Tesco is a retail grocery company located in the United Kingdom (UK). The company is ranked as the third largest food retailer globally after Wal-Mart and Carrefour (Addady 2015 p.1 ). Tesco Company employs over 326,000 people, sells over 4000 food products and operates around 2318 stores of which 2115 operates in the United Kingdom (Tesco plc, 2015 p.1). In addition, Tesco is a multinational company operating in over thirteen countries (Clark, 2014 p.1). In the United Kingdom, Tesco Company operates under four banners namely express, metro, superstore and Tesco extra. Although the company started as grocery retailing, it does not specialize in drinks and food only but also in other key areas like telecommunication, electronics, clothing, care insurances and renting of DVD’s and CDs, health and beauty, home entertainment and clothing. The company also has its own product ranging from finest, normal and value that are suitable for different income groups of consumer. Despite its efforts of expanding its operations to other countries, the country has been positively and negatively impacted by internal and external macro-environment. Therefore, the paper seeks to identify these positive and negative impacts macro environment has upon Tesco operations by conducting Tesco’s Pestle analysis, SWOT analysis for identification of strengths and weakness and the relationship that exist between Pestle and SWOT analysis.
According to Grewal, Levy and Kumar (2009 p.1-14), the success or failure of an organization is determined by various macro environment and macro economies factors. Macro environment factors affect the business externally and therefore it is upon an organization to keep monitoring all trends taking place in the environment in order to keep the pace of competition. Some positive impacts of the macro environment to Tesco company include increased market shares and sales, brand development, competitive advantage and business growth. Some negative impacts of macro environment include termination of the business, losses, bad reputation, reduced demands and a decline in purchasing power. For the organization to understand better the macro environment it is operating, PESTLE analysis is conducted and analyzed.
Hagos and Pal (2010 p.438) described PESTLE analysis as a framework of the external environment that is used in scanning the environment components of strategic management. PESTLE is part of the external analysis that gives an overview of different macro-environmental factors that are considered when doing market research or a strategic analysis. In addition, PESTLE is also a strategic tool for an understanding business position, market decline, growth, potential and direction of operation. PESTLE framework categorizes factors into environmental, political, economic, social, technological, environmental and legal factors.
PESTLE is applied in Tesco Company for determination of the external factors that threaten and creates an opportunity for the company. The application of PESTLE guides and gives the company a transparent environment for strategizing on product improvement and gaining a competitive advantage over its competitors. Furthermore, through the analysis of the macroeconomy, the company will be in a position of determining global markets that are suitable for market entry. It is through effective analysis of the macro environment and macro economies that the company has been able to penetrate to over thirteen countries from diverse continents (Lowe, George and Alexy, 2012, p.1021).
Political factor focuses on government role in the institution. Tesco company operates worldwide and therefore global political factors influence positively or negatively the performance of the company. The key political factors that influence Tesco Company include acts of legislation, tax rates and stability of the country. Political factors affect the Tesco Company positively with political stability creating a conducive environment for doing business. Furthermore, due to its large market values, the company is well protected and supported by law because it creates opportunities for the people. For example, UK business environment was hit by credit crunch leading to great unemployment. The trend assisted Tesco Company significantly because of the market dominance as the company tried to reduce the unemployment levels that resulted from the changes.
Tesco Company is also affected negatively by the trends that the UK government is planning to increase taxations and tariffs in the near future. Currently, high taxation is a major challenge faced by diverse companies in the United Kingdom because it is unstable (King and Fullerton 2010 p.1). The unstableness in taxation has made difficult for Tesco organization to strategize and plan.
Brexit has a positive impact on Tesco-soft Brexit because the company is currently free to make trade agreements. Furthermore, less regulation and obligations are experienced in the market. With Brexit, Tesco Company has an opportunity to make more business deals globally. For example, Australia and China are currently making deals with the UK after Brexit. In addition, less regulation and obligation experienced after Brexit makes Tesco Company negotiate effectively with suppliers from other countries and conduct business in a free trade.
Brexit also has a negative impact on Tesco-soft Brexit. The negative impacts include possible reductions of foreign investment, increased in taxation as the government losses access to single markets and increased in both imports and exports rates. Despite the company decreasing prices to gain a competitive edge in the market, the profits will be lower as long as the UK remains under Brexit.
