Macro environmental analysis related to Tesco Supermarkets
i. Background, history and market position:
The study aims to cover various kind of details related to the organization that is the TESCO supermarkets. The whole supermarket industry as well as internal affairs of the organization shall be considered here in order to reach out to different kind of conclusion related to the financial strength and performance made by the organization (Rogers, Ghauri & George, 2015). Tesco is the biggest (super)markets in the UK and can be depicted to being one of the biggest sustenance products and commodities providers on the planet. Tesco store set up in the midst of the year of 1919 when Jack Cohen, the sole proprietor of the whole big group began offering different kind of food and usable items from a inventory inside the market of Brixton which is located within the political hemispheres of London. Tesco PLC holds a great and respectable place between the daily commodity retailers in England, with a coverage in the overall industry that almost equals to around 15 percent (Aditjandra, 2013). In 1930's the Tesco mark keeps on rising and Mr. Cohen has chosen to make a larger kind of headquarter warehouse inside of the northern part of the whole of the city of London, and in 1932 Tesco turned out to be an absolutely private operated organization (PLC). The organization places itself in the market position where its sells commodities at competitive prices. The organization belongs to both the between of the two quadrants of high quality and low prices. Somehow the organization manages to however sell off the high quality mostly good at low prices.
ii. Products and services
Tesco has begun the organization with the role of a supermarket, however, has subsequently ventured by selling off various kind of retail items of daily consumption. Tesco has upgraded each of its various of the stores with an large section of good managers and leaders, which has included insurance and social protection products, travel packages, and telecommunication packages services, money related and different and several kind of other items (McKinnon & Ge, 2016). Tesco additionally has the powerful oil retailing business. On the other hand, it can be mainly said that Tesco is always present inside the store business and furthermore the different markets firms that they own and operate, being differentiated enormously through them reassess period.
iii. An external analysis
The macro environmental analysis related to Tesco shall be conducted with the help of PEST analysis. The PEST helps in portraying out the details related to each of the factors in which the organization operates.
PEST Analysis enables associations to take better business choices and enhance proficiency by concentrate different components which may impact a business, for example, political, monetary, social, and innovation.
Different kind of external factors
The political factors can be said to be much supportive in case of the country of UK (Fayard, 2015). The political party seems to be in support of the organization and this fact helps a lot in the proper functioning of the organization.
The economic condition of the UK can also be said to be favorable, thus proving about the fact that the organization and the whole of the supermarket industry get a good return from the investments that are taken up by them.
The social factors also prove to be much supportive to the business. The overall mindset of the nation is much progressive as compared to people of other nations. This fact helps the organization to effectively carry on with their business (Lucio & Stuart, 2014). Thus this factor also proves to be a much of positive for the overall operation of the organization.
The Technological factor which has had the most effect on Tesco, which has seen the lift to utilize the new innovation, for instance, the web, where their client can shop online and they can consequently give a conveyance administration.
The micro environmental factors of the organization shall be justified and explained with the help of Porter’s Five forces analysis model.
Porter's five powers show, alludes to a structure in view of the aggressive examination, presented by Harvard Business School Prof. Michael E. Porter. The system is an outside-in methodology instrument for the specialty unit that assesses the allure (gainfulness) of an industry
Figure1: Porter’s Five forces model
- Threat of entry- The industry also suffers from threat of new entry but not much as compared to other industries due to barriers and costs involved with the business. Thus it can be seen that competition remains low most of the time.
- Bargaining power of suppliers- The supply business which is ruled by the couple of associations, for example, Tesco. The providers have the exclusive item contrasts which are of one of a kind highlights of pictures that make it feasible for the business to purchase somewhere else for instance (De Kervenoael, Hallsworth & Clarke, 2016). The enormous brand nourishment providers that depend on the balance the purchaser energy of the bigger general store.
- Threat of substitutes- There are some of the other rivals also in the market. However, the TESCO being a huge organization, it does not have too much worry about the substitutes as it supplies the goods at much low or competitive prices (Quattrone, 2016). Some of the biggest threats are Aldi, Waitrose and ASDA.
- Bargaining power of customers/buyers- The purchaser control is packed in a couple of hands. It can be said that the items are undifferentiated and so the purchaser will win a kind of benefits by lowing the exchanging costs. The purchasers know about elective maker costs. It can be said that buying power are much in the hands of buyers and so the overall demand made by them decides about the fact of pricing.
- Industry Rivalry- The organization has various of the numerous kind of rivals. The low industry growth rate is also seen in this industry. The high fixed or storage costs toppled with low in differentiation or the switching of costs, the high tactical stake and the tall existing barrier makes it tough for the entry of farms in the industry. Thus predominantly there are lesser number of organization. Thus the rivalry is less and prices are decided on an autonomous manner by keeping at par with the MRP limits.
Difference of the measures of comparing financial performance:
The main analysis of the organization shall be primarily based upon the Gross Profit ratio and the return on assets ratio. It can be said that the two kind of ratios shall help in understanding the basic performance difference between that of Tesco PLC and Morrison Supermarket PLC, another supermarket operating in the same industry within the political premises of UK (Cavender & Kincade, 2015).
