This report analyses the strategic situation of Tesco PLC, evaluating external pressures using PESTLE
(Brexit effects, inflation, sustainability requirements) and Porter's Five Forces (competitors from
discounters), and internal strengths through RBV (Clubcard statistics, automated supply chains).
Although retaining market leadership, Tesco is under margin pressure from its mixed cost-differentiation
strategy, although sustainability efforts (net-zero ambitions, SDG congruence) build brand strength.
Three are the primary recommendations: (1) AI-based loyalty growth to set deeper customer insights
(SDG 9), (2) local supply chains to save cost and emissions (SDGs 8/12), and (3) circular economy stores
to lead sustainable retailing (SDG 12). Yet, Mintzberg's cultural critique identifies potential barriers to
implementing Tesco's hierarchical structure, requiring agile transformation and change management.
While Tesco's size and resources offer advantages of competitiveness, success lies in balancing
operational efficiency with innovation, transforming organizational culture to allow strategic change,
and harnessing sustainability as both a differentiator and value driver within a changing retail
environment. The results place Tesco in a position to achieve resilient growth if implemented effectively.
1.0. Introduction
This report examines Tesco's strategic situation based on recognized frameworks like PESTLE and the
Resource-Based View to determine its fit against Sustainable Development Goals. Tesco, the UK's
biggest supermarket retailer, has proved to be a resilient player in post-COVID recovery and has set
ambitious sustainability goals like becoming net-zero by 2035. The retailer operates in a very
competitive grocery market, under pressure from cheaper rivals and changing customer attitudes. The
analysis will evaluate Tesco's internal and external environments, strategy, and future growth
recommendations. The report is arranged according to the assignment requirements, starting with
environmental analysis, then internal resource analysis, strategic suggestions, and critique by applying
Mintzberg's schools of thought. Each part draws from the earlier conclusion to give a holistic assessment
of Tesco's strategy.
2.0. Environmental Analysis
2.1. Macro (
Politically, Brexit border barriers have raised EU import prices by 24 percent, prompting Tesco to review
the efficiency of the supply chain. The UK sugar tax has also required the reformulation of products,
which raised operational costs. Economically, inflation rose to 9.1 percent in 2023, tightening profit
margins as consumers demand value (Chen, 2022). The conflict in Ukraine also disrupted grain supplies,
fuelling cost pressure. These drivers urge Tesco to balance supply chain resilience with pricing strategies
to remain competitive. The subsequent section analyses social and technological factors affecting
Tesco's business.
Social and technological trends are transforming Tesco's market strategy. Online grocery sales post-
pandemic now account for 15 percent of Tesco's revenue, evidence of sustained demand for digital
convenience (Edyvean, 2025). Simultaneously, consumer demand for plastic reduction has increased, so
Tesco has invested in green packaging. From a technological perspective, Tesco has used AI to drive
supply chain automation, and 20 percent of its costs have been lowered through warehouse robots ( Kar,
et al., 2021). These developments make it cheaper but demand continuous capital outlays. These trends
reflect the demand for Tesco to balance innovation to suit changing consumer habits. The concluding
section discusses environmental and legal factors.
Environmental and regulatory factors also complicate Tesco's strategic environment. The company has
set net-zero goals under SDG 13 and launched water stewardship programs in areas of drought to
reduce climate-related risks (Peeroo, et al., 2023). From a legal perspective, the Competition and
Markets Authority (CMA) polices retailer-buyer power distortions that could restrict Tesco's flexibility in
pricing (Meng, 2024). Compliance with these regulations and pursuing sustainability imperatives call for
judicious allocation of resources. Overall, these PESTLE factors reinforce the complex nature of
challenges Tesco has to deal with to maintain market leadership. The next section will examine industry-
specific competitive forces.
2.2. Key Drivers
Two key drivers heavily influence Tesco's strategic priorities. Firstly, digital transformation, AI uptake,
and e-commerce growth transform operational effectiveness and customer engagement. Secondly, cost
inflation, especially in energy and labor, puts pressure on profit margins and requires pricing measures
(Jones, et al., 2022). These drivers require proactive measures like investing in automation to counter
labor costs and boosting online platforms to cater to increased digital demand (Meng, 2024).Cost
control and balancing technological advancement will be crucial if Tesco is to remain competitive to
counter changing market challenges. The dynamics among these drivers will largely determine the
company's strategic decisions in the future.
