Portfolio 1:
Key characteristics of Tesco:
One of the many key characteristics of Tesco is that it is a Public Limited Company (PLC), which essentially means any member of the public can buy shares. Another factor to take into consideration is that it has limited liability. Moreover, this is advantageous for a large company such as Tesco because they can receive a higher influx of investors making the company more valuable/ give a more prestigious profile (increased popularity etc.). However, there also disadvantages too, such as more exposure to public scrutiny because Tesco’s financial statements are published online for anyone to see (Tutor2u, 2018).
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Additionally, another key characteristic of Tesco is the organisational structure. Due to the fact that Tesco is a large organisation; it has a tall structure. The total number of employees is over 440,000 and they have over 6,800 stores located worldwide (Tesco PLC, 2018). This leads to a long chain of command via different levels of hierarchy which is shown in the diagram below (Marked by Teachers, 2016).
Finally, the last key characteristic is that Tesco have expanded into other markets. Own brands such as Tesco Mobile and Tesco Bank have been created. Due to changes in the market, they needed to respond effectively and expand their market. Unfortunately, one disadvantage is that already existing companies such as Vodafone, Three and EE have already built up their brand reputation, whereas Tesco is a relatively new/emerging competitor within that specific market. According to the Statistisa website as of last year Vodafone (21%) and Three (12%) had a much higher market share percentage- compared to Tesco Mobile (6%) (Statista, 2018). However, the pros outweigh the cons substantially because Tesco can not only delve into new sectors and evolve more as a company, but they can also expand their customer base. In the long run, this will lead to an increased amount of profit generated overall.
PESTEL Analysis:
Political:
Tesco operates in 13 countries (Tesco, n.d.), therefore Tesco is exposed to many political factors that can affect the operations of Tesco such as tax rate. For instance, lower tax rates can either make or break a business. Lower tax rates mean more money to spend which could increase sales for Tesco. However, customers will be able to afford more expensive products that are rich in quality which could lead to losing customers to higher end supermarkets like Waitrose.
Another prevailing issue is Brexit which is currently occurring in the UK, however, the official date that the UK will no longer be part of the EU is 29th March 2019. Brexit may impact the supermarket sector negatively because a fall in the value of the pound could lead to higher food prices in the UK as the costs of imports will increase. This means that in order for Tesco to cover their increased cost(s) spent on imports they will increase the prices of their products/services.
Lastly, if there is war and/or conflict(s) in places where Tesco’s suppliers are based, then supply may be affected. Tesco has a huge customer base and serves thousands of people every day in their stores, which means huge demand for their goods/products. Moreover, conflict can cause supply demanded to decrease and may even cause production to go to a halt. It can affect investment in conflict-affiliated countries as well.
Economical:
One Economical aspect are interest rates, which may affect Tesco in a negative way because business costs may increase. In turn, Tesco will need to raise prices of products to cover costs. However, this will have a negative affect because customers will go to rival supermarkets where prices are cheaper. Conversely, a decrease in interest rates will have a positive impact on Tesco because for example, machinery and the cost of borrowing will be cheaper.
Another positive impact is it will increase investment and drive investors seeking higher returns for their money. Moreover, the cost of borrowing will decrease meaning that customers have more spending money and more disposable income. In relation to Tesco, this means that customers will spend more at their stores meaning more profit.
The current inflation rate is 2.4% (RateInflation, 2018). Any fluctuation in the inflation rate can affect Tesco in both positive and negative ways. Low inflation rate can lead to disruption in business planning and lead to lower capital investment. On the other hand, high inflation rate is bad and can affect currency exchange rates which can lead to higher prices as imports of products for Tesco will be at a higher price.
Social:
Ageing population is a very important factor for Tesco to take into consideration because the population is growing. In the UK alone last year, around 18.2% of the UK population were aged 65 years or over at mid-2017, compared with 15.9% in 2007, this is projected to grow to 20.7% by 2027 (Coates, 2018). However, as the population is ‘ageing’, customers are likely to be older (as presumably healthcare will be better) so products may need to be adapted to satisfy customer needs.
Furthermore, it also includes changes/shifts in lifestyle and culture. Specifically, I will be explaining about how much the Muslim population has grown (and is predicted to grow). Due to this factor, it means that Tesco would need to increase the amount of halal food that they already provide in their stores around the world. Failure to do so can lead to Tesco losing a lot of money as Muslims are an increasing customer base. As you can see from the graph below, it shows that Muslims are predicted to be the fastest growing religion.
Technological:
Technology has massively impacted Tesco regarding reducing costs, increasing efficiency etc. Machinery such as self- scan tills can reduce the number of workers, which will reduce the number of salaries that need to be paid. Due to technology, computers/tablets are used more and more which saves time. However, one factor that Tesco must be careful of is making sure that the company’s data is secure and safe. Furthermore, Tesco will soon be using radio frequency identification (or RFID for short). RFID automatically counts and removes stock after sales which is helpful as Tesco employees would know if something is running low on stock. Depending on popularity more can be ordered and vice versa if the products are not selling as much.
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Additionally, online shopping has had a positive impact on Tesco because customers who are busy can still order and purchase products 24/7. The customer base of Tesco will increase as customers can order from the comfort of their own home. For example, people may not be able to in-store due to childcare reasons or someone may be physically disabled making shopping in- store a difficult task. This will increase Tesco’s market share and will allow Tesco to have an advantage over their competitors.
Environmental:
The environmental factor of Tesco relates to external factors such as pollution. Tesco have been heckled on numerous occasions regarding their plastic bags and bio-degradable. The bags themselves, are supposed to decompose within three years. But it also depends on where the bags are dumped because they need to be presented to warmth and daylight for particles in the plastic bag to separate quicker. Any small abandoned plastic particles could hurt winged creatures like birds etc.
