Assignment 2 of 3: The effects of the Environment
on a Business
Unit 1 – Exploring Business
1
,Introduction
In this disquisition, I will be conducting and analysing the environment of which my chosen company,
Tesco, operates within. This will cover an external and internal audit around Tesco such as conducting an
extensive situational analysis, looking at Tesco’s CSR policies and evaluating their competitive
advantage.
Background + basic information
Tesco is a public limited company that operates within the UK industry and is one of the most dominant
and largest food retailers across the globe. Back in 1919, a Polish immigrant called Jack Cohen started
selling groceries in the streets of London and later went on to purchase a large supply of tea from a man
named Mr. T.E Stockwell in 1924 and compressed the name to make Tesco 1. From this point onwards,
his brand continued to improve and became a private limited company back in 1932 and later went on
to become a public limited company in 1947 2. As time progressed, Tesco became one of the largest UK
retailers and in 2018/19 they were the largest UK retailer in terms of their sales reaching ‘£38.7b’
compared to Sainsbury’s (who ranked 2 nd) with ‘£27.9b’ according to statistics.3 Furthermore, Tesco
performed very well within the European market placing in as the 4 th largest retailer in terms of turnover
(net sales) within 2019 by accumulating ‘€64b’ 4.
Section 1 – Conducting a PESTLE analysis on Tesco
Political
Starting off with political factors, one of the most relevant and most serious factors that Tesco is facing is
Brexit. On the 10th of December 2020, John Allan (current chairman of Tesco) had put out a warning that
the tariffs imposed on some of Tesco’s food products would be ‘quite substantial’ and Tesco began to
stockpile goods in preparation for a no-deal Brexit 5. Considering the idea that around ‘26%’ of all
products people within Britain eat and drink is supplied by the EU, it is not hard to understand that this
issue would seriously affect many retailers including Tesco. However, on the 24 th of December 2020
Boris Johnson (the current UK Prime Minister) announced that a free-trade deal with the EU had been
settled which resulted in no tariffs or quotas being introduced. Although this is currently good news for
retailers like Tesco, other problems have arisen from this one being that the EU has put strict laws on
animal products which means that some UK products can no longer be exported. Another problem that
could occur is lack of stability of later tariffs since if the UK or the EU decides to try and flex the rules
that they have agreed upon too much then one side might introduce a tariff which would result in
Tesco’s prices increasing6. Other political factors that affected Tesco included tax rates and import duty
on goods and a primary reason behind this was because Tesco does not just operate within Europe, but
they also have relations with countries like China and others within East Asia. Therefore, the larger the
tax rates and import duty imposed, the worst-off Tesco would be. Furthermore, the current political
stability of countries will also decide on how much Tesco is affected because the weaker the stability of
1
https://www.ukessays.com/essays/business/a-brief-history-of-tesco-supermarket-business-essay.php
2
https://www.company-histories.com/Tesco-plc-Company-History.html
3
https://www.statista.com/statistics/462863/leading-ten-retailers-by-sales-uk/
4
https://www.retail-index.com/Countries.aspx
5
https://www.retailgazette.co.uk/blog/2020/12/tesco-stockpiles-long-life-goods-in-case-of-no-deal-brexit/
6
https://www.bbc.co.uk/news/uk-47213842
2
,a country, the weaker other factors like the economy or consumer confidence 7 will be which can
drastically alter Tesco’s efficiency and overall success.
Economic
Moving onto the economic factors that influence Tesco, there is again a very large issue that has
significantly impacted not only retailers but all businesses that being Covid-19. The reason why Covid-19
has been such a huge issue that has plagued businesses is due to the safety and lawful measures
imposed by not only the UK government but in all countries worldwide. One measure put in place was
the ‘furlough scheme’ where people who worked in sectors or businesses that were classed as ‘non-
essential’ were released from work and instead were provided 80% of their usual wage by the
government to reduce distancing8. However, not everyone was entitled to this scheme such as those
who were sole-traders and since business operations were not running as usual it has led to an
enormous decrease in the stability of the economy especially concerning how much disposable cash
people have. Disposable cash simply refers to ‘the amount of money that individuals and families have
available for spending’9 which massively decides on how well businesses can perform. If people have
more expendable cash and have enough confidence to spend it, then businesses can prosper and
succeed but as the current situation within the UK lies, ‘54%’ of Britons have said that the current
pandemic has either caused minor, moderate, or major decrease in their spending according to a
research conducted by Eir Nolsoe, a data journalist 10. Despite all of this, Tesco has seen massive benefits
with Covid-19 because not only have their half-year profits increased by ’28.7%’, but their shareholders
will be paid a ‘3.2p’ interim dividend which is a ‘21%’ increase from last year 11. A highly likely reason why
this is the case is because smaller businesses have either been declared bankrupt or had to temporarily
shut down which only leaves the large retailers like Tesco left, therefore allowing them to further
dominate the market. Another economical factor that will affect Tesco includes the minimal wage
standard set within the countries that they operate in. Considering that the United Kingdom has the
largest amount of Tesco stores, ‘3,700’, and employees, ‘340,000’ 12, we will be using these figures into
account. When looking at the development of minimum wage from 1999 onwards, it is no surprise that
Tesco has had to invest millions more pounds into their employees as it had changed from a minimum
wage of ‘£3.60’ from the ages 22+ (1999) to ‘£7.70’ between 21 to 24 and ‘£8.21’ 25+ in 2019.