2.3. Industry (Porter's 5 Forces)
The UK supermarket industry is a high entry barrier industry with a very low threat of competition from
new entrants. The industry has a large capital requirement to invest in store chains, distribution, and
information systems (Raath, and Hughes, 2025). Existing loyalty schemes, like that of Tesco's Clubcard,
also create switching barriers to entry among consumers, discouraging new players ( de Moura, 2021).
Intense rivalry among players already in the industry, especially from discount stores like Aldi and Lidl, is
also prevalent (Woods, 2023). The intense rivalry from these players has compelled Tesco to indulge in
price-matching. The reduced profit margin throughout the industry is a continuous thorn in Tesco's
market share.
Supplier power in the grocery market is moderate since large players like Tesco can take advantage of
large-scale bargaining to secure beneficial agreements yet still rely on a steady supply of quality
products (Jones, et al., 2022). Buyer power is high because buyers are sensitive to price and easily
switch to alternative suppliers. The threat of substitutes is also prominent, including local grocery stores,
meal kits, and delivery services. Generally, the market is moderately attractive because of stable
demand. Still, because Tesco can take advantage of its scale, brand, and efficiency in operation, it can
counteract these competitive forces. The company has to keep innovating to remain ahead of the game
in these tough conditions.
3.0. Internal Analysis
3.1. Resource Audit (RB
Tesco has valuable tangible assets that underpin its competitive strength. With a network of over 4,000
stores geographically dispersed throughout the UK, the company has deep market reach and
convenience to the customer (de Moura, 2021). Its automated depots drive efficiency in the operation,
lowering costs and ensuring the reliability of the supply chain (Chen, 2022). These tangible assets are
supplemented by considerable intangible assets, headed by its 21 million-user Clubcard loyalty program
(Woods, 2023). Its large customer data allows targeted marketing and demand planning, and the trust in
the Tesco brand ensures customer loyalty. These assets combined create tremendous barriers to entry
and underpin long-term market leadership.
The organization's capabilities further enhance its strategic status. Tesco has built solid supplier
relationships, like its Sustainable Dairy Group, that guarantee quality to customer requirements and
environmental sensitivity (Jones, & Comfort, 2021). These alliances make its supply lines more resilient
and assist Tesco's sustainability initiatives (Chen, 2022). The company's capabilities to link technology to
its retail functions, ranging from inventory control to customer analysis, also reflect its dynamic
capabilities to absorb changes in the market (Jones, et al., 2022). Through properly harnessing these
assets and capabilities, Tesco not only keeps its cost efficiency intact, but also generates distinctive value
propositions that rivals find hard to match, thereby maintaining its competitiveness in the tough retail
environment.
3.2. VRIO Framework
The VRIO model tests Tesco's crucial capabilities and assets to gauge their competitive value. The
Clubcard customer data asset passes all VRIO tests (Value, Rarity, Inimitability, and Organization),
offering a persistent advantage through AI-cultivated personalization that competitors cannot simply
duplicate (de Moura, 2021). Likewise, Tesco's automated warehouse system is valuable, unique, and
expensive to duplicate because of large capital outlays, with its organizational process making full use of
the ability. The firm's reputation also passes all VRIO tests, with a decades-long consumer trust that new
market entrants cannot easily achieve. These assets establish enduring barriers to competition.
Yet, some benefits are temporary. Local supply chains are valuable, unusual, and replicable because
competitors can create equivalent alliances. Tesco's sustainable dairy plan is well-structured but not
fully inimitable (Woods, 2023). The firm's e-commerce system, although valuable and structured,
competes with other retailers' digital capabilities (Edyvean, 2025). The following table develops these
five assets further, demonstrating how Tesco has to keep investing in its distinctive capabilities (such as
Clubcard data analysis) alongside identifying where competitors are likely to catch up (such as supply
chain localization). Strategic priorities are based on this analysis to drive market leadership at Tesco.
3.3. Performance Data
Tesco's latest financial and sustainability data reflect its competitiveness and corporate social
responsibility. It delivered 3.2% revenue growth in 2023, outperforming Sainsbury's 1.8%, through
effective pricing and market share gain within a downturn economy (Guo, and Wang, 2021). The
financial results are matched by impressive advancement toward Sustainable Development Goal 12,
with reduced food waste by 50% from 2018 based on better inventory management and redistribution
to the community (Jones, & Comfort, 2021). Both those results reflect Tesco's capacity to balance
business profit and environmental conservation, demonstrating that its cost-efficiency and sustainability
programs generate economic value and positive social benefits. The statistics reinforce how Tesco's
value propositions and waste reduction strategic investments pay dividends in finance and sustainability
metrics.
