External Environment and its Impact on the Food Retail Industry

This essay defines the external environment of the food retail industry and discusses its impact on the industry. It explores the macro and micro environmental factors that influence the industry and examines the efficiency of the external environment in the food retail industry.

Introduction to Management
Student’s Name:
Student’s ID:

1
The essay will define external environment of the business and its effects on the industry. The
industry it will be looking at is the food retail industry. It will examine the efficiency of external
environment in the food retail industry and discuss how external environment can impact the
food retail industry. The aims of this essay is to define external environment in the organizational
context, and provide insight of the impact of external environment in the food retail industry.
An external environment consist of all the external factors which influences the operations of the
businesses. The business react or act to continue the flows of its operations. The external
environment is categorized in two groups; macro environment and micro environment
(Anisimova, 2016).
Micro Environment - It includes those factors which directly influence the operations of an
organization. Customers, suppliers, general public, competitors and distribution channels are five
factors which impacts the micro environment.
Macro Environment - It includes those factors which the company generally have no control.
The achievement of the organization depends on its capability to adjust. Political, economic,
social, technological, legal factors and environment are six factors which impacts the macro
environment.
The external environment is categorized into two groups; macro environment and micro
environment. The relevant theory for micro environment is Porter Five Forces and the relevant
theory for macro environment is Pestel analysis (Goodman and Remaud, 2015).
The Pestel analysis is a strategic tool which is utilized by the marketers of the firms to track their
external operating environmental factors which have an effect on the firms. The full form of
Pestel is Political, Economic, Social, Technological, Environmental and Legal.
Political Factors - It includes government laws such as tax plans, political stability, employment
laws, safety laws, and trade laws which impact the business markets and environment.
Economic Factors - It consist of economic development, inflation rates, exchange rates, interest
rates, unemployment rates and the disposable consumer income. They directly or indirectly
impact the organization as well as the buying power of the customers. It can bring changes in the
demand and supply within the economy

2
Social Factors - It includes social elements such as customs, characteristics, values and norms,
of the society that impact the operations of the company.
Technological Factors - It consist of latest technological trends which impact the operation of
the industry and marker either in favor or not in favor.
Environmental Factors - It includes ecological aspects like weather, climate and environmental
changes which might impact the business.
Legal Factors - It consist of legal aspects such as labor laws, consumer protection laws,
discrimination laws, patent and copyright laws and safety laws which determines the legality
and illegality of the companies.
Porter’s Five Forces - The Porter’s Five Forces is an easy tool to understand the power of an
organization in a business settings. It also helps the organization to identify its strengths in the
present position of competitive market. The five forces are bargaining power of suppliers,
bargaining power of buyers, threats of new entrants, threats of substitutes and rivalry among the
competitors. These forces determines the structure of the industry and the competition level in
the industry. Strong competitive forces are the less profitable for the in the industry (King et al.,
2017). The industry with low buyers and suppliers and new entrant but high substitution and
competitors are extremely competitive and not attractive for its low productivity.
Bargaining Power of Suppliers - The suppliers might impact the productivity of an
organization by using pressure to reduce the quality or increase the prices.
Bargaining Power of Buyers - The buyers has the power to move from one supplier to other
supplier depending on the profit margin.
Threats of New Entrants - It is the treat where the current business can lose the market shares
due to entry of another business.
Threats of Substitutes - It is the treat of alternative products in every company. If one firm
provide the products in low cost in competition to rival firm, the profit margins will lead to zero
(Zulqarnain, Zafar and Shahzad, 2015).
Rivalry among the Competitors - The competition among the companies can impact the
productivity of the whole industry.

3
The food retail industry implement PESTEL analysis to evaluate the macro environment factors
which affect the food retail industry. The PESTEL analysis of food retail industry are given
below:
Political - The food retail industry in Australia develops due to the political stability of Australia.
The business partners and foreign investors show interest in investing and continuing business
with the food retail industry (Kotsanopoulos and Arvanitoyannis, 2017).
Economic - High unemployment and global recession are the economic aspects which has
strongly affected the financial performance of the food retail industry (Wardle and Chang, 2015).
It has led to major financial loss and unemployment of 50,000 staffs.
Social - The changes in the social context has made the food retail industry realize that current
customers want wide range of goods in affordable prices. So the food retail industry offers low
prices on its various items to the visitors of its stores to respond to the social context of the
customers.
Technological - The usage of RFID had helped the food retail industry to effectively manage the
inventory and keep the stocks available to the visitors of the retail stores. It has also implemented
Service Oriented Architecture in the retail stores and the technology has helped to efficiently
manage the supply of various products across its various retail stores (Macfadyen et al., 2015).
Environmental - The food retail industry has invested its resources to minimize the carbon
footprint of the retail industry and also reduce the wastes of natural resources like water. The
food retail industry has also taken part in recycling activities for reducing the quantity of wastes
in landfill while processing the recyclable products to make them useful for the future (You and
Barry, 2016).
Legal - Policies of taxation and regulations for recruitment and management of staffs are the
basic legal rules followed by the food retail industry. Food licenses in accordance to the law of
Australia are acquired by the retail industry for maintaining the quality of available food items in
its stores (Yu, Ramanathan & Nath, 2017). Opening of new stores also needs sanctions from the
government.

