Tesco Plc Business Environment Analysis: A PESTLE and SWOT Analysis

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BUSINESS ENVIRONMENT ANALYSIS

TABLE OF CONTENTS
Introduction......................................................................................................................................1
LO1..................................................................................................................................................2
LO2..................................................................................................................................................5
Conclusion.......................................................................................................................................8
References........................................................................................................................................8

Introduction
The current unit will discuss the impact of macro business environment on the business activities
and operations of the Tesco Plc that is the third largest retailer in the world with range of
subsidiaries. The unit will also analyze the strengths and weaknesses of the Tesco business by
discussing the SWOT analysis and also highlight the interrelationships with strengths and
weakness with the macro environment.
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LO1
The macro business environment includes various factors that may positively as well as
negatively impact upon the business operations and performance of the Tesco plc. The impact of
the macro environment factors can be analyzed with the help of Pestle analysis of the
organization.
Impact of macro environment upon the business operations
Political factors
Political factors include political stability or instability, government policy, tax policy, trade
restrictions, terrorism, environmental laws, etc. that may positively or negatively impact the
business operations and performance of the Tesco plc.
Positive impact: Political factors such as unstable political environment, favourable government
policy, foreign trade policy, etc may help the Tesco plc to ensure the growth and development of
its retail business. If the business environment is stable and government is making favourable
trade policy by removing trade restrictions then Tesco plc can maximize its profitability and
growth of the retail business. Also in the financial instability, the government encourages the
retailers to enhance the employment opportunities that can help the Tesco to diversify its
workforce and increase the demand of products (Hammad, 2015).
Negative impacts: For instance, levy import duty on importing goods from other countries can
impact the Tesco operations and performance because Tesco imports some goods outside from
UK from other countries like East Asia and china. also imposition of tax by the UK government
on the Tesco known as ‘Tesco tax’ leads to increase in prices of the products that may adversely
impact the sales of the organization.
Economical factors
Economical factors include economic growth, inflation rates, exchange rate, interest rates,
taxation, disposable income, etc. may positively or negatively impact the business operations of
the Tesco
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Positive impact: Higher economic growth in the country will lead to fall positive impact on the
Tesco retail business. For instance, the economic growth was estimated in 2014 as 2.7% that was
higher than the pre-crisis peak that leads to increase in growth rate of the supermarkets and retail
business. Good economic condition of the country leads to availability of more disposable
income to people that will encourage them to more spend on buying products and hence increase
in sales, profitability and growth of the Tesco retail (López, 2017).
Negative impact: Poor economic condition of the UK will lead to decrease in growth rate of the
supermarket and retail business. For, instance, increase in interest rates and inflation rates will
make available low capital to the Tesco that will adversely impact its business operations and
performance. In the situation of the economic recession in the UK, the employment rate in the
country badly decreases that leads to lower disposable income in the hands of the people in the
UK. Decrease in employment rate in the country results in decrease in spending of customers so
the Tesco supermarket decreased prices of its products that leads to decrease in revenue and
profitability of the business.
Social factors
Social factors include taste and preferences of customers, different culture trends, population
growth, age distribution, demographics and customer buying trend, etc impact the performance
and operations of the retail businesses.
Positive impact: In the recent past, due to the baby boom generation in the UK, the numbers of
elderly people increased and also increase in life expectancy and decrease in birth rate. This
social condition in the country led to change in the taste and preferences of the customers and
elderly people started online shopping of the food products due to mobility problem (Pestle
analysis of Tesco, 2017). The Tesco is greatly benefited by this as it started selling and delivers
food and grocery products to the customer door and Tesco positively respond to this social
change.
Negative impact: With the passage of time and increase in competition in the retail sector, the
taste and preference of people in the UK are also change. Tesco supermarkets are failing to
deliver food products as per taste and preferences of customers that is adversely impacting its
sales and revenue of the business. for instance, in the 2013, Tesco was accused for not providing
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quality food products to people as it was identified that horse related puns were mixing in the
burgers, this horsemeat scandal adversely impact the customer preferences towards the food
products of the Tesco and hence decrease in sales of the business (Palermo, 2017).
