Tesco plc is a British-based international grocery and general merchandising retail chain. It is one of the largest food retailers in the world; it operates in 14 markets across Europe, Asia and North America. According to Tesco’s annual financial report of 2011 the UK is the company’s leading market with 60% of group sales and profits coming from the UK business. Despite Tesco having international growth, this means the company is highly dependent on the UK market and this is starting to lead to problems for them. For example, this year Tesco reported a fall in profit for the first time in 20 years.
Because of this Tesco needs to use a PEST (Political, Economic, Social and Technological factors) analysis as it will allow the business to build their vision for the future and help them to avoid further decreases in profit. Good use of PEST Analysis would also help Tesco to avoid taking further action that would result in failure for reasons beyond their control e. g. the recession. PEST analysis is used to analyse business markets, industries, segments or the whole economies. It provides a summary of the driving forces in the macro environment.
It identifies drivers that were of high importance in the past, indicates to what extend they might change in future and how this will interfere with the organisation or the whole industry. Depending on the objective of the analysis, a distinction between the current situation and potential future changes may be helpful. Political factors have an effect on Tesco. The government encourages retailers to provide a mix of job opportunities such as low-paid jobs, local based jobs, flexible jobs, high-skilled jobs and high-paid jobs etc. This is so the demand from population categories, e. . students, working parents, senior citizens, is met. Tesco offers a mix of jobs and because of this they can benefit from more motivated employees who will have a higher level of loyalty towards the company because they meet the employee’s needs. According to the motivational theorist Elton Mayo employees are motivated when their social needs are met. Due to the UK being in a recession this is very important for Tesco as a motivated workforce will help to increase productivity thus helping to reduce costs and allowing an increase in the company’s revenue.
Economic factors are of concern to Tesco as they influence the demand, costs, prices and profits of the business. External economic factors such as high unemployment have had an effect on the company. Unemployment levels effects the demand for goods. In the UK the recession has resulted in an increase in unemployment levels which has resulted in a decrease of demand for Tescos like-for-like goods. ‘Tesco (TSCO. L)’s share price slumped 15%, or 57p, to 327. 5p, a 33-month low, as investors stampeded for the exit after the group revealed UK like-for-like sales fell 2. % in the six weeks to 7 January compared with a year ago’ suggests this. However, Tesco does have a competitive advantage at present; because they are one of the largest international grocery and general merchandising retail chains they are able to drive out competitors from the market. Due to the current state of the economy, many small businesses are failing and many are unable to enter the market. It is becoming difficult for new entrants to raise the sufficient capital because of large fixed costs and highly developed supply chains that Tesco and other large supermarkets have.
This allows Tesco to own more of the market which is very important for the company as they reported their first fall in profits in 20 years. This high market share can benefit Tesco because it will encourage investors to provide capital in order to help Tesco improve its strategy to increase its profits. The sociological aspect of the PEST analysis Involves considerations such as the increase in age, the increase in immigration of Eastern Europeans and the increase in young professionals.
This has naturally led to a demand for new goods for example; the career minded professional who is a single person. This has seen a rise in the meals for one or quick microwaveable meals to make cooking quick and easy for those always on the go. Tesco’s has managed to cater for this market by introducing a Tesco own brand of microwave meals. Consumers are also becoming more and more concerned with health issues, and attitudes towards food are constantly changing.
A demand for healthier products has increased. Tesco has adapted its product mix to meet this demand by having more organic products available. By diversifying their products and introducing new products Tesco is able to enter into more markets thus able to gain more customers and in turn increase revenue. Tesco has also noticed that due to a variety of social changes the current trends for one-stop’ and ‘bulk’ shopping. Tesco have met this trend by increasing the amount of non-food items available for sale.
When doing this, as well as using PEST analysis to assess the market, Tesco would have also had to use Ansoff Matrix because there would have been a high level of risk by moving into a new market with an existing product, or developing a new product for an existing market, which during the UK’s current economic situation could have led to a disaster for Tesco. For example the new market may have turned out to have radically different needs and dynamics than originally thought, and the new product may just not be commercially successful.
PEST analysis used a long side Ansoff Matrix allows Tesco’s to overcome these problems. Technological factors have had a big impact on Tesco. The internet has allowed Tesco’s to reach a larger market which has increased demand for their products. Tesco online now covers 96% of the UK. With over a million households nationwide having used the company’s online services, the company has a strong platform to further develop this revenue stream. Tesco’s annual report states that they have grown to be the world’s largest and most profitable online grocery retailer with sales of well over ? billion. Tesco’s has also taken advantage of the growing trend for social media. They have noticed that their customers spend an increasing amount of time online and through this they have used the social media to build trust and understanding to their business. This in turn has helped to drive loyalty. Social media has allowed them to have conversations with customers on any issue at any time; in the UK they now have more than 680,000 ‘likes’ on our Facebook page.
In conclusion, PEST analysis is important to Tesco because it identifies different external drivers for change and these drivers will influence and change Tesco’s structures or market structures in all likelihood. For example, a combination of the factors such as deregulation of trade barriers, improvement of communication technology and increasing competitive pressure on local markets are likely to be drivers for further globalisation. References Gavin Lumsden, Caelainn Barr (2012), Big Price Drop leaves Tesco investors reeling [online] Available at: http://citywire. co. k/money/big-price-drop-leaves-tesco-investors-reeling/a557703 [Assessed 18 October 2012] Zoe Wood (2012), Tesco profits fall for first time in almost 20 years [online] Available at: http://www. guardian. co. uk/business/2012/oct/03/tesco-profits-fall-uk-supermarkets [Assessed 18 October 2012] Matt Kranz (2011), USA Today [online] Available at: http://usatoday30. usatoday. com/money/perfi/columnist/krantz/2011-01-23-market-value_N. htm [Assessed 18 October 2012] Tesco Annual Report 2012 [online] Available at: http://www. tescoplc. com/files/pdf/reports/tesco_annual_report_2012. pdf [Assessed 18 October 2012]