4.0. Strategic Position
Tesco follows a mixed strategy of cost leadership and differentiation but with different levels of success
in each strategy. The retailer is competitively priced by its Aldi Price Match policy, reaffirming its
commitment to value in light of increased consumer price sensitivity (Haddock-Millar, and Rigby, 2024).
Nonetheless, Tesco's Operating Margin is around 8% below that of discount competitors, so there are
areas of efficiency in its cost base (Haddock-Millar, and Rigby, 2024). The differential in margin implies
that although Tesco is capable of pricing strategically, it does not have a streamlined operational model
that allows discounters to make profits at reduced price points. The firm has to correct this by focusing
on supply chain efficiency and productivity to attain proper cost leadership.
In its differentiation strategy, Tesco deploys both product and ethical differentiators. The "Finest" range,
a premium offering, addresses quality-oriented consumers, eliciting price premiums across principal
categories (Rosnizam, et al., 2020). At the same time, solar-powered stores and renewable energy
investments fall under SDG 7 (Affordable and Clean Energy), producing environmental differentiation ( de
Moura, 2021). These measures support the brand's perception but are limited by customer willingness
to pay a premium across the board. Tesco's task is to balance differentiation efforts and cost leadership
positioning wherein sustainability investments pay both reputational and cost benefits.
Tesco's strategic positioning increasingly embeds Sustainable Development Goals as differentiation
factors. Its packaging-free pilot stores directly work towards SDG 12 (Responsible consumption and
production), addressing increased consumer calls to reduce plastic waste (Raath, and Hughes,
2025).Likewise, efforts to pay a living wage in global supply chains work towards SDG 8 (Decent work
and economic growth), enhancing ethical credentials (Jones, & Comfort, 2021). These SDG-based
projects are currently niche differentiators but place Tesco in a robust position to meet changing
regulatory and consumer expectations. Successful scaling of these initiatives and keeping prices
affordable will decide their long-term strategic contribution and social value to business performance.
5.0. Strategic Recommendations
5.1. AI-Powered Loyalty Expansion (SDG 9)
Tesco must harness its Clubcard data using sophisticated AI analysis to create hyper-personalized
customer propositions, deepening commitment and spending. With engaged customers spending 30%
more (Tesco, 2024), the initiative drives revenue whilst underpinning SDG 9 (Industry, Innovation and
Infrastructure). Machine learning algorithms could anticipate individual spending behavior, allowing
real-time bespoke offers via the Tesco app (Jones, et al., 2022). It requires improvement in data
architecture and compliance with GDPR, but the long-term advantages are increased customer lifetime
value and differentiation from competitors (Peeroo, et al., 2023). The data-based method reduces
marketing waste by targeting advertising more efficiently. As personalization becomes a standard of
retailing, Tesco needs to advance its AI capabilities to keep its first-mover lead on loyalty analysis,
making data a sustainable differentiator that competitors struggle to match.
5.2. Localized Supply Chains (SDG 8/12)
Developing regional supply chains through agreements with UK farmers would save 15-20% of transport
emissions and offset Brexit-related import expenses. It supports SDG 8 (Decent Work) through rural
farm employment and SDG 12 (Responsible Consumption) through shorter supply chains ( Haddock-
Millar, and Rigby, 2024). It could start by introducing regional sourcing hubs with perishable items such
as dairy and produce, where fresh and sustainable are top of mind with consumers ( Kar, et al., 2021).
The strategy has a cost in the short run, but it insulates from global supply network disruption and
capitalizes on increasing consumer demand for local (Edyvean, 2025). Farmers gain from fixed
agreements sharing value. Tesco presses on with pilots in a few regions before expanding, using the
positives in marketing to cement its sustainability leadership over rivals still banked on global supply
systems.
5.3. Circular Economy Stores (SDG 12
Opening 100 pack-free stores by 2026 would make Tesco a circular economy champion, directly
targeting SDG 12 (Responsible consumption). The stores would have bulk dispensers, reusable
containers, and digital tagging, removing single-use plastics from those categories of highest waste,
including dry food and household items (Meng, 2024. Supported by regulatory pressures (UK Plastic
Packaging Tax), consumer desire (60% of customers wanting sustainable alternatives), store redesigns
and consumer education programs are required (Chen, 2022). Trials should first occur in urban
locations with high environmental consciousness, utilizing feedback to iterate the model ( de Moura,
2021). Though a hefty outlay in the first instance, the stores would create PR value and could attract
new customer segments. With time, learnings could feed into the roll-out of reduced packaging across
the entire estate, making it a differentiation strategy and test platform for future sustainable shopping
formats.