Technological factors
Technological factors include technological trend in the country, emerging technology, target
market communication, production and distribution technology trend, return on investments, etc.
may positively as well as negatively impact the business operations in the Tesco.
Positive impacts: Technology plays a very important role in ensuring effective management of
the supply chain in the Tesco. Technological advancement is helping the Tesco to effectively
supply its products to the customers for satisfying their needs on time. by adopting digital
technology and tools such as for online shopping, electronic payment, e-commerce, home
delivery of products, etc. helping the Tesco to gain competitive advantage in the retail sector
(Lamba, 2018).
Negative impact: For instance, if the Tesco is not updating its communication and product
distribution technology as per current technological trend then organization may have to bear
huge cost and loss. Less technological knowledge and skills led to adversely impact the
operations and performance of the retail business and hence also decrease in sales and
profitability of the business.
Legal factors
There are various legal factors such as health and safety legislation, consumer rights,
employment laws, advertising standards, product labelling, etc. may positively as well as
adversely impact the business operations of the Tesco plc.
Positive impact: Product labelling, copyright, etc. help the Tesco to protect its intellectual
property rights and products or services being copied by other retailer. These legislation help the
Tesco to build its strong market image and identity in the mind of customer that enhance
customer trust towards the organization and hence enhance sales and profitability of the retail
business.
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Negative impact: There are various laws and regulations such as Health and safety at work,
employment protection rights, consumer health and safety and excessive advertising standards,
etc. restrict the Tesco organization to perform freely to achieve maximum profitability. Violation
of employment protection laws, consumer safety and health legislation, etc. may leads to face
legal problems by the organization (Šomodi, 2017). Violation of legislation and laws reduce the
market image, customer base and sales of the retail business. For instance, in 2004, the Food
Retailing Commission (FRC) introduce a code a practice that restrict the Tesco to change prices
of it products without prior notice. This policy bound the Tesco to reduce its prices up to
standard price rates that leads to decrease in profitability of the Tesco retail business.
Environmental factors
Environmental factors include climatic change, geographical location, environment protection
legislation, waste recycle management, reduction in carbon foot print pollution and green house
gas emission, etc. influence the performance and operations of the retail business.
Positive impact: For instance, favourable change in the weather and climatic condition enhance
the interest of customers to buy and consume food products that leads to increase in sales and
profitability of the Tesco supermarkets. Tesco has recently committed that it will reduce the
carbon footprint by 50% by 2020 and also focusing on minimizing waste produced in its retail
stores by encouraging social conscience in its customers. This commitment of Tesco will help in
building good image of the brand in the customer mind and hence this will enhance customer
base and sales of the business (Yeung, 2016).
Negative impact: Frequently changes in the climatic condition and weather may increase the
problem of wastage of durable food products that increase the possibility of loss of the retail
stores of the Tesco. Also violation of environmental protection legislation increases the legal
problems that reduce the market image of the retail organization.
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LO2
SWOT analysis of the Tesco plc
Tesco is the leading retail business organization in the UK that has large numbers of supermarket
chain. It is the fact that everything has pros and cons so there are lots of strengths and
weaknesses of Tesco retail business and these strengths and weaknesses can be analyzed by with
the help of SWOT analysis of this business organization.
Strengths
Tesco is the third largest retailer in the world that has 6,784 stores and offers wide range of food
and non-food products, and convenience to customers.
It has numbers of subsidiaries such as Tesco Bank, Tesco Mobile, Booker Group, Tesco stores
ltd, Tesco Lotus, Tesco Ireland, Londis, Budgens, etc. This subsidiary is covering almost
maximum numbers of market area in the UK and generating revenue (Palermo, 2017).
It has developed and used innovative business models that involve retail stores like Tesco
Express and Tesco Metro for making shopping more convenient for the customers. It has
established and using e-commerce platform for providing online shopping facility, electronic
payment facility through credit/debit cards, mobile phones, computers, etc. and also providing
free home delivery services to customers (SWOT analysis of Tesco, 2017).
Tesco is also utilizing digital technology and tools such as digital marketing, digital distribution
and sales for promoting and expanding the retail business at global level.
