Pestle analysis of Tesco
In order to enhance as well as maintain the revenue and performance of an organization, it is highly crucial for the management to assess both external as well as internal performance of the organization. The chief purpose of assessing the external environment of the organization is to understand the rate of changes that are happening in the industry and the degree of complexity associate with it. Clearly understanding the external environment helps the management to understand the specific needs of the consumers and develop strategies keeping accordance with it. In this report, the PESTLE Analysis of the Tesco Plc has been conducted. The Tesco Public Limited Company is referred to a highly reputed British multinational groceries and general merchandise retailer. The company has its headquarter at England UK. Apart from conducting the Pestle analysis, three questions related to the mentioned analysis will be answered in this report.
In the following paragraphs the Political, Economical, Socio-cultural, Technological and Legal environment of Tesco performing in the UK retail market will be performed.
Considering the fact that the mentioned company operates in 12countries across the world, global political factors highly influences the performance of Tesco. The company has to consider the tax rates, rules and regulations and the political stability of the countries in which it operates. The political condition of UK is currently unstable. As a matter of fact, the UK government has enhanced their VAT rate from 17.5 percent to 20 percent that has imposed a negative impact on the business of the organization (Hammad 2015). The chief purpose of the government is to enhance the annual revenue by 13 billion dollars. However, enhanced tax rate have decreased the spending of the consumers. Thus it can be clearly understood that the increment in tax rate in UK have depreciated the overall revenue of the company. Moreover, in order to control obesity and medical issues associated with it, The UK government have implemented the fat tax. This act have further decreased the sale of a good number of fast foods retailed by Tesco.
The government of UK is still recovering from the financial crisis that happened to the country due to recession. According to the researchers, the economic growth rate of UK in the year 2018 is 2.3 percent higher compared to that of the previous year (Rahman 2015). This factor has imposed a positive impact on the company since higher per capita income will ensure higher purchasing power of the consumers. Recession had enhanced unemployment in UK which in turn had decreased the spending power of the organization. However, unemployment has lowered the labor cost in the nation that has positively affected the company.
Like other developed countries like USA and Australia, the population of UK is an aging population. Decrement in the birth rate and increment in the life expectancy of individual can be considered as two of the major reasons behind this. This factor has imposed a negative impact on the supermarket chain of the company. Considering the fact that elderly citizens suffers from several mobility issues and are thus unable to visit the supermarket on a daily basis, have adversely affected the sales and revenue of the company. In order to cope up with this threat, Tesco have implemented online shopping for grocery and household items. This approach have been preferred by the elderly residents of UK which in turn have enhanced the revenue of the company to a good extent (López López 2017). Moreover, since a good percentage of the population is suffering from obesity related issues, the residents of UK are getting inclined towards a healthy lifestyle. Since, majority a good number of food items retailed by the company contain fat, the health conscious of the UK residents has adversely affected the company.
Political Environment
Being a developed country, the technology of UK is highly advanced. Retail organizations of the nation enjoy excellent transportation facilities, 24*7 internet facility. Since, Tesco runs online business along with offline business, developed technological infrastructure has highly facilities the company. The excellent transportation system of UK helps in both inbound as well as outbound logistic of the company. Timely delivery of products to the supermarket chain helps the company to maintain its variety of products offered to the consumers along with ensuring consumer satisfaction.
Considering the fact that the mentioned organization markets a wide huge of products as well as services, a good number of laws affects the business of Tesco. For instance, UK government is currently reforming the agricultural policy of the nation. The government is revising the direct subsidies that will be allocated to the farmers (Hadi 2012). These measures have the potential to lower the subsidies which in turn will make it difficult for the farmers to meet the agricultural standers as well as price set by Tesco. According to the new rules and regulations of the government, fines will be imposed on retail organizations like Tesco in case the management forces the farmers to sell product to the organization at a lower price than the cost price. Apart from this, since Tesco offers several financial services to it consumers like credit cards, loans and savings, the company has to follow the Financial Service Act (Felgate and Fearne 2015).