Economic is a great macro-environmental factor that affects Tesco Company. Changes in Economy has affected the company significantly in terms of profit margins. For example, the recent economic downtown experienced in the United Kingdom because unemployment has dramatically reduced the consumption and demand for goods. The diminishing in demand during the economic recession further affected the Tesco operations with the company struggling to survive by reducing prices of the products in order to have higher sales. Other negative effects of the economic factor in Tesco Company include a decline in purchasing power. The economic factors have positively boosted the company as it has gained effective economies of scale and low competition as some companies have been forced to merge or close their operations.
Several social factors such as population, migration, occupational and migration significantly impact the Tesco Company. Social factors have positively impacted the Company with the rise in population and employment rates leading to increasing demand for goods. In addition, Tesco Company has successfully addressed people’s cultural and social needs because the company has an increased amount of non-food items for sale. The increment in non-food items has encouraged existing customers to move toward bulky shopping. In addition, demographic factors like changes in lifestyles including consumer attitudes and beliefs have made Tesco Company focus on added-value services and products. The population has also forced TESCO Company to focus on consumers’ hence increasing demand for organic products and assisting the company to come up with effective strategies of driving costs out of the market. The social negative impact on the company is when the population begins to fall; the demand for products begins to decline.
Tesco Company has been using Technology as one of the expansion strategies. The technology has positively impacted the Company as it has reduced long queues because customers are able to pay their bills electronically. In addition, social media platforms like Facebook has influenced the development of many products and therefore Tesco’s company and customers have benefited largely. The personalized and customized services and products have made shopping convenient, flexible and readily available for customers and have impacted the growth of Tesco Company. The technology has negatively impacted the business with the company focusing on E-business and failing to meet the local customers who are not into technology.
UK physical environment affects how Tesco Company carries out its operations. According to Story, Kaphingst, Robinson-O’Brien and Glanz (2008 p.253) physical environment significantly affect companies in any given market and therefore firms should consider treating the physical environment appropriately. The physical environment the Tesco Company is operating in the UK has relatively benign when compared to other regions of the world that have suffered from natural disasters such as hurricanes, earthquakes and forest fires. However, the physical environment has negatively affected Tesco Company. For example, the company has experienced low sales because of snowstorms and increasingly frequent floods.
The physical environment has also had positive impacts on Tesco operations. For example, The nature of the environment in the UK has facilitated to Tesco Company implementing ethical sourcing policies, running operations that are more efficient and reducing wastes.
According to Helms and Nixon (2010 p.215), SWOT analysis is a strategic planning technique used the organization or company for identification of strengths, weaknesses, opportunity and threats which are related to project planning or competition. SWOT analysis intends to bring specifications of the project or business venture objectives. The analysis is also used in the identification of external and internal factors that are unfavourable or favourable in achieving the objectives. In SWOT analysis, strengths and weakness are considered to be internally related while opportunities and threats are considered to focus on the external environment.
Tesco Company has market leadership and strong brand image which is valued by the customers because of the quality and trustworthy. The company has dominated the UK retail industry with a market share of thirty percent and has its operations globally (Kumar 2008 p.192-211). In addition, the company has a good reputation enabling the business to launch new products and services in the market and penetrate new markets easily. For example, Tesco Company managed to enter into the financial service market with Tesco personal finance project.
Tesco Company also has a stronger global market in South Korea as compared to the rivalry companies including Carrefour and Walmart. Furthermore, the inability to meet customers demand in 2006 saw both Walmart and Carrefour sold all its stores and divest the operations from South Korea. Therefore, the success in South Korea has encourages Tesco to make more investment globally for maximization of profits and sustenance of market leadership. Currently, the company is spending over 900 million pounds in acquiring new stores and expanding the operations in Korea.
Tesco has also a strong foothold in online services that facilitate to huge sales. In the United Kingdom, the company website “tesco.com” is the fourth largest online retailer after Argons, Dell, and Amazon. For example, in 2008, the sales for Tesco.com continued to grow rapidly with the first half growing by twenty percent to reach 900 million pounds.
Tesco Company also offers products with a variety of prices. Different prices are available on the products. Furthermore, the company offers affordable products and even bestows bonuses and discounts upon their loyal customers. Therefore, the prices of products vary according to quality. If the quality of the product is high, the prices are also high.
