Political, Economic, Social, Technological, and Legal Elements of Tesco Plc - Case Study Example

Introduction The research paper is aimed at critically analyzing the internal and external environment of Tesco Plc as a food retailer. The strategictools that will be used for the evaluation of the company would include the SWOT analysis which will cover the current situation of the company in terms of the strengths, weaknesses, opportunities and the threats that may be facing the company. Another tool would be the PESTEL analysis which would cover the company’s external environment. This includes the Political, Economic, Social, Technological and the Legal elements that affect the company either directly or indirectly. The Porter’s Five Forces would also be implemented along with a Value Chain analysis for the company. Tesco Company Overview Tesco plc was founded by Jack Cohen in the year 1919 and was first situated in London as a market stall. The company has grown over the years and has managed to compete with highly ranked food retailers in the world. The company was in the year 1947 incorporated from being a market stall to a retailer and their market scope grew from one country to at least 12 countries in the world. Today, Tesco is known to be among the world’s largest food retailer with a total of 4331 stores in 14 countries which cover the regions of Asia, Europe and the United States. The largest numbers of stores are found in the United States but their office headquarters are situated in Hertfordshire, UK. In 2009, Tesco had revenue of £54 billion and had employed around 470,000 workers. In 2013, Tesco plc was ranked as United Kingdom’s top food retailer. By the end of 2014, Tesco plc had more than 500,000 employees marked by the increase in demand for retail food. By the end of 2014, Tesco Company recorded revenue of $100,026 million which was a 0.2% growth from 2013. The net profit of the company had increased by 10.5% from the previous year with $1,532.9 million. The turnover of the company was 63,557,000,000 (GBP). PESTEL Analysis Political One of the political issues that directly affected Tesco plc was the trade that existed between the Eastern and the Western European countries. The trade between the two regions provided a platform for Tesco plc to expand its market across the European Union. Additionally in 2009, Tesco signed an agreement with joint ventures which led to the development of shopping retails mall in China. With international treaties being made all over the world, the market segment of Tesco has risen and more expansion experienced in a number of countries. Economic To Tesco Company, economic factors play a big role because it directly affects the sales of the company in a positive or a negative manner because it determines the purchasing behavior of customers. In 2008, the economy of the UK was under recession which affected the sales of Tesco. At this economic phase, the spending power of individuals lowered as they tried to balance their income with the high prices of products. As a result, the sales of retail food by the company reduced because the target customers spent less on prepared meals to save. Social An analysis of the population of the UK indicates that retired people are more than the children generation. With the high number of older people, the rates of eating are less compared to a situation whereby children were many. Older people may not be able to travel to retailers shops to purchase food products. The only people who are able to go to retail shops are young people. Analysis also shows that the use of the internet by young people has risen and increases online shopping rather than physically visiting retail shops. In the recent years, research shows that the eating habits of people have changed and they are more sensitive to being healthy. Due to this, the demand for organic food has highly increased. The company changed its strategies and introduced organic foods in their retail shops. Technological Technology in the recent years has changed the way in which consumers purchase products. Technology has become a part of individual lives and directly affects the manner in which individuals behave. Online shopping has been highly adopted and people are purchasing even groceries from the internet. In the UK, 63% of people use their smart phones to purchase products such as food from Tesco plc. The rise of the use of the internet is increasing in the world at large and many customers prefer online shopping than physically going to the retail shops. The value of products has become a priority for target consumers across their markets and the company has changed the platform for its consumers to purchase products. Additionally, the mobile technology has gained a platform in the distribution of food retailing. Due to this, Tesco Company has been using a Wine App which was developed by Cortexica Vision Systems. According to Tomlinson & Evans (2010), Tesco Company uses the system to enable its customers to purchase wines from their customers. Because of the rise of technology and broadband access, online retail shopping has gained popularity. Keynote (2014) highlights that internet users have increased to 15.5 million. This has pushed the company to using the recent technologies to remain relevant in the market. Environmental In recent years, the government has promoted the reduction of packaging to ensure that it is friendly to the environment. The National Office statistics (2013) shows that percentage of individuals who have adopted the use of reusable bags has raised from 71% to 74%. This has proved to be of great benefit to Tesco Company because it is less costly and portrays a positive image of the company. Consumers are aware of carbon footprint and due to this; Tesco Company has been able to include carbon footprint products on their potatoes, dairy products and orange juices. Tesco has also expanded its awareness and has included carbon footprint data on bread and its non-food items. According to Yuthas (2013), Tesco Company has come up with a scheme known as the Greener Living Scheme which gives them the opportunity to advice their clients on environmental issues. One of the advices that the company gives to its customers is how to carbon footprints and food waste. Legal One of the legal policies that have been passed is the 20% VAT of products because the government needs to be in a position to solve its budget deficit. This policy affects Tesco Company in a great way because it also sells non-food items such as clothing. Porter’s Five Forces