6.0. Mintzberg Critique
The strategic proposals to Tesco presume that the company's corporate culture easily allows innovation
and quick implementation. However, a closer look through Mintzberg's Cultural School identifies
potential flaws in that assumption (Meng, 2024). Tesco's past incidence of strategic drift, especially its
slow reaction to the discounters from Aldi and Lidl, best explains how ingrained cultural habits within
large hierarchies tend to resist changes (Peeroo, et al., 2023). The proposed AI and circular propositions
demand cultural traits (tolerance of risk, inter-departmental collaboration) that are at odds with Tesco's
entrenched command-and-control decision-making. Unless the deepening cultural barriers are
overcome, even the best-designed strategies risk paralysis of implementation or shallow adoptions.
This critique exhorts Tesco first to fully transform its organizational culture to execute these strategic
proposals. Mintzberg's work underlines how strategy arises just as out of cultural patterns as of official
planning (Guo, and Wang, 2021). Tesco must create cross-functional innovation teams liberated from
centralist control if it is to dismantle silos, following Mintzberg's configuration theory ( Raath, and
Hughes, 2025) The leadership must also champion experimental mindsets openly to overcome inherent
resistance in the operational core (Edyvean, 2025). The Cultural School alerts us that the past success of
Tesco through centralized efficiency could be its biggest hurdle in driving these transformational
strategies. By reconciling its culture to strategic ambition, Tesco cannot fall into past patterns of slow
adaptation to market changes.
7.0 Implementation Implications
7.1. Digital Strategy
Tesco's digital transformation brings its own set of challenges and opportunities that must be managed
carefully. The growth of AI-based loyalty schemes must counter substantial risks, not least that of GDPR
compliance, from managing large volumes of customer data. Moreover, greater public scrutiny over AI
ethics requires transparent algorithms and open communication regarding data use ( Rosnizam, et al.,
2020). Effectively to deliver this, Tesco must have agile teams in place (Bharadwaj, 2013), allowing fast
iteration within a compliant environment (de Moura, 2021). These multidisciplinary teams would
integrate IT, marketing, and legal capabilities to balance risk with innovation (Guo, and Wang, 2021).
The organizational structure must allow fast decision-making alongside robust data security frameworks.
A successful application will rely on Tesco's ability to reskill its current personnel and targeted
recruitment of AI experts, developing a digital culture integrated with overall retail management.
Phased transformation must occur with measurable criteria to test each phase before the solution scales
to the whole organization.
7.2. Change Management
Implementing Tesco's strategic changes calls for a system of managed change based on Lewin's three-
stage model. The unfreezing process must overcome inertia within the organization through intensive
training programs such as "Planet Champions" to inform workers of sustainability imperatives ( Woods,
2023). The moving process would see pilot circular economy stores launched in targeted locations in
London, utilizing pilot tests to pinpoint operational issues and best practices (Chen, 2022). The
refreezing process must anchor effective changes through reward schemes to reinforce sustainable
behaviors, making them part of Tesco's corporate fabric (de Moura, 2021). Leadership commitment and
open communication are necessary to overcome resistance (Edyvean, 2025). Change agents must be
appointed to promote adoption at all levels, with feedback mechanisms to resolve workers' concerns.
The transformation process will rely on momentum between each stage and evidence of rapid results to
instill confidence in the organization to adopt the new path.
8.0. Conclusion
This in-depth analysis validates Tesco's strategic positioning as a market leader confronting challenging
competitive, economic and sustainability issues. The report has already indicated key external
challenges in inflation, digital disruption, and sustainability expectations through PESTLE and Porter's
Five Forces analyses. In contrast, the Resource-Based View validates Tesco's robust strength through its
Clubcard data, bricks-and-mortar estate and supplier bases. The proposed strategic solutions - AI-driven
loyalty growth, localized supply chains and circular economy stores - build on these strengths to
overcome key weaknesses of inefficiency and lack of differentiation. Yet, as Mintzberg's Cultural School
critique warns, effective realization will demand cultural transformation to overcome institutional
inertia. The digital strategy and change management models offer actionable paths to delivery, although
Tesco must weigh innovation against the realities of operation. Ultimately, Tesco's future depends on its
capacity to marry sustainability with commercial ambition, converting challenges into competitive
strengths and preserving its market leadership status. The analysis validates that despite considerable
headwinds that Tesco must confront, its scale, resources and strategic capabilities set it on a path to
sustainable development if effective delivery of recommended transformations is achieved.
