Environmental Analysis of Tesco PLC: A Comprehensive Strategic Report

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ENVIRONMENTAL ANALYSIS OF TESCO
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ENVIRONMENTAL ANALYSIS OF TESCO
Table of Contents
Introduction......................................................................................................................................3
LO1: Impact and influence of the macro environment on an organization (P1 & M1)..................3
LO2: Organizations internal environment and capabilities (P2 & M2)..........................................7
SWOT analysis............................................................................................................................7
VRIO analysis..............................................................................................................................8
LO3: Porters five force model in a given market (P3 & M3)........................................................10
LO4: Models, theories, and concepts to assist understanding of strategic direction which is
available to an organization (P4 & M4)........................................................................................11
Conclusion.....................................................................................................................................15
Reference.......................................................................................................................................16
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ENVIRONMENTAL ANALYSIS OF TESCO
Introduction
In modern business organizations that have different objectives to fulfill, the external
environment has a major influence. Thus, it is effective when a large business entity is
effectively dedicated towards making sure that the decision making and other activities
complement the situations related to the external factors. In the following assignment, the
discussions will be based on the UK based retail firm Tesco and its operational and management
activities.
LO1: Impact and influence of the macro environment on an organization (P1 & M1)
The UK has seen a huge rise in popularity among the consumers about the retail sector due to the
recession and the economic downturn. The retailers were able to maintain their position in the
market and help in the overall economic improvement of the UK. The PESTLE analysis is used
to describe the macro environment which is analyzed below:
Political
The political scenario in the UK is a bit unstable due to the decision regarding the exit of the EU.
This is hampering the retail business as some of the retailers are finding it hard to purchase
goods from outside (Blackley, Resnick and Cassidy, 2017). This is mainly because the costs of
goods are increasing and they have failed to hedge their currency. The main impact can be felt on
profit margins as the price of importing goods continues to rise. Further, the administration costs
are also increasing due to the trade agreements and retailers are facing a tough time with added
problems due to delays in transit. Lastly, the customers will need to pay VAT before the goods
are being released which is recoverable only during the next vat return. Thus, buying expensive
goods has become impossible with added problems of having a good cash flow in the business.
Economic
The UK retail market as of now is one of the most dynamic and quickly changing retail
environment across Europe now (Walton, Petrovici and Fearne, 2017). It can be seen that the
price levels of retail goods are changing from inflation to deflation and the consumers are
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ENVIRONMENTAL ANALYSIS OF TESCO
becoming more and more value oriented which is ultimately hampering the price levels. For
instance, the major retailers like Tesco, Sainsbury and other companies are showing a downward
trend where they are investing heavily to keep a decent price level so that the consumers stay
with the company. Further, the consumers have become very much price sensitive which is
increasing the investment in the promotion so that the retailers can hold their customer base. The
deflation rate is increasing to 0.2% per quarter (Brandsma, 2018). Thus, the economic theme is
changing continuously from inflation to deflation and is strongly affecting the food prices very
badly.
Social
The trend of cooking and eating habits is changing, and the people of the UK are getting exposed
to foreign cuisines. Eating and drinking is an integral part of the UK people who enjoy eating
foods cooked by others. This has increased the spending on consuming expensive foods by the
UK people. For instance, there is a sharp rise in consuming foreign made tobacco products, and
it is one of the major components of modern society (Aguzzoni et al., 2016). Lastly, there is also
a significant rise in shopping discounted non-food retail products. This is being backed by choice
of a retail outlet. This is most common in the residents living in the South East (75.3%).
Technological
Improvement in the technological field is very much crucial as the improvements in the IT
department have helped retailers to develop innovative retail products. This is changing the
business models that the retailers tend to follow which is helping to maintain the cost and quality
of the products. For instance, various equipment such as the refrigerator, microwave and food
processor have changed the cooking and eating habits. Thus, the changing technology will
continue to shape the future of the retail sector in the UK with increased efficiency and high
quality products. This will help to change the hardware and software development of the IT
department of various retail stores for better future growth.
Legal
The government of the UK has passed several laws in order to safeguard the interest level of the
workers. This can be viewed as the National Minimum Wage (NMW) which stands to, 16 to 17
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ENVIRONMENTAL ANALYSIS OF TESCO
year-olds is currently £3.64 per hour, while for 18 to 21year-olds the hourly rate is £4.92 and for
labors above 22 years it is £5.93 per hour (Amin and Broadbent, 2015). Further, the government
has also developed several laws in regards to discrimination and accounts frauds so that the
business environment can be kept clean. Hence, for this, the government has formed the Food
Retailing Commission (FRC). This commission has developed a certain code of practice which
retailers need to follow in order to conduct business in the markets of the UK.
Environment
The UK government has put emphasis on the use of green packages so as to safeguard the
environment from degrading. For this, they have introduced several commissions and
commitments like carbon reduction commitment, waste of electricity and various other things.
