Strategic Management of Tesco: PESTLE and SWOT Analysis
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Published: Tue, 05 Dec 2017
Tesco plc is a leading global grocery with its headquarters in Cheshunt in the United Kingdom where it is ranked second in this country in terms of revenues and third in terms of profits. This company has stores in more than 14 countries in the world and has employed more than 326000 employees globally. In the United Kingdom, the food and drink retail sector represents the largest industry offering large employment opportunities to people of the United Kingdom and the whole world in general. In the global competition and companies’ pictures, it is of great importance for a company to come up with a strategy that will evaluate its competitive advantage. In this case, PESTEL analysis is used by the Tesco plc. This analysis indicates that, Tesco plc has to monitor and respond to uncontrollable forces that are posed by six factors. These factors include; political, economic, socio-cultural, technological, environmental, and legal. In this essence, these forces influence the macro environment of the Tesco plc. The other aspect which is of great significance to consider when evaluating the competitive advantage of this company is the SWOT analysis. In this respect, the strengths, weaknesses, threats, and opportunities of this company are analyzed. From the analysis it can be learned that the company’s strengths and opportunities neutralize the weaknesses and threats. It can be learned from the analysis that this company has been able to operate a number of stores in the whole world with the major ones being in the United Kingdom. The increased advancement of technology acts as a potential basis for the company to operate online and offer its customers with products from different parts of the world.
Tesco Plc. is one of the largest global groceries headquartered in Cheshunt in the United Kingdom. It is the second largest retailer in the whole world when measured in terms of profits and third largest when measured in terms of revenues. In the United Kingdom, Tesco has a market share of 30% hence becoming the market leader in this country. This company has more than 2318 stores in 14 countries across Europe, Asia, and North America. Tesco plc was founded in the year 1919 by Jack Cohen and the first store was opened in the year 1929 in Burnt Oak. Tesco plc has a flat hierarchical structure where each and every intended action has to pass through the management. There are six levels which are between checkout staff and chief executive. This company has employed more than 326000 employees across the globe where 237000 of them are in Europe where it has its largest private employer. This company has 83 Tesco stores and 447 superstores in the United Kingdom. Tesco plc has been using the strategy of pile ’em high, sell ’em cheap as a way of minimizing production costs. The mission and vision of this company are to offer superior and technical representation and add value to its products and customers by providing highly innovative solutions to their customer’s design, manufacturing requirements, and procurement. This is usually done by improving the quality, productivity, and services to a competitive edge.
The grocery sector where foods and drinks are sold represents the largest industry in the United Kingdom. This sector offers employment opportunities to more than three million people in different levels such as primary production, manufacturing, and retailing. In the year 2003, the food and drink retail sector accounted for about 9% of the country’s gross domestic product. In order to increase its competitive advantage, Tesco plc has diversified its production where it supplies clothing and other non food lines. Its own label products are in three levels which include, value, normal, and finest. In addition to convenience produce, most of the company’s stores have gas suppliers hence becoming one of the largest United Kingdom autonomous petrol retailers (Porter 1980: 27).
Strategy growth company
In the process of evaluating the competitive advantage of this company, there are six forces that Tesco has to respond to and which influence its macro environment. These forces include; political, economical, socio-cultural, technological, environmental, and legal factors. In the process of shaping the marketing strategies for the Tesco plc, these macro-environmental factors have been evaluated in both global and domestic markets to successfully penetrate the markets and possess a higher niche in competition (Pearce & Robinson 2003: 237).
Table 1: PESTEL analysis of Tesco plc
As it operates in a globalized environment with stores across the globe, Tesco’s performance is greatly influenced by the political conditions of the countries where it has its stores. This is because each and every country has its own political standing which may be different from United Kingdom. Among the important factors that act as productive grounds for this company is the fact that United Kingdom is politically stable and free from corruption. Additionally, most of the countries where it has its stores like; Japan, Turkey, Hungary, Ireland, and Poland among others are politically stable providing good environment for business (Patterson 2002: 251). The United Kingdom government encourages businesses and retailers to offer a mix of job opportunities from centrally located, highly paid, lowly paid, locally based jobs, and flexible jobs. The political factors prevailing not only in Britain but also in the whole world influence Tesco to employ all kinds of people as a way of providing employment opportunities to citizens. The aspect of political stability has increased the company’s profits as taxation policies in Britain encourage operations of business sector.
Economic factors as they influence demands, costs, and prices of the products offered are of great concern to this company. The whole globe has experienced economic decline and hence the aspect of purchasing products has been greatly affected in all companies without the exception of Tesco plc. In this respect, the inflation rate of the United Kingdom has dropped from 3.6% in the year 2009 to 2.2% in the year 2010. This indicates that there is an increased value of money hence decreasing the costs of living and the purchasing power increases in return. Since Tesco plc has a number of stores not only in UK but also in the whole world, its business cycles are not heavily affected since there are sales throughout the year. The current economic growth has affected the purchasing power of buyers hence reducing the number of sales made by this company. Additionally, the level of income in the United Kingdom is relatively unequal hence making some people fail to afford the products offered by this company (McLoughlin & Aaker 2010: 211).
