Czech University of Life Sciences, Prague

Pest analysis of Tesco PLC

(Assignment)
Subject: Business Economics

Prepared by:
Iliya Georgiev

Examined by:
Ing. Michaela Antoukov, Ph.D.

November 2013

Table of Contents
Introduction and Background of Tesco ............................................................................... 3
PEST Analysis ..................................................................................................................... 5
Political Factors ................................................................................................................ 5
Economic Factors ............................................................................................................. 6
Social/Cultural Factors ..................................................................................................... 6
Technological Factors ...................................................................................................... 7
Conclusion ........................................................................................................................... 8
References: .......................................................................................................................... 9

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Introduction and Background of Tesco

esco PLC is a British multinational grocery and general merchandise retailer

headquartered in Cheshunt, Hertfordshire, England, United Kingdom. It is the

second-largest retailer in the world measured by profits (after Wal-Mart) and third-largest
retailer in the world measured by revenues (after Walmart and Carrefour). It has stores in
14 countries across Asia, Europe and North America and is the grocery market leader in
the UK (where it has a market share of around 30%), Malaysia, the Republic of Ireland
and Thailand.
The company was founded in 1919 by Jack Cohen as a group of market stalls. The Tesco
name first appeared in 1924, after Cohen purchased a shipment of tea from T. E.
Stockwell and combined those initials with the first two letters of his surname, and the
first Tesco store opened in 1929 in Burnt Oak, Middlesex. His business expanded rapidly,
and by 1939 he had over 100 Tesco stores across the country. Originally a UK-focused
grocery retailer, since the early 1990s Tesco has increasingly diversified geographically
and into areas such as the retailing of books, clothing, electronics, furniture, petrol and
software; financial services; telecoms and internet services; DVD rental; and music
downloads. The 1990s saw Tesco reposition itself, from its perception as a downmarket
"pile 'em high, sell 'em cheap" retailer, to one which appeals across a wide social group,
from its Tesco Value to its Tesco Finest ranges. This was successful, and saw the chain
grow from 500 stores in the mid-1990s to 2,500 stores fifteen years later.
Tesco is listed on the London Stock Exchange and is a constituent of the FTSE 100
Index. It had a market capitalisation of approximately 24.4 billion as of 15 January
2012, the 15th-largest of any company with a primary listing on the London Stock
Exchange.
In 2003 retail accounted for 9% of gross domestic product. In recent years UK
supermarkets have come under increased scrutiny over their treatment of suppliers,

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particularly of own-label products, yet the development of strategic supply networks has
been an integral part of most supermarket strategies for the past decade.
The analysis below provides an insight into the supermarket company, Tesco, with
emphasis on its external environment analysis and companys analysis of resources,
competence and culture.

What is PEST Analysis?

EST is an abbreviation for Political, Economic, Social, Technological - the

categories into which a business environment is broken up for making it easier to

comprehend and understand.. It is a strategic planning tool for measuring the various
factors in a potential business environment and to estimate its suitability for the given
company. Therefore here is a brief description of all the factors that have a presence in
one business environment one by one.
Political factors refer to all those things related to and executed by the government that
affect the economy and business environment in general. Government regulations and
policies that have an impact on the business environment the most may include trade and
labor laws, tax policies, environmental laws and regulations, trade restrictions, tariffs,
infrastructure and development policies, etc. The level of political stability also has a
huge impact on business environment and the economy in general.
Economic environment refers mostly to the macroeconomic factors as these factors may
have a high impact upon the business environment but a firm does not have any control
over them. The most it can do is modify its business strategies and various commercial
and financial policies accordingly to make the most of the present economic situation.
These economic factors may include the interest rate, currency exchange rate, rate of
inflation, economic growth rate, etc.
Social factors refer to the social, religious and cultural aspects of the business
environment that may be affected by, and may react to, the firm's strategies either
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positively or negatively. These may include demographic aspects like age, employment
and income statistics, population growth rate, education and career trends, religious
beliefs and social stigmas, overall general attitude etc. These factors may have a huge
impact upon the firm's operations within the business environment as any action by the
firm which goes against or threatens the societal norms may face criticism, negative
publicity and protests.
Technological environment refers to the technical aspects of the business environment
and may include the level of technical advancement and level available in the current
times, technical facilities and infrastructure, rate of technological progress and research
and development activities. These factors may assume decisive proportions and may
impact the cost, quality and scope of innovation for a product, service or commercial
utility.