Tesco, are also trying their best to increase their sources of renewable energy. Tesco has announced it will run 100 per cent on renewable electricity in the UK and Ireland this year and worldwide by 2030 (Johnston, 2017). Moreover, Tesco works with Sustainable Fisheries Partnership (SFP) which allows there to be plenty of fish while meeting the needs of their customers by providing good quality fish for a decent price (Tesco PLC, 2018). The partnership enables the fish to repopulate and makes sure that species do not become endangered.
Legal:
The legal factors of Tesco concerns specific laws including the Minimum Wage Act, Health and Safety at Work Act etc. According to the Health and Safety at Work Act (introduced in 1974) employees must work in a safe environment. For example, there shouldn’t be any exposed cable wires etc. to prevent any accidents such as electrocutions.
Government policies and legislations directly impact the performance of Tesco. Failure to comply with them could risk in getting fined, or stores getting closed down- in a worst-case scenario. One example of this is that Tesco was fined £95,000 due to them breaching five of the Fire Safety Orders, later pleading guilty at Wood Green Crown Court in April 2010 (Johns, 2015). Moreover, it can leave Tesco with a negative reputation which means that they could lose customers, therefore, decreasing profit. Another example of Tesco failing to comply with the legal factors was the Tesco horsemeat scandal back in 2013 which meant that nearly £300 million was wiped off their market value according to The Guardian (Fletcher, 2013).
Business Functions:
I will now be evaluating two important business functions and how Tesco might address the issues identified within my PESTEL analysis; the two functions that I have chosen are finance and operations. Firstly, is finance which involves profit, revenue and so forth. As of February, last year Tesco made £57.5 billion in revenue and £1,298 million profit before tax (Tesco PLC, 2018) . I have chosen finance because it relates to the legal factor of my PESTEL analysis. One issue is the National Minimum Wage (NMW) Act put in place in 1998. Therefore, it is imperative that Tesco pay their employees the correct wages as well as adhering to the National Minimum Wage Act. Failure to comply could lead to Tesco getting fined and taken to court for misconduct of the law.
Finally, the second business function I have chosen is operations, which they have already been successful with as they have opened many stores worldwide in 13 countries (Tescopoly, 2018). I have decided to link operations to the environmental factor of my PESTEL analysis. One issue that could be tackled is sustainability for the future. For example, it is vitally important (in my opinion) for Tesco to focus on farming and suppliers because this is where Tesco’s fresh produce is from. Without suppliers Tesco would not survive or would have to grow their own crops which would be expensive, time-consuming and so on. Furthermore, by Tesco coming up with ways to stay more sustainable such as preventing overfishing it shows that’s Tesco wants to the operations of the company. By ensuring that operations are run efficiently, it can lead to a better economy in the long run. This shows that they’re an ethical business via trying to reduce their negative impact on the environment. Due to this, Tesco may attract more customers leading to more profit overall.
Bibliography
Tutor2u, 2018. Public Limited Companies. [Online] Available at: https://www.tutor2u.net/business/reference/public-limited-companies [Accessed 08 12 2018].
Tesco PLC, 2018. Our businesses. [Online] Available at: https://www.tescoplc.com/about-us/our-businesses/ [Accessed 08 12 2018].
Marked by Teachers, 2016. Tesco organisational structure. [Online] Available at: http://www.markedbyteachers.com/as-and-a-level/business-studies/tesco-organisational-structure.html[Accessed 08 12 2018].
Statista, 2018. Market share held by mobile operators in the United Kingdom (UK) 2018, by subscriber. [Online] Available at: https://www.statista.com/statistics/375986/market-share-held-by-mobile-phone-operators-united-kingdom-uk/[Accessed 08 12 2018].
Tesco, n.d. TESCO WORLDWIDE. [Online] Available at: http://www.tescopoly.org/worldwide[Accessed 06 12 2018].
RateInflation, 2018. UK Inflation summary for October 2018. [Online] Available at: https://www.rateinflation.com/inflation-rate/uk-inflation-rate[Accessed 06 12 2018].
Coates, 2018. Overview of the UK population: November 2018. [Online] Available at: https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/november2018[Accessed 06 12 2018].
Johnston, 2017. Tesco to switch to 100% renewable electricity this year in UK and by 2030 worldwide. [Online] Available at: https://www.independent.co.uk/environment/tesco-switch-renewable-lectricity-energy-uk-2017-by-2030-worldwide-supermarket-a7739076.html[Accessed 06 12 2018].
Tesco PLC, 2018. Seafood policy. [Online] Available at: https://www.tescoplc.com/reports-and-policies/seafood-policy/[Accessed 06 12 2018].
Johns, 2015. Top 25 Expensive Fines for Fire Safety Breaches. [Online] Available at: https://www.staylegal.net/top-25-expensive-fines-fire-safety-breaches/[Accessed 08 12 2018].
Fletcher, 2013. Horse meat scandal wipes £300m off Tesco’s market value. [Online] Available at: https://www.theguardian.com/business/marketforceslive/2013/jan/16/horse-meat-tesco-market-value-shares[Accessed 06 12 2018].
Tesco PLC, 2018. Financial performance. [Online] Available at: https://www.tescoplc.com/investors/reports-results-and-presentations/financial-performance/[Accessed 09 12 2018].
Tescopoly, 2018. Tesco worldwide. [Online] Available at: www.tescopoly.org/worldwide[Accessed 09 12 2018].
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