Introduction: Background Information
Tesco is considered to be one of the food retail giants throughout the world; the UK company operates more than 2300 stores with the staff of 326000 people. It is necessary to underline the fact that the company is also concentrated on providing the online service; nevertheless, the greatest market of the Tesco is centered in the UK. Basic banners under which the company operates are considered to be the following: Superstore, Express, Metro, and Extra. Tesco supermarkets sell about 40000 food products, as well as clothes and some non-food lines; 50% of all sales are referred to the company labeled products being presented at three different levels, such as value, finest and normal.
PESTLE Analysis – External Analysis
The analysis of Tesco Inc. is expressed through the investigation of such factors as political, economic, sociological, technological, legal and environmental. It is necessary to underline the fact, that politically, the company may face high unemployment level due to the credit crunch; being the giant among the retail industry representatives and the largest corporation of the country, Tesco is focused on the development of special policies for unemployment reduction. The political factors cover the influence and role of international, national and local political decisions in management planning. It should be stressed that the employment legislation is based on the necessity to provide a combination of job opportunities reaching the higher paid and highly skilled level of job performance.
Tesco realizes the impact of retail industry on people factors and jobs; for example, the creation of a new supermarket destroys other jobs in the same sector, that is why the company strives to remain labor intensive and develop local sectors in accordance with people’s needs. It should be stressed that Tesco operates through the employment of the large number of disabled people, students and elderly workers, providing them with high loyalty level in the conditions of high staff turnover. (Tesco Plc. 2004)
Economically, the company is deeply involved in the control of supply and demand balance, prices, costs and profits regulations. It is necessary to underline the idea that the effectiveness of goods demand is impacted by high level of unemployment; nevertheless, this problem is considered to be outside Tesco control. This problem can produce a negative effect on the marketing mix and business performance impacting Tesco management through its close dependence on the UK market.
The important fact to be stressed is considerable increase of non-food sale items due to Tesco supermarkets; the demand on goods and service is based on consumers’ social conditioning, beliefs and attitudes. Human awareness of health issues and food attitudes is under the pressure of constant changes, which influence the Tesco adaptation to social factors. The product mix is the example of Tesco adaptation through a considerable demand for the promotion of organic products. The supermarket was considered to be the first to introduce cheques at the checkout.
The development of products of Tesco business is predominantly dependant on technology, being considered a significant macro-environmental variable. Nowadays, Tesco supermarket utilizes such technologies, as intelligent scale, self check out machine, wireless devices, electronic shelf labeling, and radio Frequency Identification. The distribution efficiency is predominantly improved by the usage of electronic scanners and Epos (electronic Point of Sale).
For the last several years the food retailers have faced some difficulties caused by the necessity to meet the social responsibility; the problems are merely connected with environmental factors based on the importance of major companies acting in the most socially responsible way. It is necessary to underline the fact that Tesco supermarket is concentrated on the exceeding the minimum obligations for organization stakeholders determined through corporate governance and regulation.
Tesco performance is greatly dependant on various government policies and legislations; in accordance with the Food Retailing Commission, some current practices are banned, such as the agreed prices changing without special notification or the suppliers’ demanding payments. The development of Tesco politically correct policies led to price reduction for the consumers’ fuel purchases; this strategic step of price lowering is compensated by the price raise on some other products within the store. (Johnson, and Scholes, 2008)
Tesco as the broad range supermarket, operating a number of store sizes and formats, has a strong industrial position with the UK market through its advantages and business strengths, such as:
- Brand value;
- Online sales;
- Market leadership;
- Market share increase.
Tesco has about 13 % of UK retail market, and its share is constantly growing, through high contribution to food and non-food items promotion. It is necessary to underline the fact that Tesco is referred to the second largest store chain (the first place is taken by Co-operative Group); its growing business is aimed at the opening 59 new supermarkets throughout the country.