In order to reduce the global worming rate, the UK government is imposing high emphasis on the environmental sustainability of the nation. Being a well-reputed organization, the management of Tesco is implementing several steps in order to protect the environment. For instance, in the year 2016, Tesco has committed to reduce energy consumption and green house gasses (Steger 2015).
1. While all of the external sources that have been identified imposed immense impact on the business of the company, the most impactful environmental factors that impose immense impact on the business is the Political, economical and socio-cultural environment of UK (Steger 2015). Considering the fact that the political rules and regulations impose high impact on the business of the nation, the instability in the UK political environment of UK is resulting in decrement of the revenue of the company. Similarly, the economic environment of UK, which is slowly gaining stability, is also influencing the company to a great extent.
2. In order to deal with the above mentioned issue associated with the external environment of the company, the management of the organization have implemented several strategies. For instance, one of the major issues faced by the company includes excessive inclination of the consumers towards a healthy lifestyle. Moreover, as being discussed earlier, the government has implemented fat tax on food products that contains fat. Al this have greatly decreased the revenue of the company. In order to deal with this, the management has reduced the importation of fast food items and enhanced the importation of organic food items. Moreover, in order to clear out the remaining stock, the management has implemented a discount of more than 20 percent (Stümke 2017). Considering the fact that the nation is suffering from ageing population, the company was facing labor issues. In order to deal with the issue, Tesco had implemented the policy of exporting labors from corporately cheap labor markets like China and Australia. Considering the fact that recession has lowered the capacity of the consumers to buy household items, Tesco has implemented the policy of offering seasonal discount in order to encourage consumers to buy products.
3. In order to make effective decision about which strategy needs to be implemented after the PESTLE analysis, managers of TESCO should go through the pestle report thoroughly. This will provide the managers with the overall overview of the external environment. The second step that should be taken by the organization includes segregating the factors that are implementing positive and negative impact on the organization. In the case of Tesco, The factors that impose positive impact on the company are the Technological and Environmental environment (Biscaro et al. 2012). The rest three factors that is the Political, Economical and socio-cultural factor imposes several negative impacts on Tesco. In the third step exact issues associated with the company should be identified so than effective solutions of the issues can be developed.
4. In order to analyze the external environment of company, several tools like PESTLE Analysis, Porter’s five model and others can be used. Out of the tools, Pestle analysis can be considered as the most crucial tool that provides an detailed overall picture of the industry as well of the country. For instance, the management of Tesco has been able to identify the issue of aging population of UK. This in turn has helped the organization to successfully eradicate the mentioned issue.
References
Biscaro, B., Lindvall, O., Tesco, G., Ekdahl, C.T. and Nitsch, R.M., 2012. Inhibition of microglial activation protects hippocampal neurogenesis and improves cognitive deficits in a transgenic mouse model for Alzheimer’s disease. Neurodegenerative Diseases, 9(4), pp.187-198.
Felgate, M. and Fearne, A., 2015. Analyzing the Impact of Supermarket Promotions: A Case Study Using Tesco Clubcard Data in the UK. In The Sustainable Global Marketplace (pp. 471-475). Springer, Cham.
Hadi, S., 2012. Retail supply chain a study of business models of select players from India and developed countries.
Hammad, A., 2015. Strategic Change and Its Management to Expand Business Through Implementation of Models: A Case Study of Boots UK.
López López, N., 2017. Different ways to assure the continuity of the business.
Rahman, M.M., 2015. Critical analysis of the influence of discount retailers on Tesco plc in the UK.
Steger, J., 2015. Strategic Management of Mars Inc. A Combination of an Innovative Management Philosophy and Familial Eccentricity.
Stümke, L.I., 2017. Business Diplomacy: The elucidation to ease multinational corporation’s business risk in developing countries and conflict-prone zones (Master’s thesis, University of Twente).
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