The expand projects which the company has projected to implement have failed to satisfy the requirement of local communities. In addition, the expanded projects of the company have been frozen by the government and still waiting for government decisions.
The company has also experienced patent infringement claims and negative event influences. For example, in 2007, Franks international sued Tesco Company in US District Court alleging the company CDS infringes the patent held by Franks.
In the local market, Tesco Company lacks small convenient stores for servicing customers who are suited to the small areas. Furthermore, one of the Tesco’s competitors Sainsbury have small stores in a local town and therefore end up generating more profits in the domestic markets. In addition, largest retailers have been inconvenient to these segments of customers who only need some daily consumable but not a lot of things.
The success of Tesco Company on the internet is one of the greatest opportunities. Ever since the company introduced online shopping, it has experienced potential growth in a short period and has moved into a profitable phase. Furthermore, the website of the company is differentiated from competitors and therefore the company should explore the opportunity of customizing the new products and navigates the search engines for customers to easily find items.
The growth of non-food sales is also another opportunity explored by Tesco Company. With the company widely known for cost-cutting structure, it can implement a similar strategy to non-food retails. Furthermore, Tesco Company should utilize the opportunities by opening non-food items stores that will market the company and increase its market value and share.
The stiff competition in the industry because of the financial crisis and consumer’s tight budgets is the greatest threat. Lidlrs and Alsi possess a significant competition to the company as they threatened sales of Tesco Company by offering high quality of products to consumers at lowest costs. Therefore, Tesco Company faces a risk of losing existing customers to competitors as consumers are likely to switch to other retailers for cost reduction.
Tesco Company also faces a threat of strong government restriction against monopoly. The strictness of the government on customer law and ensuring that consumers are well protected and entrepreneurs have an opportunity to compete in the market competition exposes Tesco Company to the new competition phase in the market.
Economic stability is also another threat experienced by the company. The political changes, unpredictable nature of the economy and instability in taxations has recently threatened the company. For example, credit crunches bombed the UK impacting on Tesco’s company as consumers have considered purchasing low products due to low incomes. In addition, the consumers have paid attention to products with low prices and therefore the company has been forced to restructure its prices.
The rise in prices of raw materials has also threatened the company. The upsurge in raw materials costs from both non-food and food might contribute to poor production and therefore lead to low-profit margins or even loss of loyal customers who are keen on quality.
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Strengths · Good reputation in the market · Brand image · High market shares · Market leadership · The high quality of products · Affordable prices · Online business · General growth and ROI indicates no signs of abating |
Weaknesses · Lack of small convenient stores for local customers · Low costs on products leading to reduced prices. · patent infringement claims · reliance upon the UK market · debt reduction · |
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Opportunities · Growth of non- food sales · Internet · Intervention in Asia market · Healthy and beauty |
Threats · Competition from rivalry firms · Entrant of new product · strong government restriction against monopoly · high prices of raw materials · economic stability · UK structural change could spark a price war · Falling of oversee returns |
UK grocery market has few dominance competitors such as Asda, Safeway, Tesco and Sainsbury. Recently, the UK grocery market has transformed to supermarkets-dominant businesses with the majority of big companies building power due to efficient operations, major marketing-mix expenditure and one-stop shopping. The force has significantly impacted small business such as bakers and butchers. Therefore, Tesco faces the low threat of new entrant as it is difficult for new companies to raise capital because of high-developed supply chain and large fixed costs. In addition, Tesco has strategies and strengths such as product differentiation, effective economies of scale, better distribution changes, developed products and better promotional activities. Therefore, Tesco should consider differentiating products to meet all needs of customers for it to experience less impact when new companies enter the markets.
The major grocery companies in the UK controls the bargaining power of suppliers because of fear from suppliers that their business might get lost to a large supermarket. Therefore, Tesco Company negotiates significantly for better prices. The bargaining power of suppliers in the UK is low with existing suppliers also threatened by the ability of large retailers to grow and outsource their products from other countries at cheaper deals.
The bargaining power of customers is significant low with the grocery industry experiencing low switching costs. Tesco companies retain their customers base by offering a constant flow of in-store promotions, better choices, ensuring low prices and customizing needs. In addition, the competition from small firms has been reduced with the majority of consumers doing shopping in supermarkets
The threats of substitutes are high. In the grocery industry, substitute of needs is weakened by new trends like small chains of convenient stores which are penetrating the market. Therefore, Tesco should try to open express and metro stores in local city centers and towns and acquire small-scale operations.
