Tesco PEST analysis Essay

Tesco was founded in 1919 by Jack Cohen. The supermarket chain now has stores in 14 countries across Asia Europe and North America. Sir Terry Leahy chief executive since the mid 1990s states. “Our core purpose is, ‘To create value for customers to earn their lifetime loyalty’. We deliver this through our values, ‘No-one tries harder for customers’, and ‘Treat people how we like to be treated'”. The underlying aim is of course to make higher profits, but there is a clear focus on customer service at the top level employees of the company that also filters down to subordinates.

The company currently holds a 30% market share in the UK supermarket industry. The most recent success of the company has been attributed to the innovative tracking of consumer purchases through the Clubcard scheme. It is pertinent to point out however, in Tesco determination to succeed there will be factors which will determine how the company relates to its customers and even its survival.

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These factors are analysed through a “PEST ANALYSIS” Weighting scale: -5 to +5 where + is positive and- negative.

FACTORS: POLITICAL (Government Stability) – (VAT)
Meaning: Changes can lead to uncertainty to policies of a potential new government which may force an organisation to change the way it operates to accommodate new laws and policies. Tesco would need to analyze and adapt to those changes that may affect the company. BBC NEWS – 26.SEP.2011- Edd Balls Labour shadow chancellor unveiled a 5 point plan which include temporally lowering VAT to stimulate growth

However the current government in power;
The Conservatives intend to keep VAT at 20%
Weight has a negative effect on Tesco of -2
Negative points
The current VAT rate at 20% affects the turnover in customer interest in their products This forces Tesco to reduce their profit margin to stimulate customer interest Tesco have to reduce their prices to keep in line with their competitors

FACTORS: Employment Law (Parental leave) Meaning: Parental leave will be introduced in 2015 to all businesses. These changes will allow flexibility to accommodate both Maternity and Paternity leave to parents Weight this has a negative effect on Tesco of -2

Negative points
This change will directly affect Tesco
The cost for organising cover for Maternity and Paternity leave It can affect the flexibility of the company

FACTORS: Economic (Interest rates)
Meaning: Any changes economically which take place within the territory in which Tesco operates will affect it. By way of example, interest rate is at .5% and is likely to stay stable for the next three years. Weight 0.5% interest has a positive effect of +5

Positive points
This is good for the economy and Tesco
Tesco can project it’s company growth for the next 3 years People have disposable income
Tesco can afford to invest and have ability to formulate a business plan for the next 3 years. e.g. new business, open Superstore, Tesco Express, Metro Extra and Homeplus

FACTORS: Socio-Cultural (Demographics)
Meaning: There is a market for cultural diversity in foods and products and are in demand. Tesco have adapted to this by offering a wide selection of food ranges from different cultures such as: Indian, Chinese, Caribbean, Spanish range and Halal meat. Tesco have a policy on the variety of different cultural foods to meet the demands and the personal taste of preferences of customers. Weight demographics has a positive effect on Tesco of +3

Positive points
This widens Tesco customer base
Their ranges are appealing to cultures and ethnic group around the world and in the UK making them a worldwide brand Their policy widens their hold on the market

FACTORS: Technology (New discoveries) – Tesco Clubcard scheme, new development

Meaning: Tesco is using its clubcard scheme to monitor consumer taste and purchases to develop growth in the market share. This has lead to Tesco purchasing various digital entertainment businesses including: Blinkbox, Mobcast and WE 7

Weight the Clubcard scheme has positive effect of +5
Positive points
This gives Tesco a wider share of the entertainment industry Tesco clubcard scheme development has increase Tesco’s knowledge on making quicker adjustments to improve product sale This increases Tesco profits

Clubcard scheme could help Tesco identify companies they could buy to improve market share and to source out potential new markets which will improve sales

It is inevitable, TESCO has to be analysed through the PEST analysis as all of these factors will affect Tesco in one way or another. In order to be able to always keep within the Mission and Vision of the organisation, Tesco should always keep abreast with any Political changes which are taking place within the territory where it is established. Any political changes will affect the economy and any changes in the economy could affect Tesco’s customers and intern will naturally affect Tesco‘s sale. Social trends are another issue in today’s society, the difference in cultural taste and preferences of customers in supermarkets today. It is imperative that Tesco keeps with the times and remains on par with any technological changes. Tesco is in a very competitive field, the organisation needs to evolve in this volatile market place. It needs to maintain its awareness to keep up with ever changing macro factors which can affect any organisation. This analysis works in line with their ethos.

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