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Essay: Tesco SWOT analysis

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  • Subject area(s): Business essays
  • Reading time: 5 minutes
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  • Published: 9 March 2021*
  • Last Modified: 1 August 2024
  • File format: Text
  • Words: 1,281 (approx)
  • Number of pages: 6 (approx)
  • Tags: SWOT analysis examples

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Strengths

TESCO have secured commercial standing within the global market place winning Retailer of the Year 2008 at the “World Retail Awards.” This prestigious recognition not only reinforces Tesco’s strong market position but also serves as a powerful tool for marketing campaigns aimed at driving future growth and sustainability. The award highlights Tesco’s excellence in retail operations, customer service, and innovation, which can attract new customers and retain existing ones.

In an environment where global retail sales are showing decline or level performance on a like-for-like basis, TESCO Group have published sales gain of 13% for UK markets and 26% growth in international markets. This impressive performance underscores Tesco’s ability to adapt to challenging market conditions and capitalize on growth opportunities both domestically and internationally. The significant international growth indicates a successful expansion strategy, particularly in emerging markets where retail potential is substantial.

As a business looking for continued expansion, TESCO have reserve funds of credit coupled with income derived from property portfolio development funds. These financial reserves provide Tesco with the flexibility to invest in new markets, develop innovative products, and enhance its supply chain capabilities. The company’s strong financial position also allows it to weather economic downturns and maintain its competitive edge.

Expanding Strengths with Academic Theories

The Resource-Based View (RBV) theory can further explain Tesco’s strengths. This theory suggests that a firm’s unique resources and capabilities are critical to achieving competitive advantage. Tesco’s robust financial reserves, strong brand equity, and extensive global reach are valuable, rare, and difficult-to-imitate resources that contribute to its sustained success.

Weaknesses

TESCO Finance profit levels were impacted through bad debt, credit card arrears, and household insurance claims. This financial strain indicates vulnerabilities in Tesco’s financial services arm, which could undermine overall profitability. Addressing these issues requires robust risk management strategies and innovative financial products that meet customer needs without exposing the company to excessive risk.

TESCO’s position as a price leader in UK markets can lead to reduced profit margins in order to retain the key price points on must-have commercial items. While being a price leader attracts price-sensitive customers, it can also erode profit margins, particularly in a competitive market with rising operational costs. Maintaining a balance between competitive pricing and profitability is crucial for long-term sustainability.

Grocer outlets are not set up to operate as specialist retailers in specific areas of product, which can be capitalized on by other smaller bespoke retailers. This generalist approach limits Tesco’s ability to cater to niche markets effectively. Smaller, specialized retailers can exploit this weakness by offering superior expertise and tailored product ranges, potentially drawing customers away from Tesco.

Whilst current economic conditions suggest TESCO’s key value message will succeed, there is a weakness in non-essential, mid to high ticket price items which will suffer from the rising cost of living and lower disposable incomes. The economic downturn and reduced consumer spending on discretionary items pose a significant challenge. Tesco needs to diversify its product offerings and enhance value propositions to mitigate this risk.

Expanding Weaknesses with Academic Theories

Porter’s Five Forces framework can be used to analyze the competitive pressures Tesco faces. The threat of substitutes (from specialist retailers), bargaining power of buyers (due to price sensitivity), and industry rivalry are critical forces impacting Tesco’s strategic decisions. Addressing these forces requires a focus on differentiation, cost efficiency, and strategic partnerships.

Opportunities

Statistics suggest TESCO is the third largest global grocer which indicates a level of buying power to ensure mainstream economies of scale. This significant buying power allows Tesco to negotiate favorable terms with suppliers, reduce costs, and offer competitive prices to customers. Leveraging this advantage can enhance profitability and market share.

The acquisition of Homever provides the opportunity to develop the brand through Asia, specifically South Korea, and further grow international markets for the group. Expanding into Asian markets offers substantial growth potential due to the region’s growing middle class and increasing demand for high-quality retail experiences. Tesco can capitalize on local market knowledge and tailor its offerings to meet regional preferences.

The development of Tesco Direct through online and catalogue shopping will grow the use of technology, providing the launch pad for larger non-food based products with moderate to high margin returns and less focus on sales and margin per foot return to space. Embracing e-commerce and digital transformation can drive significant growth in non-food categories. Investing in technology and logistics infrastructure will enhance customer experience and operational efficiency.

TESCO Mobile have grown ¼ million customers in 2008 and moved into profitable status suggesting further growth and development within this technological area can be developed. The mobile sector presents a lucrative opportunity for diversification. Building on this success, Tesco can expand its mobile services, introduce new digital products, and integrate these offerings with its core retail business to create synergies.

Expanding Opportunities with Academic Theories

The Ansoff Matrix can be applied to Tesco’s opportunities. This strategic planning tool helps identify growth strategies by considering market penetration, market development, product development, and diversification. Tesco’s focus on new product development and market expansion aligns with the matrix’s principles, driving sustained growth.

Threats

UK and American markets have been affected by economic concerns through the “credit crunch.” Lower available income will impact and strategic focus may need to change to lower priced basic products with less focus on higher-priced brands suggesting a switch in price architecture. Adapting to changing consumer behavior and economic conditions is essential for maintaining market relevance.

Rising raw material costs from both food and non-food will impact profit margins overall. Managing these rising costs requires strategic sourcing, efficient supply chain management, and possibly price adjustments. Collaborating with suppliers to find cost-effective solutions without compromising quality is vital.

Sourcing changes to Far East locations with regards to exporting restrictions on some non-food product areas will reduce margin rates on products with already low margins. Navigating international trade regulations and tariffs demands strategic planning and risk mitigation. Exploring alternative sourcing locations and enhancing supply chain resilience will be critical.

Changes to consumer buying behaviors require further analysis – as technology develops consumer buying patterns change which will result in product areas requiring evaluation. Understanding and anticipating these changes can provide a competitive edge. Investing in consumer research, data analytics, and agile marketing strategies will help Tesco stay ahead of trends and meet evolving customer needs.

For TESCO, there is a persistent threat of takeover from the market leader Wal-Mart who has both means and motive to pursue such action. Defending against potential takeovers involves maintaining strong financial health, innovative strategies, and a loyal customer base. Building strategic alliances and focusing on core competencies can also fortify Tesco’s position.

Expanding Threats with Academic Theories

Disruptive Innovation Theory, proposed by Clayton Christensen, can be applied to the threats faced by Tesco. This theory explains how new technologies or business models can disrupt established industries. Tesco must adopt a proactive approach to innovation, investing in new technologies and business models to stay ahead of potential disruptions.

Conclusion

In conclusion, Tesco’s SWOT analysis reveals a company with significant strengths and opportunities, balanced by notable weaknesses and threats. The company’s strong market position, innovative capabilities, and strategic acquisitions position it well for continued growth. However, it must navigate challenges such as financial vulnerabilities, competitive pressures, and economic fluctuations.

By leveraging its strengths, addressing weaknesses, capitalizing on opportunities, and mitigating threats, Tesco can maintain its leadership in the global retail market. Applying academic theories such as the Resource-Based View, Porter’s Five Forces, the Ansoff Matrix, and Disruptive Innovation Theory provides a deeper understanding of the strategic landscape and informs the company’s decision-making process.

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