It should be noted that people make up markets in the world and hence there is a strong demographic force in global and local markets. Population growth is one of the interests of marketers especially in cities, urban areas, and towns but this does not necessarily mean that the increased population forms potential markets for the produced goods. This is because one may have a lot of people to feed hence failing to purchase the products offered by Tesco plc. The fact that many people have gone to school has increased customer awareness of their rights and hence they are only buying products that are of high quality (Mazzucato 2002: 58). The concept of ethnicity implies that the United Kingdom is an amalgam of races where different races have different tastes and cultures. In this country more than 90% of the total population are the Whites hence marketers are mostly targeting them. Location is another factor that is usually considered by marketers as most of the potential buyers are found in urban areas as compared to rural areas. Tesco plc is strategically located in a place where potential buyers are heavily targeted.
Globally, there have been increased campaigns on environmental preservation and many companies are supposed to preserve the environment. This is because most of the pollutions that are done to the environment are caused by industries. As a way of maintaining and preserving environment, Tesco plc usually uses licensed waste disposal services. There are legal requirements that force companies in the United Kingdom to support the aspect of sustainable development and this cannot be done without professional ways of disposing wastes (Lake & Powell 1999: 63). Additionally, water that is used in this company is usually recycled in so that it can be reused as a way of preserving the most important resources in the United Kingdom. Globally, consumers are aware of the impacts of environmental pollution and hence are increasingly buying products that have been produced through environmentally friendly means.
In the United Kingdom there is competition law that is established under the Competition Act 1998 and the Enterprise Act 2002. This usually affects the behaviours of businesses in this country as there is a manner in which they are supposed to compete. It is a requirement for all businesses in this country to abide with these laws and Tesco plc is not excluded (Kotler et al 2005: 54). Tesco plc is mostly involved in selling foods and drinks and hence has to abide with the Health and Safety Laws in this country. These laws are provided under the Health and Safety Act 1974.
In the global competition, quality of products or services is highly appreciated by customers and any company that produces high quality products wins most customers. In this case, quality is usually guaranteed by technological advancement and hence Tesco plc has improved its technological innovations. The speed of technology transfer in this company is very fast as employees are learning technological aspects in order to improve their performance within the company. Innovation is highly encouraged in this company and this has helped the company in improving its competitive advantage in the whole world (Jeffs 2008: 68).
SWOT analysis of Tesco plc
The concept of SWOT analysis usually indicates the competitive advantage of a company by looking at its strengths, weaknesses, opportunities, and threats.
Tesco plc has been able to operate a number of stores in the whole world with the major ones being in the United Kingdom. This has helped it to enter into the global market hence reaching a wide number of customers. Additionally, this company has recently engaged in advertising its products online where customers are in a position to learn and order products online (Rumelt 1991: 172). Through the stores that are located in more than 14 countries globally, customers are able to get their ordered products in time. The products that are produced by this company are usually of high value and quality hence attracting large numbers of customers. By operating in urban areas, Tesco plc has been able to capture most people as these are the highly populated areas globally. This company has been able to compete stiffly with its competitors like Sainsbury, Marks & Spencer, and ASDA hence improving its financial strengths. There has been diversification where Tesco plc also supplies clothing and other products away from food and drink line. This has helped this company is competing with its competitors (Ireland et al 2007: 37).
Tesco plc is using a lot of fossil fuel in its distribution of products especially in transport network. This is because it is not wholly established to have stores in almost all countries of the world. Additionally, this company has only targeted the developed world leaving out the developing and under developed nations which may produce potential customers for their products. The aspect of using internet in advertising its products has been covering only a certain group of people as mostly the youths are the ones who make use of internet. This indicates that those people who do not use internet frequently will not be in a position to know about its products (Human Resource Management 2010).
There is a very stiff competition that is posed by Tesco competitors like Sainsbury, Marks & Spencer, and ASDA. Most companies worry about taxes in any country and Tesco being no exception worries about taxes in the United Kingdom and the other countries where it has stores. The innovation by other companies is another threat of this company as any increase in innovation will result to a very stiff competition towards this company (Grant 2009: 26).
The recent advancement in technology offers Tesco plc a great opportunity of using internet in selling its products. In this aspect, internet is the most used technology that is able to reach a wide number of customers even in areas where there are no stores. Additionally, there is an opportunity of forming alliance competitors or suppliers in order to reduce production and distribution costs. Collaborations are very necessary in that companies share resources and hence they do not fear taking risks in any pursuit of development (Coulter 2009: 56).
In order for the Tesco plc to achieve a higher ground in competition than its rivals it has to do the following;
Improve the management in order to make sure that all stores are well managed so that quality services may be offered to customers.
The company should encourage employees’ innovations in order to compete with other companies.
The company should increase its target population by opening new stores in other countries in order to target large numbers of customers
In winding up, competitive advantage of a company can be evaluated using different strategies that are very essential in a company. In this case, the PESTEL analysis of the Tesco plc indicates that this company has to monitor and respond to the six forces that influence its macro environment. These forces include; political, economic, technological, soci0-cultural, environmental, and legal. From the SWOT analysis of the Tesco plc, this company has a number of strengths and opportunities that are able to neutralize weaknesses and threat.
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