4
Porter’s Five Forces evaluate the micro environmental factors of the food retail industry to assess
the present performance and situation of the retail industry. The analysis of the food retail
industry by Porter’s Five Forces are as follows:
Buyers Power - The buyers has wide range of goods and services to choose in the food retail
industry of Australia. It is because food retail industry offers essential goods to its consumers.
So, it provides high negotiating powers to the buyers.
Suppliers Power - The food retail industry is a highly competitive industry. So the suppliers
have high negotiating powers (Price, 2016). Moreover, the food supplies are affected by the
regular changes in the industry due to season change. So, the supply decreases because of
changes in seasons and the suppliers gains more powers.
Competition among the Rivals - The major companies in food retail industry of Australia are
Woolworths, Coles, Tesco, Aldi and Walmart (Yu, Ramanathan & Nath, 2017). They all
compete for high market shares, and it leads to higher rivalry in the food retail industry of
Australia. This competition has impact the profitability of the food retail industry. The
profitability have decreased as some of the consumers those who have to buy goods from one
company are currently preferring the products of its competitors.
Threats of New Entry - New firms find it difficult to access the food retail industry of Australia
since larger firms are already dominating the market. Thus, threats of new entrants are lower for
the food retail industry. As for example, the entrance of Aldi had impact the profitability of
Woolworths (Shauki, 2016). Sales of Woolworths may increase in future as current market is
shared by close competitors.
Threats of Substitution - The substitute of the products in retail industry are always available in
the food retail market. So the threats of substitution is high in food retail industry. So the food
retail companies need to adopt the strategy of diversification to distinguish its products from its
competitors and offer wide variety of products to the consumers (Sutton-Brady, Kamvounias and
Taylor, 2015). They can also implement pricing strategy to win over the customers and also
increase sales as well as profits.

5
It can be concluded that Pestel analysis and Porters Five Forces had apparently revealed that
external environment has been a challenge for the food retail industry. With the example of food
retail industry of Australia, it has been observed that the unfavorable external environmental
systems has been a great challenge to the food retail industry which affect the profitability of the
industry. Although the food retail industry anticipates for more profit but the fact is that the
consumers of one retail company are opting for cheap products of its competitors.

6
References
Anisimova, T., 2016. Integrating multiple factors affecting consumer behavior toward organic
foods: The role of healthism, hedonism, and trust in consumer purchase intentions of organic
foods. Journal of food products marketing, 22(7), pp.809-823.
Goodman, S. and Remaud, H., 2015. Store choice: How understanding consumer choice of
‘where’to shop may assist the small retailer. Journal of Retailing and Consumer Services, 23,
pp.118-124.
King, T., Cole, M., Farber, J.M., Eisenbrand, G., Zabaras, D., Fox, E.M. and Hill, J.P., 2017.
Food safety for food security: Relationship between global megatrends and developments in food
safety. Trends in Food Science & Technology, 68, pp.160-175.
Kotsanopoulos, K.V. and Arvanitoyannis, I.S., 2017. The role of auditing, food safety, and food
quality standards in the food industry: A review. Comprehensive reviews in food science and
food safety, 16(5), pp.760-775.
Macfadyen, S., Tylianakis, J.M., Letourneau, D.K., Benton, T.G., Tittonell, P., Perring, M.P.,
Gómez-Creutzberg, C., Báldi, A., Holland, J.M., Broadhurst, L. and Okabe, K., 2015. The role of
food retailers in improving resilience in global food supply. Global Food Security, 7, pp.1-8.
Price, R., 2016. Controlling routine front line service workers: An Australian retail supermarket
case. Work, employment and society, 30(6), pp.915-931.
Shauki, E., 2016. Is this a case of self-enlightened interest or genuine accountability: a study on
different reporting media in the Australian retail industry? Asia Pacific Journal of Accounting
and Finance, 2(1), pp.51-76.
Sutton-Brady, C., Kamvounias, P. and Taylor, T., 2015. A model of supplier–retailer power
asymmetry in the Australian retail industry. Industrial marketing management, 51, pp.122-130.
Wardle, J.L. and Chang, S., 2015. Cross‐promotional alcohol discounting in Australia's grocery
sector: a barrier to initiatives to curb excessive alcohol consumption. Australian and New
Zealand journal of public health, 39(2), pp.124-128.

7
You, K. and Barry, M., 2016. Intra-industry competition among employer associations: a case
study of the retail sector. Labour & Industry: a journal of the social and economic relations of
work, 26(2), pp.120-137.
Yu, W., Ramanathan, R., & Nath, P., 2017. Environmental pressures and performance: An
analysis of the roles of environmental innovation strategy and marketing
capability. Technological Forecasting and Social Change, 117, 160-169.
Zulqarnain, H., Zafar, A.U. and Shahzad, M., 2015. Factors that affect the choice of consumers
in selecting retail store, for grocery shopping. International Journal of Multidisciplinary and
Current Research, 3(1), pp.1167-1172.