Furthermore, wages have also began to improve in other countries Tesco operates in such as China,
again affecting how much the economic factors impact their company as it increases Tesco’s overall cost
and reduces their profit margin.
Social
As the market continues to rapidly adapt and transmute, companies like Tesco must anticipate for these
changes to retain their presence and dominance. One way that social changes has influenced Tesco is
7
https://blog.euromonitor.com/changes-in-political-stability-impact-business-environments-in-emerging-markets/#:~:text=Political%20stability%20is
%20important%20for,wider%20impact%20on%20the%20economy.&text=Changes%20in%20political%20stability%2C%20therefore,and%20economic
%20growth%20in%20EMEs
8
https://www.wired.co.uk/article/uk-furlough-scheme-job-protection
9
https://www.tutor2u.net/economics/reference/what-is-disposable-income#:~:text=Disposable%20income%20is%20the%20amount,received%20any
%20state%20welfare%20benefits
10
https://yougov.co.uk/topics/consumer/articles-reports/2020/06/04/how-are-brits-spending-money-during-covid-19
11
https://www.retailgazette.co.uk/blog/2020/10/tesco-increases-shareholder-payouts-as-half-year-profit-soars/
12
https://www.ourtesco.com/working-at-tesco/our-company/tesco-glance/#:~:text=Our%20operations%20in%20the%20UK,stores%20and%20over
%20340%2C000%20colleagues
3
, the rise in niche markets over the past decade that have been arising. A niche market is a term used to
address a small and precise market and in usual business it allows for a company to add on a premium
pricing to these types of products an example being Lamborghini. However, in the case of Tesco they are
instead facing a rapidly growing niche market therefore meaning it would be in their best interest to
instead reduce the price of the products that they are requesting to maintain their customer base.
Examples of this include the vegetarian/vegan market which has massively impacted Tesco as shown by
an article covered by The Guardian where they covered that Tesco had set a ‘300% sales target’ for
plant-based alternatives13 and were in fact the first UK retailer to introduce their own-label plant-based
range in over ‘600’ Tesco stores back in 2018 14. Another way that social influence and shopping trends
have affected Tesco is through the ever-rising demand for online shopping and same-day delivery and
was highly valued within 2020 due to Covid-19 lockdown rules and regulations as shown by the ’17.2m
Brits’ who plan to use online shopping as a permanent option according to a survey conducted back in
July 202015. Despite many companies having to introduce more online alternatives to retain customer
loyalty, Tesco already had a very established online delivery when they were the first supermarket to
introduce online shopping back in ‘1996’ 16. So, unlike other retailers such as Aldi who never offered
customer food delivery until 202017, Tesco was able to maximise their effectiveness with this social
impact as shown when they were the first UK retailer to ‘fulfil one million online grocery orders in a
week’ back in April 202018.
Technological
The rapid enhancement of technology has allowed retailers such as Tesco a wide variety of new
opportunities to expand their business assisting them in augmenting their profits and overall experience
with their customers. One-way technological development has impacted Tesco is that they have
embraced the advancements made to help improve the quality and efficiency of their customers
shopping and their management by introducing RFID technology. RFID (Radio Frequency Identification)
is a form of data collection that can automatically identify objects using low-power radio waves
alongside item tags and is very similar to how barcodes work 19. By utilising this technology, Tesco have
been able to automatically count stock and easily remove it after sales which not only saves time for the
employees, but it also assists the store suppliers about when new deliveries should be made to help
replenish any depleted stock. One of Tesco’s most recognisable technological developments that has
greatly benefited them was the introduction of the ‘Clubcard’ back in 1995 and has proved to be an
enormous success for Tesco. This new system implemented by Tesco allows for customers to use a
‘Tesco Clubcard’ at the self-checkouts to help collect points on groceries or fuel which can then by
calculated into vouchers depending on how many points have been collected 20. By utilising this
technological advancement, Tesco has been able to accumulate ‘about 19 million people’ who use their
Clubcard21 which, in-turn, has resulted in more loyal customers allowing them to continue to keep their
13
https://www.theguardian.com/business/2020/sep/29/tesco-sets-300-per-cent-sales-target-for-plant-based-alternatives-to-meat
14
https://www.theguardian.com/lifeandstyle/2018/jan/08/tesco-launches-own-brand-vegan-range-amid-rise-in-plant-based-eating
15
https://www.retailgazette.co.uk/blog/2020/07/17-2m-brits-plan-to-switch-to-online-shopping-permanently/
16
https://www.campaignlive.co.uk/article/tesco-launches-campaign-online-shopping-service/43494
17
https://www.liverpoolecho.co.uk/whats-on/shopping/aldi-launch-online-food-delivery-18267753
18
https://www.tescoplc.com/news/2020/tesco-serves-more-than-one-million-online-grocery-orders-in-a-week/
19
https://lowrysolutions.com/blog/how-rfid-and-rfid-readers-actually-work/
20
https://secure.tesco.com/clubcard/about/
21
https://www.bbc.co.uk/news/technology-51710687#:~:text=The%20BBC%20understands%20about%2019%20million%20people%20have%20a
%20Clubcard%20account
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