PESTEL Analysis of Tesco

✅ Paper Type: Free Essay	✅ Subject: Business
✅ Wordcount: 3505 words	✅ Published: 6th Jan 2017

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PESTEL Analysis

Political

The UK government has recently adopted a tax measure that affected Tesco. In 2011 the UK government increased the VAT rate from 17.5% to 20% with the aim

to increase government revenue by £13 billion per year (BBC, 2011, n. p.). Crossley et al. (2009, p. 3) contend that an increase in the VAT rate leads

to lower customer spending. Therefore, an increase in the VAT rate negatively affected the sales revenue generated by Tesco. Sales revenue is the key

source of income of the organisation and thus it holds a substantial effect on profits (Atrill, 2009, p. 33).

The UK government has also proposed to adopt a fat tax with the aim to control obesity and limit the medical problems associated with it (The Guardian,

2011, n. p.). Such measure can adversely affect the sales revenue of certain products retailed by Tesco. Tesco is responding to such a threat. Indeed, in

2014 Tesco launched a “brand new healthy food range” (Tesco, 2014, n. p.).

Economic

The UK economy is showing positive signs of recovery from the financial crises. Higher economic growth rate was forecasted and the gross domestic product

was estimated to be 2.7% higher than the pre-crises peak (BBC, 2014, n. p.). A growth in economy is a positive sign for Tesco because it results in a

growth in the supermarket industry, which is the main industry in which Tesco operates. When there is an economic recession, which is the opposite of

economic growth the rate of unemployment increases. This results in lower disposable income in the hands of the British people. Therefore, customers will

decrease spending and will shift to products of a lower price (Mankiw, 2012, p. 97).Therefore, recovery from the economic recession stimulates revenue

growth for Tesco.

Social

The number of elderly people is increasing in the UK due to the baby boom generation. In the past years there was a decrease in the birth-rate and an

increase in the life expectancy of people (Independent, 2010, n. p.). This led to a shift in the tastes of individuals which should be taken into account

by Tesco. For example, the adoption of online shopping by Tesco for grocery products is an approach that takes into consideration the mobility issues that

elderly people face. Eastmen and Iyer (2004, p. 208) examined the perception of elderly people to the use of the Internet. These scholars found that

elderly people view the Internet favourably and are willing to use it. This research also suggested that elderly people with a high income are generally

more in favour to the use of the Internet and are interested to acquire products online (Eastmen and Iyer, 2004, p. 208). Therefore, Tesco has positively

responded to this social change.

The literature says that the customers’ opinion of an organisation can quickly change due to changes in the quality and price of the company’s products,

shopping service provided to customers and competitive moves (Kotler and Armstrong, 2010, p. 163-165). This highlights the importance that the corporate

strategies should be responsive to the business environment. For example, in 2013 Tesco was accused of the horsemeat scandal. Horse-related puns were

identified in Tesco’s burgers and the organisation was accused of not providing the good quality products claimed in their advertising campaigns (Pratley,

2013, n. p.). This scandal affected negatively the perception of customers on Tesco, which resulted in a decline in sales (Neate and Moulds, 2013, n. p.).

Tesco needs to respond to such scandal, which adversely affected its image.

Technology

Technology is critical for the supply chain management of Tesco. Retailers like Tesco develop supply chain management systems in order to attain

competitive advantages and enhance cost efficiency (Tan, 2001, p. 41). Johnson et al. (2005, pp. 132 – 133) posit that the most effective competitive

advantages are those that are difficult to imitate by competitors.These are reflected in the core competencies of the organisation (Johnson et al., 2005,

pp. 132 – 133). Tesco needs to be very attentive to technological advancements because these may be an opportunity for the firm. For example, mobile

technology helped to improve Tesco’s distribution service because customers can selected their preferred wine through their mobile (Tomlinson and Evans,

2005, n. p.).

The management of Tesco needs to be attentive for disruptive technologies, which occur frequently in retailing. For example, the introduction of e-grocers

led to a disruptive wave in the supermarket industry (Wessel and Christensen, 2012, p. 7). Disruptive technologies result from an innovation in technology

that is initially incapable of reaching the performance of the present technology. Therefore, customers value the present technology more than this new

technology. However, a niche in the market arises where the disruptive technology is more convenient to customers. Therefore, such technology will appear

unattractive to large well established organisations, like Tesco. On the contrary small firms will regard a disruptive technology as an opportunity to

enhance the market share (CIMA, 2009, pp. 1 – 2). These small firms will utilise the technology in order to ” meet the standards of performance expected by the bulk of the market” (CIMA, 2009, p. 2). Therefore, over time the disruptive technology will

increase in popularity and will be more valuable to customers than the present technology (CIMA, 2009, p. 2). This will thus negatively affect

organisations that have not used this technological opportunity.

Environmental

In the press substantial emphasis is made on global warming and the consequences associated with it. For example, the increase in average temperature is

leading to a melting of the Arctic ice and it is envisaged that by 2040 there will be an ice-free summer (National Geographic, 2007, n. p.). Such facts are

leading to higher emphasis on environmental sustainability. Tesco is adopting a number of measures that are aimed to protect the environment. For example,

Tesco is committed to diminish the consumption of energy and utilisation of greenhouse gases (Tesco, 2014c). Management claimed that when they are doing

store adjustments they are taking into account such environmental factors. For example, in Thailand the organisation has invested £3.1 million on 49

stores in order to provide energy savings of approximately £2 million (Tesco, 2014, c, pp. 44 – 45).

Legal

There are a number of laws that affect Tesco because the organisation markets a wide number of products and services. For example, as regards the

agricultural products the UK government is reforming the common agricultural policy. The government is revising the way direct subsidies will be allocated

to farmers (Gov.uk, 2014, n. p.). Such measures can lead to lower subsidies, which affect the ability of farmers to meet the agricultural standards set by

Tesco and the prices agreed with organisations engaged in the supermarket industry. Winnett (2012, n. p.) contends that significant fines can be imposed on

firms like Tesco if such organisations force agricultural suppliers to sell at a price which is lower than costs.

Tesco is also engaged in financial services products like credit cards, savings, loans and mortgages (Tesco, 2014a, n. p.). The Financial Services Act

(2012) was recently implemented in the UK (Noked, 2013, n. p.). Three new governing bodies resulted from this act, which consist of the ” Financial Policy Committee, the Prudential Regulatory Authority and the Financial Conduct Authority” (Noked, 2013, n. p.). The Prudential

Regulatory Authority adopts a micro-perspective and is responsible that organisations engaged in financial services products operate in adherence to

relevant regulations (Noked, 2013, n. p.). The Prudential Regulatory Authority seeks to decrease the negative effects arising from ” disruption to the continuity of financial services“, which may be influenced by the way financial services organisations operate or their failure

(Noked, 2013, n. p.).

Review of Tesco PLC

Tesco is facing serious threats that are weakening the leadership in the supermarket industry that the organisation holds in the UK. Furthermore, the

financial health of competitive firms is better than that of Tesco. Tesco needs to respond to these threats and utilise its main strength, which consists

of a strong brand name in order to sustain its competitive advantages.

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