Introduction
This section will show in depth analysis on the supermarket company, Tesco, emphasizing on the external environment of Tesco plc and how the company utilises its resources to gain more competitive advantages and to survive in the market. PESTEL analysis is used in the following section to determine Tesco long term societal trends. The PESTEL framework below analyses the dynamic and unpredictable environment in which Tesco operates by identifying the forces that have the most impact on Tesco’s performance:
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Political
For employment legislations, the government encourages retailers to provide a mix of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs (Balchin, 2010). Tesco understands that their business has a great impact on the jobs and people living there as when they open new store they indirectly destroying other jobs in the retail sectors such as traditional stores and those shops are forced to cut costs to compete with Tesco. Being an inherently local and labour-intensive sector, Tesco employs large numbers of; student, disabled and elderly workers, often paying them lower rates. In an industry with a typically high staff turnover, these workers offer a higher level of loyalty and therefore represent desirable employees. China’s accession to the WTO has promoted a free flow of foreign trades by removing all barriers encouraging Western companies, including Tesco, to make way into the world’s most profitable market encompassing over 1.3 billion people In 2009 an agreement was signed by Tesco to set up a premeditated series of joint ventures for the development of shopping malls in China (Abeysinghe, 2010). This joint venture included three malls: Anshan, Fushan and Qinhuangdao. Following the accession to the WTO from the china, Tesco successfully open another 18 new supermarket in 2010 (Tesco, 2010). The growth of Tesco’s international business segment is on the rise and it is predicted to account for one quarter of the company’s profit. Tesco Plc has also benefited from the promotion of free trading blocs by governments (Lynch, 2003). Immersion of 10 further countries into the European Union (EU) took place in 2004 promoting trade between Western and Eastern European countries (King, 2009). This has provided Tesco plc to further expand its retail network across the Europe Countries.
Economic
Tesco are paying high attention to the economic factors as this factor directly impacts the buying behaviour of their customers. Although the UK economy was declared officially under recession in 2008, the government’s substantial reduction in interest rates helped to minimise further rises in unemployment during 2009 (Graiser & Scott, 2010). As a result of this, the spending power of consumers is increasing steadily because the consumers are more confident about their current financial situation. However, there is still a lot of financial uncertainty meaning that consumers are likely to spend less on premium products, encompassing organics and ready prepared meals, which will adversely affect both sales value and margins. However, the positive aspect of recession is that the customers eat out less and eat more at home which provides opportunities for grocery retailers like Tesco to increase their output (Shales, 2009). It must be noted that food is the last thing that customers will cut back on. The percentage of overall consumer spending on food has risen considerably over the years
Socio-Cultural
An analysis of the UK population shows that there are more retired people than children (Herald, 2005). The ageing population brings disadvantages to Tesco as older people tend to eat less. They are less likely to travel to supermarkets to shop compared with the younger generation. Although internet literacy level drops over the age of 65 years within the population (Turban, et al., 2001), it has nevertheless been predicted that the ageing population would find online shopping more convenient. However, small deliveries are considered to be ineffective and expensive. Consumers’ attitude towards food is incessantly changing as they have become more health- conscious . An increase in the demand for organic food has been accommodated by Tesco to reflect this change in demand. Payment by cheques and cash at the checkout was first made possible by Tesco.
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