However, in order to get a deeper analysis related to the financial stance of the two business organization, third kind of comparative apparatus, that is the Net profit ratio has also been calculated and shown in there in order to get a better understanding of the whole facts and figures related to the financial performance of the two companies during the two financial years of 2015 and 2016.
Gross Profit Ratio
Net Profit Ratio
Morrison (Wm) Supermarkets PLC
Financial year 2015
Financial year 2016
Figure 2: Gross Profit ratio
Analysis: It can be seen that in the financial year 2015, the organization that is Tesco, the gross profit ratio was lying at a low percentage of -9.22. While in the same year, the gross profit ratio of Morrison Supermarkets PLC has been accurately at around 4.53. Thus in this specific year, this organization has been better off than the organization that has been chosen here. While in the next financial year, it can be noticed that the Tesco organization has made the gross profit up to 0.25. While the Morrison supermarkets have been able to make it down to around 1.38. In an alternative respect the performance of Tesco has improved from the previous year as compared to its rival though it's net amount of gross profit in 2016 may be low.
Return on assets ratio
Return on assets Ratio
Morrison (Wm) Supermarkets PLC
Financial year 2015
Financial year 2016
Figure 3: Return on assets ratio
Analysis: It can be seen that in the financial year 2015, the organization that is Tesco, the return on assets ratio was lying at a low percentage of -12.17. While in the same year, the return on assets ratio of Morrison Supermarkets PLC has been accurately at around -7.65. Thus in this specific year, this organization has been not better off than the organization Tesco here. While in the next financial year, it can be noticed that the Tesco organization has made the gross profit up to 0.31. While the Morrison supermarkets have been able to make it up to around 2.4. In an alternative respect the performance of Tesco has improved from the previous year as compared to its rival though it's net amount of return on assets in 2016 may be low as compared to Morrison.
It can be recommended that the organization has to carry on with the business in the most good manner. It can be said that the prophets in the recent phase that is the 2015 and 2016 phase, the organization has not been able to do well in the industry and perform good. They have to take various kind of steps and make of new innovative things in order to persuade more customers and attract more in order to bring boost in their overall sales (Sankaranarayanan & Ray, 2017). It has also to be further said about the fact that the organization has been encountering various kind of cost and wastage of resources at a large amount. The various kind of techniques has to be applied and the things have to be better force seen in order to avoid any kind of waste and waste efforts.
The organizational culture has to be developed in case of Tesco. The culture has to be made positive and employees need to be made better off in order to increase their participation and their interest towards work. This shall helps in instilling a positive work environment and making the culture more rich. If the employees are trained in a good manner, they shall be able to perform better and also shall be able to work smoothly in the good organizational culture. This shall help them in maintaining good and positive behaviour towards their work.
Strategic and operational recommendation:
Based on the strength, weakness, opportunity and threats offered by the organization, the overall changes have to be entertained. The organization has to train up more people in order to reduce the cost of paying off the salaries to the few available experts. They also need to keep constant to a particular technology and make use of low prices cost materials in order to earn greater amount of constant profits.
The operating strategy has to be managed properly. Any kind of wasteful activities have to belemented and resources have to be smoothly used and efficiently kept and maintained. The works and activities have to accurately arranged and organized and extra costs have to be cut off in order to inherit a good operational strategy.
Kaizen TQM approach for development of TESCO
It can be said that the overall development of the organization has to be made by understanding the overall behavioral patterns of customers with the help of the classical behavior theories. As per the classical and operant conditioning theory, it can be said that the activities shall go on with interest among employees if the work is reinforced. If the activity is punished for the consequences, then the activity shall soon end. This kind of strategy can be used in order to reduce any kind of wastage of the resources of the organization (Schaltegger & Burritt, 2017).
The organization can succeed in an uncertain environment by keeping up to the various needs that have to be rough in its operations and other aspects in order to ensure good level of performance and good returns.
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De Kervenoael, R., Hallsworth, A., & Clarke, I. (2016). Macro-level change and micro level effects: A twenty-year perspective on changing grocery shopping behaviour in Britain. Journal of Retailing and Consumer Services, 13(6), 381-392.
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Sankaranarayanan, V., & Ray, S. (2017). A Content Analysis of Sustainability Reporting to Frame the Heterogeneity in Corporate Environment Sustainability Practices. World Academy of Science, Engineering and Technology, International Journal of Environmental, Chemical, Ecological, Geological and Geophysical Engineering, 11(4), 338-344.
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Eldenburg, L. G., Wolcott, S. K., Chen, L. H., & Cook, G. (2016). Cost management: Measuring, monitoring, and motivating performance. Wiley Global Education.
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Fayard, D. (2015). A CASE FOR USING A FIXED-COST FUNDING MODEL FOR STATE-FUNDED HIGHER EDUCATION INSTITUTIONS: A MANAGEMENT ACCOUNTING PERSPECTIVE. AAUA, 30(1), 27-33.
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