Tesco PLC
Tesco PLC is a British multinational company headquartered in Cheshunt, Hertfordshire, United Kingdom. The company was established by Jack Cohen in 1919 as a small stall in East London dealing in surplus groceries. Today, Tesco owns and operates over 6,700 stores in 12 international market and through the Internet, which serve tens of millions of customers each single weak. Together with its subsidiaries, Tesco is currently the third largest retailer in the world operating in 14 countries across Europe, North America, and Asia (Dransfield 2013, p.155). It currently has presence in the United Kingdom, India, China, South Korea, Malaysia, Thailand, Hungary, the Czech Republic, the Republic of Ireland, Turkey, Slovakia and Poland. Tesco currently accounts 30 percent market share in the highly competitive UK supermarket industry. Tesco stores primarily deal in fresh foods and grocery items, general merchandise, clothing, electrical products, household items as well as financial services. Furthermore, the company engages in distribution, data analysis, and property operations.
Tesco’s mission is “To create value for customers to earn their lifetime loyalty.” The retailer aims to expand and diversify internationally to achieve strong and sustainable long term growth. Accordingly, Tesco’s corporate vision and key strategies are “To grow the UK market, and to be a successful international retailer store both in-store and online” (Harrison 2013, p.22). The company’s most recent success is attributable to its innovative tracking system of customer buying habits through the Clubcard scheme.
TESCO PESTEL ANALYSIS
PESTEL Analysis relates to the political, economic, social-cultural, technological, legal and environmental factors that affect the operations of a company in a market.
Political factors
Tesco is a multinational company operating in Europe, North American, and Asia thus doing business in a globalized environment. The promotion of free trade blocs by governments so as to take advantage of the globalized economy has significant benefits to multinationals such as Tesco (Harrison 2013, p.22). The inclusion 10 additional countries into the EU in 2004 boosted trade between Eastern and Western countries to the advantage of Tesco and major global players in the industry. Tesco has found a platform to greatly expand its retail activities across the EU.
Domestically, Tesco is influenced by the political aspects of the UK government, parliament as well as the European Union (EU). The EU Antitrust law limits the ability of large retailers like Tesco to acquire its main UK competitors, which translates that the retailer can only grow organically rather than through acquisitions.
Economic factors
Tesco pays great attention to economic factors because of their significant influence on operational costs, prices of goods, consumer demand levels, and profitability of the company. Unemployment levels have great influence on the consumer buying power because it decreases the ability of customers to purchase Tesco goods and thus its profitability (Harrison 2013, p.23). Also, while the international market is steadily picking up with the potential to increase Tesco’s profits, the retailer is still largely dependent on its domestic UK market. This implies that any slowdown or recession in the UK market, especially the food sector, can adversely affect the bottom-line of the Tesco and its competitiveness due to high exposure to market concentration risks. This was case when the UK economy slipped into recession following the 2008-09 global financial crisis (Harrison 2013, p.23). The spending power of consumers is only starting to pick up due to the ongoing recovery of the economy. However, the financial uncertainty that is abound threatens to make customers cut down their expenditure on premium products, including organic and ready-prepared meals. This has the potential to severely affect the sales volume and profit margins of Tesco.
Social/Cultural factors
An analysis of the UK population reveals that the number of retired people (Baby Boomers) is higher than Generations X and Y. This does not reflect well for grocery and food retailers due to the fact that the ageing population consumes less amount of food compared to the younger generations (Dransfield 2013, p.157). Also, the older generation is less likely to visit grocery shops and supermarkets to purchase food stuffs. While the Internet literacy is relatively low for people aged 65 years and above, it is predicted that the ageing population would consider online shopping more convenient. As such, Tesco would need to tap into online selling and home deliveries so as to benefit from the UK demographics.
Further, current trends reveal that British consumers have shifted towards ‘one-stop’ and ‘bulk’ shopping. This has reacted to this social change by increasing its variety of non-food items for sale as more people focus on added-value products and services. The retailers themselves are changing focus to own-label contribution of the business mix, their supply chain as well as other operational improvements so as to reduce costs. Like many other large retailers in the UK, Tesco is increasingly reluctant to take on new suppliers.
Technological Factors
Technology is an important macro-environmental factor that influences the development and operational process of Tesco products. Technological change is beneficial to both the retailer and customers because it leads to increased efficiency and effectiveness. This results in customer satisfaction at Tesco because products are readily made available, services are personalized and shopping becomes more convenient. Tesco utilizes Efficient Consumer Response (ECR) system, Electronic Funds Transfer Systems (EFToS), EElectronic Point of Sale (EPoS), and electronic scanners to achieve great efficiency in management of food supply chains, distribution and stocking activities (Harrison 2013, p.23).
Environmental factors
Increasing awareness and concern for the environment among people has put pressure on retailers such as Tesco to operate in socially responsible manners. Tesco has recognized this trend within its broad ethical context and adopted measures to conserve the environment by encouraging sustainable production and consumption so as to reduce waste and minimize environmental damage (Dransfield 2013, p.155). The UK government has also increased its tax levies on advertisements of fatty and highly processed food, thus affecting Tesco’s product mix which in turn affects the retailer’s relationship with suppliers and customers.
Legal Factors
A number of government policies and legislations directly impact on the Tesco’s performance. The government policies on monopoly controls and buyer’s power reduction can greatly limit Tesco’s entry into a market because of the stringent license requirements and limitations on access to raw materials. Also, Tesco has been forced to adopt politically correct pricing legislations by offering price reductions of fuel purchases relative to the amount customers spend on groceries at their stores (Dransfield 2013, p.158). However, Tesco has had to raise the prices of other goods in order to compensate for the promoted goods. Government planning laws also affect the trading hours as well as new store development. For instance, in 2012, the South Korean government restricted the Sunday opening hours for all supermarkets thus reducing the sales volumes on the largest trading day in the country.
Bibliography:
HARRISON, A. L. 2013. Business environment in a global context. London: Oxford.
Dransfield, R. 2013. Business Economics. London: Routledge.