Analysis This analysis has been conducted so as to identify the competitive environment of Tesco plc. a) Threat of substitute products and services The threat that the company is facing in terms of substitutes is relatively low because of the wide variety of food products that it offers. For the non-food items that the company offers, the threat of substitute is slightly higher than in food products. In the food retail market at large, the only substitutes that exist are organic shops and small chains of stores. However, they do not pose a threat to supermarkets such as Tesco. To ensure that they are not substituted in the market, Tesco has opened a number of express stores in small towns as well as in cities. With the existence of these stores, it becomes difficult for substitutes to get their way into the market. However for their non-food items such as clothing, the chances of substitution are relatively high because of economic recession. For shops which have specialized in selling clothes, Tesco plc may be a threat because of the discounted prices that it offers. b) Threat of entry of new competitors In the food retail industry, the threat from new competitors to the market is relatively low. Getting into the retail market and establishing a brand name requires a great deal of capital investment. Due to this, it becomes difficult for a new entry to be a threat to the already existing companies. In Europe, the food retail companies which are highly established include Tesco, Asda, Morrisons and Sainsbury’s. These companies in Europe account for nearly 80% of food shopping in the UK as indicated by Mintel (2014). For a new entry to gain a competitive advantage, it has to sell its products at a relatively low price so that it can establish its market values. Another barrier to new entrants in the food retail market is the time and resources needed to acquire a planning authorization from the government and establishment of a supermarket. c) Intensity of competitive rivalry In the grocery and food retail industry, the intensity of competition is high. In this case, Tesco plc faces intense competition from its major competitors which include Asda, Morrisons, Waitrose and Sainsbury’s. These companies are competing against each other in terms of the products they offer, the promotions and the pricing of their products. In this market segment, Asda is Tesco’s biggest competitor with a market share of 17.2% while Sainsbury has 16.1% market share. The market growth of these competitors is quite slow because in year, their growth is marked by the highest rise being 0.6%. However, the slow growth of the market is due to the market rivalry which has intensified. This poses a great threat to Tesco as being first in the Europe region. d) Bargaining powers of buyers In the food and grocery retail, the bargaining power of buyers is relatively high. When looking at food products which come in different kinds and seem to be standardized, the cost of switching them is low. This means that buyers can switch easily from one brand to another as long as they get products at a cheaper price. Due to this, Tesco plc has to give in to the bargaining powers of buyers if they want to sell their products and are also inclined to selling products at a lower price. e) Bargaining power of suppliers Tesco is one of the largest food and grocery retail supermarkets and no supplier would want to lose their contract with them. Due to this, the suppliers have a low bargaining power. Most suppliers have their inclination towards grocery and food retailers making the position of retailers to be stronger especially during negotiation of prices. To increase their profit margins, retailers negotiate for low prices from their suppliers which leave them with no option but to settle for them because their bargaining power is fairly low. SWOT Analysis Strengths According to Datamonitor 2014, Tesco is ranked as the 3rd largest food and grocery retail shopping company in the world. This is a major strength for the company since it has established its brand name and reputation in the world. The company also has 4331 stores in Asia, USA and Europe which gives is a competitive advantage since its roots are well established. In the regions of Europe especially in the UK, Tesco plc has the largest market share of 30.7% in the grocery retail market (Euromonitor, 2015). Its close competitor Asda has a market share of 17.2% which is half of what Tesco holds. The company has also recorded a good financial performance over the past five years. According to Datamonitor (2014), it states that Tesco Company had a turnover of £63.5 billion in 2014 which is a 14.9% increase from 2009. The company has also has adopted and implemented customization of its products and services which is along with the demands of the market. Tesco’s main strategy is to majorly focus on the affordability of products which is the major concern of customers as they try to purchase products that suit their budget. This marketing strategy has kept the company growing and has also increased the loyalty of its customers. Tesco also has a customer loyalty retention scheme known as Tesco Clubcard. This scheme is a strategy that the company uses to retain its loyal customers which includes a CRM system which has data of all loyal customers. The information gathered from the system is used to enhance marketing and promotional techniques of the company (Tesco, 2014). Weaknesses In comparison to its competitors, Tesco plc did not perform quite well last year. Additionally, Tesco Company has put much of its focus on European regions and majorly the UK. This is a weakness that its competitors are using to achieve a better advantage by being diversified. The company lacks geographic diversification which proves to be a great weakness especially when the UK market is at great risk. Opportunities The company has a great opportunity of expansion especially in the international market. The geographic and global diversification of the company makes it possible for it to improvise its economic scale. The popularity of the company as the world’s third largest grocery and food Retail Company provides a platform for attraction of more customers in the future years. The global market position of the company will improve because of its entry to the Indian market which has not been well explored. According to Euromonitor (2014), the food retail market segment is expected to grow to £160 billion which will increase a market growth for the company. 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