Value chain analysis of Tesco
This is a comprehensive value chain analysis of Tesco. Tesco is one of the largest retailers in the world. It is a British company, headquartered in Hertfordshire, England. It has been implementing a value chain transformation strategy for several years, focusing on enhancing its customer service and operational efficiency.
Primary activities in Tesco’s value chain
These are the activities that go directly into the creation of a product or the execution of a service (Stobierski, 2022). These are inbound logistics, operations, outbound logistics, marketing and sales, and service.
Tesco’s inbound logistics
Inbound logistics is the first part of discussion in this value chain analysis of Tesco. Tesco uses data analytics to track products and forecast demand, following which it places orders with suppliers. It works with many suppliers and partners around the world. These suppliers grow, manufacture, and package products for it.
Tesco has several warehouses and depots in the UK that handle the supply chain. It stores the products received from the suppliers in those warehouses and later they are distributed to various individual Tesco stores in the UK.
Tesco operates around the world and has over 4600 stores (Bedford, 2022). It has different physical store formats, namely Express, Metro, and Extra. However, Metro stores are in the process of being rebranded to the other two formats. Some of its stores are open 24 hours a day and seven days a week. However, the opening times of some others are usually 6am or 7am until 10pm or 11pm.
Tesco’s outbound logistics
Outbound logistics is the process of transporting goods from the stores to the customers. Customers usually visit Tesco stores to do their grocery shopping, and therefore, the company does not have to deliver the in-store purchased items to the customers’ doorstops.
However, Tesco has online shopping and delivery systems. It also has Click + Collect system as well whereby customers can collect their shopping (at least worth £25 in the UK) from a collection point at the cost of £1.50. Tesco’s home delivery system requires customers to spend at least £40 which is slightly higher than what is offered by some of its competitors.
Tesco’s marketing & sales
Marketing and sales are the functions that enable retailers to grow their business. Tesco uses a variety of digital and traditional marketing tools, and data analytics to attract potential customers and build long-term relationships with them. It invested £81.15 million in advertising in the United Kingdom in 2020 (Statista, 2021). However, some of its adverts in the past were criticized for containing misleading information and discriminatory tone (Yeates, 2021).
Service is an import area of discussion in this value chain analysis of Tesco. It refers to after sale activities. Tesco’s after sale services include handling customer complaints, returns, and exchanges. It wants to provide a better customer service experience. In the UK, customers who are unhappy with their purchase, can return the product/s with a proof of the purchase within 30 days to receive a replacement or refund (Tesco, 2022).
Secondary activities in Tesco’s value chain
Secondary activities are those that help primary activities become more efficient (Stobierski, 2022). In other words, these activities are there to create competitive advantages for a company.
Tesco’s procurement function includes sourcing the right suppliers, who can supply products at the best possible price. The company looks for suppliers that can help it reduce costs, as well as suppliers that can add value to the products by producing different types of packaging.
Tesco works with many suppliers and partners. Green (2020) reports that it has reset the relationships with them over the last many years. It works very closely with them to ensure that all products, particularly more popular products get onto the stores and shelves on time. However, many analysts criticise it for putting excessive pressure on the suppliers to provide it with discounts. Similarly, the retailer was found in the past knowingly delaying money to the suppliers to improve its own financial standing.
Tesco’s technology development
Tesco has used technology very well. Self-checkout is just one example which is indeed a basic one. Its use of data analytics in the form of ‘Tesco Clubcard’ has been very impressive. It has in fact taken the use of technology to the next level. Iddenden (2021) reports that a Tesco store in Holborn (London) became the first cashless store which is now fitted with cameras and other equipment to function as an autonomous supermarket. This decision has been made to compete with Amazon efficiently.
Tesco’s human resource management strategy
There are over 360,000 people who work with Tesco. Keeping work life balance in mind, Tesco offers flexible job opportunities. It also has different programs and support services to help the colleagues. It is worth mentioning that it is building a more diverse workforce, both in terms of ethnicity and gender which reflects the demographics of the British society today.
The last element of this value chain analysis of Tesco is the infrastructure. The infrastructure function of a retailer includes planning, general management, financing etc. Tesco is listed in the London Stock Exchange to sell its shares to generate finance to support its operations. It has plans to expand further globally though it closed stores in the UK and closed operations in some countries in the past. Likewise, it is focusing on premium products under new strategic priorities.
This value chain analysis of Tesco reveals that the retailer has the potential to significantly shape the future of retailing and e-commerce. It also highlights how the company is investing in new technologies, including AI to support its business operations and value chain. However, it is worth noting there are some limitations within the value chain that it needs to address efficiently to create competitive advantages.
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Last update: 11 April 2022
Bedford, E. (2022) Tesco’s number of stores worldwide 2008-2021, available at: https://www.statista.com/statistics/238667/tesco-plc-number-of-outlets-worldwide/ (accessed 11 April 2022)
Green, W. (2022) Tesco ‘completely reset’ relationships with suppliers, available at: https://www.cips.org/supply-management/news/2020/april/tesco-completely-reset-relationships-with-suppliers/ (accessed 11 April 2022)
Iddenden, G. (2021) Tesco introduces autonomous store system to compete with Amazon Fresh, available at: https://www.chargedretail.co.uk/2021/07/02/tesco-introduces-autonomous-store-system-to-compete-with-amazon-fresh/ (accessed 08 April 2022)
Statista (2021) Tesco’s ad spend in the UK 2018-2020, available at: https://www.statista.com/statistics/549738/tesco-uk-ad-spending/ (accessed 10 April 2022)
Stobierski, T. (2020) What is value chain analysis, available at: https://online.hbs.edu/blog/post/what-is-value-chain-analysis (accessed 10 April 2022)
Tesco (2022) Returns policy and refunds, available at: https://www.tesco.com/help/returns-policy/ (accessed 09 April 2022)
Yeates, C. (2021) Tesco’s Christmas advert sparks over 1,500 complaints as viewers blast Santa’s Covid vaccine pass, available at: https://metro.co.uk/2021/11/15/tesco-christmas-ad-sparks-over-1500-complaints-over-santas-covid-pass-15605801/ (accessed 11 April 2022)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.