Tesco PESTLE Analysis

Business organization plans are designed to be strategic and responsive to the business strengths and weaknesses. For businesses to succeed, they need to identify, adopt, and implement strategies that ensure their competitiveness in the global and local economies. The PESTLE analysis tool helps companies determine their strengths and weaknesses and create strategies for execution. With the help of the PESTLE analysis, this study demonstrates a mechanism that Tesco PLC can adopt to maximize opportunities within its macro environment. In particular, to maintain its competitiveness and profitability, Tesco needs to evaluate opportunities and threats that exist in the business environment.

Overview of Tesco PLC

Tesco is a British general merchandise and grocery retailer headquartered in Hertfordshire in the United Kingdom (Tesco in the UK, n.d.). However, the company has branches in the United States, India, Hungary, Czech Republic, Slovakia, Poland, Turkey, China, Ireland, and Thailand. It comprises 3,500 chain stores and operates the Tesco Bank, offering services such as online banking, insurance, and online shopping.

Tescos PLCs growth strategy is characterized as being local and less internationally oriented. To reduce its startup costs, the company applied the incremental method instead of simultaneously acquiring new markets. To break into new markets, Tesco resorted to buying a smaller chain of stores in Eastern and Central European countries. Acquired chain stores served as the pilot study, providing its management and employees with a deeper understanding of future expansion activities. To counter the lack of awareness of its brand, the company withdrew from the local management of acquired businesses and concentrated majorly on important central functions. This action had a positive benefit of creating a better understanding of the corporate environment required for successful expansion.

The companys strategy has been built around two broad principles, namely the drive to provide value to its customers and investments in the latest technologies. The company would perform extremely well in the future by addressing the following issues.

Market Development

In both non-food and food retail segments, the company should enter into partnerships with other existing retailers in the international markets it seeks to join by offering new and innovative branded packaging along with effective marketing services (Christiansen, Yildiz, & Yildiz, 2014). To increase its competitive advantage, Tesco needs to ensure that its products, services, and market penetration processes are streamlined and effective (Grant & Jordan, 2015).

Target Positioning

The following strategies should be utilized:

Target strategy: the target market should be all-inclusive, including people of all ages by developing well-planned strategies.

Positioning strategy: the company needs to focus on product features and brand to rival its competitors. Adopting fair pricing strategies will ensure that it maintains customer loyalty, as people are quality and price sensitive.

The future growth prediction for Tesco entails expanding into the Asian market. This largely untapped segment would provide profitable business for the corporation. For example, by signing limited franchise agreements, Tesco can gain a foothold in the Asian market, which would introduce new skills, products, services, and innovations (Schlegelmilch, 2016). To cut down costs, Tesco should embrace the automation of its product line. In the implementation of the automation process, the company should seek to achieve a balance between its workforce and automation technologies. This step is essential to avoid raising unemployment levels in its macro environment. Further, future expansion plans should incorporate cable TV services and broadband Internet.

PESTLE Analysis of Tesco

Business organizations need to identify factors external to their environment that affect their operations. PESTLE analysis provides a framework for managers to assess the macro environment in which a business operates to facilitate the making of strategic decisions. It is also essential in helping the company review its business position, as well as understand market growth and decline, potential, and direction of business operations (Cooke, 2012). The use of this model will help Tesco avoid unwarranted assumptions and efficiently adapt to the realities of its macro environment.

Political Factors

Tesco has branches in 10 countries of the world. As such, its performance is influenced by legal and political conditions existing in these countries and the European Union, in general. Due to the global economic recession, governments are encouraging retailers to create a mix of job opportunities for the domestic population. Retailing is a highly labor intensive sector. Therefore, Tesco creates jobs, which in turn increases the demand for its products and services. Such measures can antagonistically influence the business income of specific items retailed by the company. Without a doubt, in 2014, Tesco dispatched a “fresh out of the plastic new sound sustenance territory” (Grant, 2016).

Economic Factors

Economic factors play a great role in the companys growth strategy. Changes in policy affect companys profits, prices, demand, and leverage operating costs. Economic recessions result in lower disposable incomes for people. Consequently, consumers spend less and shift to lower-priced goods. High unemployment levels reduce the demand for goods. As the company is highly dependent on the UK market, any slowdown in the UK economy would adversely affect its profitability.

Social Factors

Individuals change their preferences and social habits to achieve better life quality. For example, elderly people may choose to adopt online grocery shopping. Consequently, Tesco should select an online sales model for its grocery products. Today, both men and women work, which leaves less time for activities such as meal preparation and shopping for groceries. To safeguard from becoming outdated, Tesco should innovate products that satisfy target customers. Furthermore, consumers today prefer tech-savvy brands. Therefore, the retailer should also endeavor to develop brands that cater to this consumer demand.

Technology Factors

The administration of Tesco should be mindful of disruptive technologies that are frequent in retailing. Disruptive technologies result from advances in innovation and they are expected to outstrip the performance of current technologies. Moreover, customers value what they already have over the new technologies. However, when a disruptive technology is more acceptable to others, a niche market occurs. Tesco might end up ignoring this opportunity because of the limited acceptance of these disruptive technologies. In contrast, smaller companies regard disruptive technologies as an opportunity to gain a foothold in the retail segment of the economy (Grant, 2016). Eventually, the technology will become familiar, which increases their stranglehold on the niche market.

Environmental Factors

The media have highlighted the issue of global warming and its attendant consequences. For instance, an increase in the global surface temperature is causing the melting of the Arctic ice cap. These reports emphasize the need for companies to have a sustainable environmental policy. Tesco has adopted some recommendations to safeguard the environment. For example, it has taken steps to reduce the amount of greenhouse gasses emitted by its regime of energy and power consumption. The management is making changes to Corporate Social Responsibility at Tesco. In compliance with the UKs Climate Change Act, the company plans to reduce its carbon emissions per square foot to zero in its stores and depots by 50% by the year 2050 (Reducing our impact on the environment, n.d.).

Legal Factors

Various laws influence Tescos activities. In respect to agricultural commodities, the UK government is redefining the policy regarding agriculture. The mechanism by which farm subsidies are disbursed to farmers is undergoing reformation. Tesco also offers a variety of financial services such as savings, credit cards, loans, and mortgages. The United Kingdom has recently implemented the Financial Services Act of 2012. Its implementation creates three agencies: the Financial Policy Committee, the Prudential Regulatory Authority, and the Financial Conduct Authority. The Prudential Regulatory Authority exercises oversight over the microeconomic aspect of the economy and financial services offered by UK companies (PESTLE Analysis for Tesco, 2014). The PRA seeks to reduce the negative impacts emerging from disruptions that affect the smooth flow of financial services. This is caused when financial organizations operate without oversight and regulation.

Conclusion

This PESTLE analysis has identified opportunities and threats facing Tesco. The possibilities include the economic recovery in the United Kingdom, which favours the growth of the supermarket sector. To capitalize on these benefits, Tesco needs to work harder. Customers switch supermarkets quickly. Therefore, to maintain customer loyalty, the company needs to create loyalty programs. Moreover, Tesco should continue providing good customer services in combination with excellent products. The recession has affected spending habits and reliance on superstores, which changed the companys expansion strategy. This can be achieved by continuous review and analysis of its present activities. Changes indicated by the reviewable process should be utilized immediately. When its competitive advantage is higher than that of its competitors, its profitability and success are guaranteed.