Impact of PESTLE on TESCO
The changing political scenario is hampering Tesco which is ultimately creating problems in the
smooth flow of operations of Tesco. The major factors being the tax rate, current legislation and
the problems of BREXIT. This BREXIT is creating problems of trade agreements that they have
with other countries where they are operating (Amin and Broadbent, 2015). For instance, the
import duty is increasing after BREXIT took place. The investors are afraid to invest in this
volatile political scenario of UK.
The wage rate is also creating problems as Tesco needs to maintain a 4.4% of wage rate for the
25+ employees. This is amounting to 4.5 billion GBP annually. In addition to this, Tesco is very
much dependent on the UK market in terms of generating revenue which could be fatal as the
UK grocery market is one of the most volatile markets in the world.
The need and preference of the UK people are changing drastically where they prefer only one
stop shopping only. This is making Tesco serve the needs of the people by fulfilling their
demands. For instance, obesity is the major cause which Tesco needs to consider in terms of
providing food products to the customers (Brandsma, 2018).
Technological changes are playing a crucial part in terms of meeting the customers' experience
and to maintain the trust level. They have successfully implemented various retail technologies
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ENVIRONMENTAL ANALYSIS OF TESCO
by introducing RFID store experience for the customers. This is helping to maintain a decent
stock level in the warehouse as when a product is purchased; it is automatically removed from
the stock level and is helping them to replenish the stock when required. Further, the mobile
payment option has helped the customers to earn reward points for availing discounts.
Tesco has put emphasis on encouraging the customers to buy products from their websites, and
the products are transferred by trucks which follow a fuel-saving route. Further, they are
planning to reduce electricity usage and carbon footprint emission to 50% by 2020 (Aguzzoni et
al., 2016).
Lastly, due to several laws prevails in the UK; Tesco is trying to conduct their operations in line
with the Food Retailing Commission (FRC) strict code of practice.
LO2: Organizations internal environment and capabilities (P2 & M2)
Tesco is a global retailing chain which is having a strong brand reputation. Therefore, the SWOT
and VRIO analysis is being used to judge the internal capabilities of the company.
SWOT analysis
The strengths of Tesco are:
- They have won several awards for their excellent retail services, customer service and all
overall shopping experience of customers
- The cash reserve is high with a strong financial position for weathering various financial
process
- Have a good long history which assures the public to continue their retail operation for a
long period of time and effective use of technology for increasing customer experience
(Amin and Broadbent, 2015)
The weaknesses are:
- Some of the subsidiaries are not working properly due to the recent credit crisis
- Competition has increased which has reduced the profit margin
- The inventory cost has increased which is leading to an increase in the price of products.
Hence, consumers may not buy high priced products due to lower disposable income
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ENVIRONMENTAL ANALYSIS OF TESCO
The opportunities are:
- Tesco can strategically align with other companies and brands to offer more innovative
products to the customers (Evans, 2015)
- Tesco online shopping has seen a massive growth which the company can pounce to
increase the customer base
- Lastly, efforts are needed from Tesco to capture the emerging markets so that they have
wider access to western goods
The threats are:
- The economy of the UK is not stable which can hamper their proof margin
- Government regulation is changing which is changing their operating strategy with the
additional expense (Johnes, 2018)
- Disposable income is decreasing which is ultimately decreasing the consumer's ability to
buy products whose cost is high
VRIO analysis
Resources Value Rare Imitation Organization Competitive
advantage
Position
among
retailers and
retail strategy
Yes, Tesco
has a strong
position in the
market
Yes, they
have
dedicated
partners
Yes, as the
strategy is
difficult to
imitate
Yes, they are
organized
The
sustainable
completive
advantage in
the market
Aligning
activities
Yes, the
activities are
diversified
No, since
others are
also doing the
same
Yes, since
others have
their own
strategy
Yes, since
Tesco has the
required skills
to extract the
maximum out
it
Still, Tesco
require to
increase their
potential t
build on this
resource
Global and
local presence
Yes, the
revenue
Yes, due to
their global
Yes, it can be
easily
Yes , Tesco is
one of the
High
competitive
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ENVIRONMENTAL ANALYSIS OF TESCO
system is
diversified for
balancing the
economic
cycles
retail strategy intimated by
the
competitors
diversified
company in
the retail
industry
advantage in
the market
Leadership
track record
Yes, high
value owing
to their high
performing
managers
No, others
have
appointed the
same type of
leadership
traits also
Yes, others
are trying to
intimate
Yes,
leadership
styles
successfully
implemented
Temporary
since others
can develop
god styles and
dominate the
market
Technology
for brand
extension
Yes, they are
trying to
capture new
markets
through
online
shopping
No, as
maximum
competitors
are targeting
the same
market as
well
Yes, others
can easily
imitate the
strategy
Yes, Tesco
requires the
higher budget
to improve
technology
for brand
extension
It will
increase the
competitive
advantage
Table 1: VRIO analysis
Source: Created by the author
LO3: Porters five force model in a given market (P3 & M3)
The retail market of UK is very much complex where a wide variety of companies tends to fit in
and has several operational scopes (Carraher, 2018). The analysis is conducted below:
Competitive rivalry
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ENVIRONMENTAL ANALYSIS OF TESCO
The competition level is high among the rivals (Adi, 2015). This is because competitors are
coming up with new strategies to stay in the market. Hence, innovation is the key which are
allowing them to increase the competition level.