Weaknesses
Tesco has diversified and variety of food as well as non-food products that is its biggest
weakness as this organization has taken huge debt for expanding its business at mass level in
different sectors.
Tesco has less marketing knowledge and skills and for this reason it spends huge money in
marketing for the promotion of its brand and products. For removing this weakness, Tesco needs
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to invest more in the innovative technologies for enhancing market position and sales (BLUE,
2018).
Poor communication and coordination among different functional department is also one of the
major weaknesses that is adversely impacting its operational performance and productivity of
Tesco.
Opportunities
Tesco has big opportunity to enter into the digital entertainment sector by manufacturing and
offering own-brand smart phones and tablets in the foreign market such as china, Malaysia,
Thailand and South Korea.
It has opportunity to offer more online shopping facility to citizens in the country for resolving
the mobility issue. This model will help the organization to meet needs of customer on-time and
enhance the customer base and sales of the business (Oh, et. al., 2018).
Tesco has also opportunity to expand its grocery retail market overseas in country like Australia
where there is limited competition.
Threats
Tesco is the leading retailer in the UK so to lead the market for long duration it is facing huge
challenge of competition from other competitors such as Asda, Aldi, Morrison and Sainsbury.
After merger of the Asda and Wal-Mart, Tesco has big threat of reduce in customer base and
market coverage because the branding of Asda Wal-Mart is increasing day-by-day (Fatricia et.al,
2018).
As per above SWOT analysis of the Tesco business environment, it has identified that Tesco
retailer is leading the UK market by gaining lots of business strengths and market share but also
have some weak points such as communication gap and huge debt. Tesco needs to make
effective strategies and business plans to face the challenges of business environment and
converting opportunities and weaknesses into the strengths. Tesco also needs to make effective
business model to overcome the challenge of huge competition and excessive government
intervention in the business. This retailer will also needs to improve its economic condition by
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reducing debt and generating capital through own sources such as revenue, reserves, etc. Tesco
needs to follow all legislation associated with retail business to reduce the legal problems and
also need to make effective strategies to protect environment, reduce wastage and make positive
gain from business environment that will enhance strength of the Tesco in retail sector.
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Conclusion
Macro business environment impact positively as well as negatively the business operations and
performance so Tesco needs to develop effective business model to reduce the negative impact
of the different business environmental factors and ensure business growth. Tesco leading
position and diversified product range is the biggest strength for the organization but also has
some weaknesses and threats that can be handled by developing effective business model and
strategies.
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References
Books and Journals
 BLUE, F.R.O.S.T. and STRATEGY, O., STRATEGIC MANAGEMENT RETAIL
INDUSTRY AND TESCO.
 Fatricia, R.S., STRATEGIC ANALYSIS OF TESCO SUPERMARKET.
 Hammad, A., 2015. Strategic Change and Its Management to Expand Business Through
Implementation of Models: A Case Study of Boots UK.
 Lamba, P., The Successful Indian Market Entry: A Case study of METRO Cash & Carry.
 López López, N., 2017. Different ways to assure the continuity of the business.
 Oh, Y., bin Pg Hamir, A.M.H. and bin Mohd Shah, M.A.S., 2018. THE VIABILITY OF
HALAL FOOD INDUSTRY FOR BRUNEI ECONOMIC DIVERSIFICATION: SWOT
ANALYSIS. PEOPLE: International Journal of Social Sciences, 3(3).
 Palermo, T., 2017. Risk and performance management: two sides of the same coin?.
 Šomodi, M., 2017. An Analysis of the Marketing Strategy of the Company HOME
INTERIER sro.
 Yeung, W.K., 2016. An evaluation of the feasibility of setting up a gourmet sandwich
outlet within Cardigan, West Wales(Doctoral dissertation, Cardiff Metropolitan
University).
Online
 Pestle analysis of Tesco, 2017 (Online) [Accessed Through]
<https://www.ukessays.com/essays/business/swot-and-pestel-analysis-of-tesco-business-
essay.php>[Assessed on 4th February, 2019]
 SWOT analysis of Tesco, 2017 (Online) [Accessed Through]
https://www.ukessays.com/essays/retail/tesco-swot-analysis.php>[Assessed on 4th
February, 2019]
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