating around 4,331 stores. Strategic evaluation tools such as PESTEL, Porter's Five Forces, SWOT and Value Chain analysis have been used by researchers in order to achieve this aim.

Tesco – Company Overview

Tesco is among the largest food retailers in the world with revenue in excess of £54 billion in 2009 and employing over 470,000 people . They operate approximately 4,331 stores in 14 countries around the world. The company operates primarily in the USA, Europe and Asia and their Head Office is based in Hertfordshire, UK. According to Datamonitor (2010), the commercial network portfolio of Tesco comprises : over 960 Express stores which sell approximately 7,000 products including fresh foods at suitable localities ; 170 Metro stores which sell a variety of food products in town and city centres; and 450 superstores which sell both food and non-food items including books and DVDs. Tesco also provides online retailing services through their website tesco.com and Tesco Direct . In addition, they provide broadband I nternet 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); however, over the decades it has evolved to become the market leader within the UK food retail segment (Datamonitor, 2010). The comparative positioning of Tesco's market share with respect to other leading players in the market has been illustrated as follows (Euromonitor, 2010):

Fig 1: Share of Leading Players in UK Food Retail Market

3. PESTEL Analysis

The PESTEL framework below analyses the dynamic and unpredictable environment in which Tesco operates by identifying the forces that have the most impact on Tesco's performance:

Political

•China's accession to the WTO has promoted a free flow of foreign trades by removing all barriers encouraging Western companies, including Tesco, to make way into the world's most profitable market encompassing over 1.3 billion people (Straits Times, 2010). In 2009 an agreement was signed by Tesco to set up a premeditated series of joint ventures for the development of shopping malls in China. This joint venture included three malls: Anshan, Fushan and Qinhuangdao. Furthermore, 18 new hypermarkets are expected to open in China by 2010 (Tesco, 2009). The growth of Tesco's international business segment is on the rise and it is predicted to account for one quarter of the company's profit.

•Promotion of free trading blocs by governments to benefit from globalisation has been presented in the literature (Lynch, 2003). Immersion of 10 further countries into the European Union (EU ) took place in 2004 promoting trade between Western and Eastern European countries (BBC, 2009). This has provided Tesco with a platform to expand its retail network across the EU.

Economic

•Economic factors are a matter of concern for Tesco since they impact directly on the buying behaviour of customers. Although the UK economy was declared officially under recession in 2008, the government's substantial reduction in interest rates helped to minimise further rises in unemployment during 2009 (Euromonitor, 2010). As a result of this, the spending power of consumers is again on a steady rise as they are more confident about their current financial situation. However, there is still a lot of financial uncertainty meaning that consumers are likely to spend less on premium products, encompassing organics and ready prepared meals, which will adversely affect both sales value and margins (Keynote, 2010).

•However, the positive aspect of recession is that the customers eat out less and eat more at home which provides opportunities for grocery retailers like Tesco to increase their output (Guardian, 2010). It must be noted that food is the last thing that customers will cut back on. The percentage of overall consumer spending on food has risen considerably over the years, as shown below (Euromonitor, 2010):

Fig 2: UK Spending on Food as % of Overall Consumer Spending 2004 to 2008

The economic downturn has been brought to light with the assistance of the following GDP growth graph since 1989 (Mintel, 2009):

Fig 3: UK GDP Growth 1989-2009

Social

•An