James Simpson

Foundation Degree in Business Management Unit: Organisational Contexts Assessment Title: Year 1 Assignment 2 Submitted: 26th May 2011 1.0 Prepare a report which discusses and analyses the external business environment of a business of your choice. The report should be based on a detailed PESTLE analysis of the global context in which the business operates.

James Simpson

2.0 Contents Page 1 .. 1.0 Terms of Reference 2 .. 2.0 Contents Page 3 .. 3.0 Introduction 4 .. 4.0 Tesco Overview 4..... 5.0 Tesco PESTLE & SWOT Analysis 10.... 6.0 Conclusions 10.... 7.0 Overall SWOT Analysis 11..... 8.0 References

James Simpson

3.0 The purpose of PESTLE analysis is to assess the industry which an organisation is in. PESTLE analysis is used in conjunction with the SWOT analysis which assesses the strengths, weaknesses, opportunities and threats to an organisation. I will be applying PESTLE in conjunction with SWOT to the supermarket chain Tesco in order to evaluate the organisation.

James Simpson

4.0 Tesco is one of the largest food retailers in the world with revenue in excess of 60 billion in 2010 and employing over 470,000 people. They operate approximately 5380 stores in 14 countries around the world. The company operates primarily in the USA, Europe and Asia and their Head Office is based in Hertfordshire, UK. The commercial network portfolio of Tesco comprises of over 960 Express stores which sell approximately 7,000 products including fresh foods at suitable localities, 170 Metro stores which sell a variety of food products in town and city centres and 450 superstores which sell both food and non-food items including books and DVDs. Tesco also provides online retailing services through their website tesco.com and Tesco Direct. In addition, they provide broadband internet connections and financial services through Tesco Personal Finance. Tesco was founded in 1919 and launched its first store in Edgware, London, UK in 1929 (Tesco, 2010); however, over the decades it has evolved to become the market leader within the UK food retail segment. 5.0 Political In 2004 10 additional countries were emitted into the European Union promoting trade between Western and Eastern European countries. This has provided Tesco with a platform to expand its retail network across the EU. Since China joined the World Trade Organization it has promoted a free flow of foreign trades encouraging Western companies, including Tesco, to make a significant impact in the Chinese market. In 2009 an agreement was signed by Tesco to set up a series of joint ventures for the development of shopping malls in China. This joint venture included three malls and 18 new hypermarkets. In the UK like many other retailers Tesco benefitted from the smoking ban introduced in 2007, sales of alcohol rose due to people avoiding the pubs and bars because they couldn t smoke there, so instead smoked at home and bought alcohol from stores. At present the UK government is proposing to introduce a minimum price on alcohol, as a supermarket this will impact Tesco s ability to sell cheap alcohol, however as all retailers will be affected by the

James Simpson

minimum pricing it gives somebody the chance to be innovative within the alcohol market to drive sales. Political SWOT Strengths Tesco are global and continuously expanding to other countries. Weaknesses In other countries foreign brands such as Tesco aren t always well known and need to raise brand awareness. Opportunities Trade barriers are constantly being broken down allowing Tesco to continue to expand globally. Threats There is competition in every country and when arriving in a new market Tesco has to ensure they make an impact.

Economical Economic factors are a main concern for Tesco because they impact directly upon the buying behaviour of 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 (Euromonitor, 2010). As a result of this, the spending power of consumers is again on a steady rise as they 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, and focus more on ready meals and grocery. However, the positive side of recession for Tesco is that customers eat out less and eat more at home which provides opportunities for Tesco to increase their output (Guardian, 2010). It must be noted that food is the last thing that customers will cut back on. I think that this is why Tesco s competitors Sainsbury s have seen such success with their basics food range, Tesco have a similar model but have not enjoyed the same success with it.

James Simpson

Economical SWOT Strengths Tesco are benefitting from people choosing to buy food and eat in rather than go out for a meal. Opportunities To attract new customers looking to shop on a budget. Threats Cheaper supermarkets such as Iceland and Farmfoods offering huge selections in cheap frozen food. Weaknesses Tesco s premium brands could take a slump in sales

Social The ageing population is discouraging for food retailers 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, as old people don t eat much their small deliveries are considered to be ineffective and expensive. Consumers attitude towards food is incessantly changing as they have become more healthconscious. For example an increase in the demand for organic food has been accommodated by Tesco to reflect this change in demand. Based on how old people don t eat much and can t travel far I think that the Tesco convenience shops are a major attraction to the elderly. They sell key products in residential areas, usually within walking distance depending where you live of course.