The analysis of Tesco weaknesses is concentrated its reliance and functioning in accordance with the UK market position. It is necessary to underline the fact that the impact of the growing international market on Tesco business position is not so profound, as the UK influence. One more weak point of the organization is connected with the necessity to reduce its debts; high investments rate to the new stores expansion leads to little free cash for supermarket business operations.
The greatest opportunities of Tesco are connected with the expansion of business strategies; hypermarket format of Tesco stimulates further growing of company’s market share. The improvement of merchandising skills and scale and earnings increase strengthen the position and widen Tesco opportunities. Health and beauty growth of UK Tesco is considered to be stimulator for marketing leading position of the company; besides, the international growth impacts Tesco business opportunities enlarging, as the company operates in six European countries. New strategic relationships with the American supermarket appeared to be a considerable step in business goods and service widening. (Hill, 2008)
And final aspect is dedicated to the analysis of the company’s major threats, caused by high competitive rate on the international arena; so, the threats are the following:
- Price war which can be caused by UK structural change;
- The challenge of Wal-Mart impacting the company’s dominance and price policies;
- Possible fall of overseas returns,
- International expansion, which will cause the necessity in high investment through the new brand opening.
Tesco profit growth is also under the threat of increased competitiveness in retail industry connected with new entries and market segments expansion. (Humby, 2007)
The necessity to analyze generic strategies can be characterized by the evaluation of company’s internal business structure; the first step to be followed in strategic management is concentrated on the necessity to provide the lowest costs promoting the services and products with the lowest markets. The control of operating costs will give an opportunity to form the prices competitively and generate the profit margins benefiting the competitive advantage. The breadth of technology, product offerings, special features are considered to be important elements in internal structural development. And, finally, the strategy is to be directed at the differentiation approach and cost leadership.
Human resource management of Tesco Inc. is concentrated on the increase of recruitment programs and training schemes for the purpose of passing the customers’ requirements and expectations through the well trained staff and price benefits. The co0mpany is on the way to job skills improvement and widening job opportunities. Thus, it is necessary to underline the idea that, for example, in 2004, Tesco moved about 420 jobs to Bangalore, India, supporting the staff; this stage was also directed at Dundee, Cardiff, and Welwyn Garden. The offer of alternative jobs is the part of Tesco management, paying special attention to this aspect in the annual strategic management report development. (Johnson, and Scholes, 2008)
The analysis of Tesco marketing position gives an opportunity to evaluate the company’s perspectives and strategic steps to be done in near future. The strong branding in UK impacts the promotion of Tesco products and services on the international arena, which will stimulate further company’s growth and the possibility to cover new market segments.
Effective price policies and special attention paid to staff recruitment will lead to the leadership among the company’s basic competitors in UK, such as ASDA Group Limited, Carrefour S.A., BP Plc, etc. It is necessary to stress the idea that political regulations and some legal banning on the social level (such as smoking banning in public places) can bring some changes to the supply and demand balance; to reach effective business operations, the company is to adapt to environmental and social changes easily. So, the main company’s perspectives are concentrated on the following goals: international market segment involving, leadership position, technological support enlargement, customer’s base increase, international support and cooperation based on business partnership with American and European giants. (Johnson, and Scholes, 2008)
Tesco is considered to be one of the largest food retailers, taking a strong position in the UK market. The report disclosed detail analysis of Tesco as the industrial giant having wide opportunities and perspectives of international market achievement. It is necessary to underline the fact that this report can be used for the development of strategic management on the basis of key strengths and weakness faced by Tesco. High quality of Tesco products and services impacts the increase of the customers’ base and brand position.
Hill, C. 2008. Global business today. 5th Edition, McGraw-Hill Irwin.
Humby, C. 2007. Scoring points: how Tesco continues to win customer loyalty. Kogan Page Publishers.
Johnson, G. and Scholes, K. 2008. Exploring corporate strategy. Pearson Education.
Tesco Plc. 2004. Web.