PEST Analysis of Tesco

Political Factors

perating in a globalized environment with stores

around the globe (Tesco now operates in six

countries in Europe in addition to the UK; the Republic of

Ireland, Hungary, Czech Republic, Slovakia, Turkey and
Poland. It also operates in Asia: in South Korea, Thailand,
Malaysia, Japan and Taiwan), Tescos performance is
highly influenced by the political and legislative
conditions of these countries, including the European
Union (EU).
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, higherpaid and centrally-located jobs. Also to meet the demand from population categories such
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as students, working parents and senior citizens. Tesco understands that retailing has a
great impact on jobs and people factors (new store developments are often seen as
destroying other jobs in the retail sector as traditional stores go out of business or are
forced to cut costs to compete), 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.

Economic Factors
Economic factors are of concern to Tesco, because they are likely to influence demand,
costs, prices and profits. One of the most influential factors on the economy is high
unemployment levels, which decreases the effective demand for many goods, adversely
affecting the demand required to produce such goods.
These economic factors are largely outside the control of the company, but their effects
on performance and the marketing mix can be profound. Although international business
is still growing and is expected to contribute greater amounts to Tescos profits over the
next few years, the company is still highly dependent on the UK market. Hence, Tesco
would be badly affected by any slowdown in the UK food market and are exposed to
market concentration risks.

Social/Cultural Factors
Current trends indicate that British customers have moved towards one-stop and bulk
shopping, which is due to a variety of social changes. Tesco have, therefore, increased the
amount of non-food items available for sale.
Demographic changes such as the aging population, an increase in female workers and a
decline in home meal preparation mean that UK retailers are also focusing on addedPage | 6

value products and services. In addition, the focus is now towards; the own-label share of
the business mix, the supply chain and other operational improvements, which can drive
costs out of the business. National retailers are increasingly reticent to take on new
suppliers.
The type of goods and services demanded by consumers is a function of their social
conditioning and their consequent attitudes and beliefs. Consumers are becoming more
and more aware of health issues, and their attitudes towards food are constantly changing.
One example of Tesco adapting its product mix is to accommodate an increased demand
for organic products. The company was also the first to allow customers to pay in
cheques and cash at the checkout.

Technological Factors
Technology is a major macro-environmental variable which has influenced the
development of many of the Tesco products. The new technologies benefit both
customers and the company: customer satisfaction rises because goods are readily
available, services can become more personalised and shopping more convenient. The
launch of the Efficient Consumer Response (ECR) initiative provided the shift that is
now apparent in the management of food supply. Tesco stores utilise the following
technologies:

Wireless devices

Intelligent scale

Electronic shelf labelling

Self check-out machine

Radio Frequency Identification

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The adoption of Electronic Point of Sale (EPoS), Electronic Funds Transfer Systems
(EFTPoS) and electronic scanners have greatly improved the efficiency of distribution
and stocking activities, with needs being communicated almost in real time to the
supplier (Finch, 2004).

Conclusion
The success of the Tesco shows how far the branding and effective service delivery can
come in moving beyond having only a logo in front of the store. It had fostered powerful
identities by making their retailing concept into a virus and spending it out into the
culture via a variety of channels: cultural sponsorship, political controversy, consumer
experience and brand extensions.
In a rapidly changing business environment with a high competitors pressure Tesco have
to adopt new expansion strategies or diversified the existing in order to sustain its leading
market position in an already established retailing market. The company is constantly
adapting to the fast changing circumstances. Strategy formulation depending on the
ongoing business environment situation should therefore be regarded as a process of
continuous learning about the goals, the effect of possible actions towards these goals and
how to implement and execute these actions. The quality of a formulated strategy and the
speed of its implementation will therefore directly depend on the quality of Tescos
cognitive and behavioral learning processes.
In large organizations as Tesco strategy should be analysed and implemented at various
levels within the hierarchy. Tescos strategy at a corporate level defines the businesses in
which Tesco will compete, in a way that focuses resources to convert distinctive
competence into competitive advantage.

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References:
http://www.tesco.com/
http://www.wikipedia.com/
http://www.corporatewatch.org/?lid=252
http://www.ukessays.com/essays/business/a-brief-history-of-tesco-supermarket-businessessay.php
http://www.buzzle.com/articles/pest-analysis-example.html

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