James Simpson

Social SWOT Strengths Tesco have a great number of convenience stores in order to attract the close by elderly people who can t make the trip to a supermarket. Opportunities To make themselves even more accessible to the elderly. Threats Small corner shops and other convenience stores located near areas with a high number of elderly people. Weaknesses The elderly people Tesco can t locate close to and also the expense of small home deliveries.

Technological The operation of Tesco is being affected by the use of the Internet through online grocery retailing, which is showing steady growth. Subscriptions to the Internet have grown by over 50% and it has been estimated that the Internet is being used by 70% of the population in the UK (Office for National Statistics, 2010). Loyalty programs such as Tesco Clubcard are being introduced through information technology which discourages customers from switching over to Tesco s competitors. Mobile technology has also taken off as a platform for distribution within food retailing. Tesco have developed apps for phones which can find your nearest store, order you re shopping on your phone and bank with Tesco on your phone.

James Simpson

Technological SWOT Strengths The only supermarket that allows you to order your shopping from your phone. The large number of customers with loyalty cards which can be used for marketing. Opportunities To separate their home delivery service from everybody else s. Threats All the other major supermarkets offer home delivery of groceries as well. Weaknesses The expense of small home deliveries

Legal The VAT has risen to 20%, affecting customers buying preferences and also Tesco s profits. Likewise the national minimum wage is open to change so Tesco have to plan for the potential increase in operating costs. Tesco are also considered to be a monopoly in many towns and cities across the UK due to the sheer number of stores located in some areas. In particular areas Tesco have become the only food retailer after driving out the competition. A monopoly is illegal and whilst Tesco have faced charges in the past they haven t been prosecuted for it. Legal SWOT Strengths On the brink of a monopoly but not enough to be prosecuted. Opportunities To recreate similar domination across the globe. Weaknesses Bad publicity being accused of being a monopoly. Threats The continuous claims of being a monopoly and the chance that the national minimum wage may increase.

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Environmental Environmentally friendly reduced packaging is being promoted across the UK. It has been found by the Office for National Statistics (2010) that the percentage of consumers using reusable bags has risen from 71% to 74% and that those trying to cut down the number of plastic bags they take from the shops has risen from 65% to 68%. This assists in reducing the overall cost and is good for Tesco s corporate social responsibility image. Due to the consumer awareness of the carbon footprint of the firm, Tesco has added carbon footprint data on dairy products, potatoes and orange juice, and aims at expanding it to bread and non-food items (Tesco, 2010). Tesco has introduced its Greener Living Scheme to give consumers advice on environmental issues, including how to reduce food waste and their carbon footprint when preparing meals (Tesco, 2010). Customers reusing bags, recycling mobile phones and aluminium cans and preferring bag less deliveries are being rewarded through Tesco s green Clubcard points where they get extra points on their Tesco Clubcards (Tesco, 2010). Environmental SWOT Strengths Seen as being environmentally friendly and continuously striving to become greener . Opportunities To create good publicity and help the environment. Weaknesses The cost of developing and implementing new environmental strategies. Threats Other competitors doing the same and possibly taking it a step further

James Simpson

6.0 Conclusion In light of the above analysis it can be concluded that Tesco continues to lead the UK retail market. In an ever changing market Tesco is continuously adapting to factors surrounding themselves, for example the components of PESTLE. Tesco has been able to get where they are today by being innovators in the market and expanding globally, which is what the PESTLE analysis has discovered and confirmed. 7.0 Overall SWOT Analysis Strengths Market leaders Tesco Online Brand value Insurance Increasing market share Opportunities Further international growth Improve company image Threats Wal-Mart International expansion Potential price war in UK Weaknesses Reliance upon the UK market Exposed to global failure Bad publicity from ethics

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James Simpson

8.0 References Euromonitor (2010), Industry Profile Food retailing , Euromonitor International, 2010 Office for National Statistics (2009), Internet Access Households and Individuals , Office for National Statistics, August 29, 2009. Available at http://www.statistics.gov.uk/pdfdir/iahi0809.pdf [accessed 02/06/2011] Tesco (2010), Annual Report and Review 2010 , Tesco. Available at http://ar2010.tescoplc.com/en/downloads.aspx [accessed 02/06/2011] Tomlinson, H. & Evans, R. (2010), Tesco stocks up on inside knowledge of shoppers lives , Guardian, September 20, 2010. Available at http://www.guardian.co.uk/business/2005/sep/20/freedomofinformation.supermarkets [accessed 02/06/2010] Turban, E., Rainer, R.K. & Potter, R.E. (2001), Introduction to Information Technology, (Chichester: Wiley)

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