The grocery industry in the UK has a concentrated purchasing power and therefore the existing companies in the industry compete for available resources and customers. The competition between rivalry companies has accelerated product developments in the UK with Tesco Company innovating in order to build an effective market share. Tesco Company should respond to this competition force by reinforcing the value-added elements and refocusing on value and price.
Strengths and weaknesses of a Company relate to micro and macro environment factors. A company or organization compares its strengths with prevailing factors of the macro environment such as technological, political, social or cultural and economic then come up with operational and strategic policies. In addition, the unexpected change in environmental factors can impact the decision-making of a company. The interrelationship between strengths and weakness and factors of the macro environment is analyzed in terms of economic factors, political and legal factors, social and cultural, technological and environmental.
Economic factors include the exchange rate in the market, inflation rate and change in interest rate. If a company has strengths of having viable finance and sufficient resources, changes in economic factors will not significantly affect the marketing and pricing strategy of the company. In addition, a company should always be ready to encounter economic challenges.
Changes in Political and legal factors like legal policies affect the company. The company should have specialized staff and expertise and further remain compliant to all government regulations.
Social and cultural factors are also related to the strengths and weakness of the company. A business must have a viable financial resource, dedicated staff and natural resources in order to challenge the social and cultural factors. In addition, a company should possess the strengths of fulfilling tastes and preferences of customers as per their needs that are based on value and beliefs.
If the company has strengths of adopting new technologies and monitoring trends, it can track all the changes in which comes or are associated with the technology.
Therefore, macro environment factors, strengths and weakness affect each other. If an organization cannot identify its strengths and weakness, then it is clear that it cannot determine the macro-environmental factors and therefore it ends up failing to formulate tactical and strategic plans. If a company is not in a position to satisfy the demands of customers, then weaknesses will negatively impact the business. Therefore, the ultimate goal of the company should be improving the weaknesses.
Conclusion:
The paper concluded that Tesco Company operates in a competitive environment and therefore analyzing macro environment factors will be a step of the company to gain a competitive advantage. In changing the business environment with competitive companies, Tesco Company needs to implement new expansion strategies so that it can sustain its position of leading the UK grocery market.
References:
Addady, M. (2015). https://fortune.com. [online] Fortune. Available at: https://fortune.com/2015/08/31/tesco-vinyl-records/ [Accessed 1 Dec. 2018].
Clark, T. (2014). A history of Tesco: The rise of Britain’s biggest supermarket. [online] Telegraph.co.uk. Available at: https://www.telegraph.co.uk/finance/markets/2788089/A-history-of-Tesco-The-rise-of-Britains-biggest-supermarket.html [Accessed 1 Dec. 2018].
Grewal, D., Levy, M. and Kumar, V., 2009. Customer experience management in retailing: An organizing framework. Journal of retailing, 85(1), pp.1-14.
Hagos, T.M. and Pal, G., 2010. The means of analysis and evaluation for corporate performances. Annales Universitatis Apulensis: Series Oeconomica, 12(1), p.438.
Helms, M.M. and Nixon, J., 2010. Exploring SWOT analysis–where are we now? A review of academic research from the last decade. Journal of strategy and management, 3(3), pp.215-251.
King, M.A. and Fullerton, D., 2010. The taxation of income from capital: a comparative study of the United States, the United Kingdom, Sweden and West Germany. University of Chicago Press.
Kumar, S., 2008. A study of the supermarket industry and its growing logistics capabilities. International Journal of Retail & Distribution Management, 36(3), pp.192-211.
Lowe, M., George, G. and Alexy, O., 2012. Organizational identity and capability development in internationalization: transference, splicing and enhanced imitation in Tesco’s US market entry. Journal of Economic Geography, 12(5), pp.1021-1054.
Story, M., Kaphingst, K.M., Robinson-O’Brien, R. and Glanz, K., 2008. Creating healthy food and eating environments: policy and environmental approaches. Annu. Rev. Public Health, 29, pp.253-272.
Tesco plc. (2015). Tesco plc. [online] Available at: https://www.tescoplc.com/index.asp?pageid=126 [Accessed 1 Dec. 2018].
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