Bargaining power of suppliers
Suppliers’ power is huge to regulate the market since their performance holds the key to manage
the supply chain. Further, the retailer needs to pay the required price charged by the supplier for
having access to different products.
Bargaining power of buyers
Buyers have a high bargaining power in the UK retail sector (Zhao et al., 2016). This is because
the switching cost is very low and the products have slight differentiation features in terms of
meeting their demands. Further, after the recession, consumers have become more price
sensitive.
The threat of new entrants
The threat is not that high since new ventures require huge investment for sustaining in the
competitive market. Hence, new companies need additional support in initial days for survival.
Further, it is getting difficult for the existing companies to sustain in the market as well
(Mathooko and Ogutu, 2015).
Threat of substitutes
This threat is high due to a wide variety of products that the retail sector offers. Hence, it is
difficult for companies to maintain a decent standard of products.
Based on the above discussion, Tesco should adopt the following strategies:
- They should increase financial growth by 20% through the use of various financial
securities
- To increase the customer base by 40% by using CRM programs
- Customers should be satisfied by developing a holistic approach in order to fulfill their
desires
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ENVIRONMENTAL ANALYSIS OF TESCO
- Managing the sales effectively by analyzing the customer base and developing efficient
monitoring teams
LO4: Models, theories, and concepts to assist understanding of strategic direction which is
available to an organization (P4 & M4)
Porter’s Generic Strategies
The generic strategies as mentioned by Porter are one of the most effective ways by which
organizations can make sure that they are well on their way towards guaranteeing existence in
the market. In the case of Tesco, the organization can select a broad target of acquiring the most
market share and in this case, it is mentionable that Tesco wants to follow a minimum amount of
cost. This strategy will mean that the organization will be gaining cost leadership.
Strategic Management Plan
Mission Statement
The mission in this case of Tesco is to make sure that the organization is able to make sure that
all competitors are recognized and in regards to the competition faced in the market. The process
countering the strategies taken up by the competitors and guaranteeing existence in the market is
also the mission of Tesco in this case.
Vision Statement
The vision for this organization is to make sure that a loyal and responsive consumer base is
always present so that the business has a significant amount of customers to serve at any given
point of time and situation.
Resources
As far as resources are concerned, the organization can look forward to make sure that
employees who have effective knowledge and skill are hired. This strategy can be justified by the
following discussion.
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ENVIRONMENTAL ANALYSIS OF TESCO
As the organization looks forward to develop in the market in which it is operating in, the
process of executing any activity will become more complex and therefore, workforce will be a
necessity. For an example, if a situation arises where the organization has to make sure that it
penetrates a new market, then it can employ new people in different departments to take the
pressure of delivering effective consumer service.
The employees can also be sued in order to make sure that revenue amounts are over than the
desired benchmark. If more human resources are acquired by the firm, it will add value to its
services, through this, the amount of revenue can be increased, and in addition, consumer
loyalties will also increase in response (Haddon, 2016).
The monetary resources are also a necessity for Tesco as it will make sure that new assets are
acquired. In the process of addressing competition in the market, it is important that the
organization develop its capabilities and internal environment. For an example, if the
organization is looking forward to address a competitor that has effective distribution
department, then the own distribution department of Tesco must be improved. In this process, if
the organization is able to invest in buying new vehicles or new technology to revamp the
distribution department, then it is obvious that competition can be somewhat guaranteed. The
monetary resources however must be allotted carefully as any miscalculation might be
hampering the daily operations of the business (Helm-Stevens, 2019). A financial budget must
be created in order to make sure that management has a very good idea about the financial
resources that needs to a allocated effectively.
Targeted Trends
The trends in the markets normally regulate the strategies taken up by a particular business. In
case of Tesco as well, there will be different trends that will be used in order to make sure that
the organization is well equipped for maintaining existence in the market.
The modern trend that is being followed in the business industries across the world is to make
sure that the products or services are consumer centric. Therefore, there will be a data collection
method that will be used in order to make sure that the consumer demands are well understood
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ENVIRONMENTAL ANALYSIS OF TESCO
by the management. To go through with this trend and gather data, the organization will be
talking into account consumer feedbacks and survey techniques (Lewis, 2019).
Another modern trend in the retail industry is to make sure that the organizations are present in
online facilities as well so that modern technologies and technological development can be used
to provide effective consumer service. Following this trend will be meaning that new consumer
segments will be targeted and competitive firms and their strategies will be countered.
Action Plan
Objective Activities Outcomes Time Frame
To guarantee
effective service
 Increasing the
amount of
employees
 Implementation of
new machineries
and technologies
Desired amount of
consumer response
2 weeks
To employ
experienced
employees
 Promote the
organizational
brochure
 Consult the HRM
department
Sufficient amount of
Human resources
3 weeks
To conduct effective
Promotion
 Allocation of
effective capital
amount
 Adopting
innovation in
promotional
campaigns
Desired consumer
response
3 weeks
To gather data  Conduction of
consumer surveys
 Gathering
Possession of data
that can be used
effectively
1 week
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