Essay
Unit 1- Exploring business assignment 2
- Institution
- PEARSON (PEARSON)
I chose Tesco as my business to talk about, I have created 18 pages for my assignment and was awarded a distinction.
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IntroductionIn my business report, I will demonstrate the internal and external environment in which Tesco
operates whilst also examining Tesco's market. I will also be showing how Tesco deals with any
threats or successes that they may come across. I will also be using my research to write a report
that evaluates Tesco as a whole. As a business Tesco has many strengths and weaknesses that
both help and badly affect their marketing and business behaviour. I will also cover any past and
future changes in the environment that may affect Tesco.
Main body
The external environment
The external environment is undoubtedly very unpredictable and unexpected as it can change very
quickly. Tesco has to be vigilant of all the external factors as they have a huge effect on Tesco's
activities as a business. The impacts of the external environment can go both ways, some positive
impacts maybe, an increase in government grants to help to start a business up, whereas a
downside may be an increase of tax as this will affect prices of raw materials and goods, this may
result in damage to Tesco's profits and sales. A PESTLE analysis helps businesses to evaluate any
risks or opportunities in the external environment that may affect the business. Here are some
examples of what external factors could affect Tesco and the meaning of PESTLE:
Political- This can be anything from Tax Policies, tariffs, restrictions on trade, Government
policy, and Brexit to corruption.
Economic- For example interest rates, supply and demand, customer spending, economic
growth, Unemployment rates, exchange rates, and the rate of inflation.
Social- Age distribution, education, cultural barriers, health consciousness, social
distancing, COVID-19, Religion, carrier attitudes, language, and the population's growth
rate.
Technological- This includes, Online shopping, self-service checkouts, Research and
development, Technological awareness, Automation, and advancements in engineering.
Legal- Health and safety laws, consumer protection laws, company laws, copyright and
patent laws, discrimination laws, and Covid-19 laws that Tesco must follow in order to stay
open and protect others.
Environment- e.g., Laws, recycling, environmental protection, pressures from NGO's and
climate change.
Political
As Tesco operates all over the globe, they have to contemplate the political and legislative issues
that could both affect and influence their business.
Back in 2011, the UK Government put a huge strain on Tesco when they announced that new tax
measures would be put into place. The government increased VAT from around 17.5% to 20%
which resulted in heavy consequences for the UK's leading supermarkets. The government's
objective was to increase the government's revenue so that they would generate around 13 billion
pounds each year. The reason why the change affected Tesco so much was that the higher VAT led
to the costs of goods and raw materials that they source from their suppliers would rose meaning
that Tesco's costs increased which led to a decrease in profits. To make sure Tesco did not get
itself into financial bother they had to charge their customers higher prices for goods, this was an
issue for Tesco a price increase could influence their customers to shop elsewhere as they may not
want to be paying more money for their shopping, this external impact put Tesco at risk of losing
customers and having to spend more money on variable costs for the business. Tesco highly prides
themselves on their affordable prices and their promotional offers so this could have left a
damaging mark on Tesco's reputation as they were forced to increase their prices. A major political
influence on Tesco was the proposal of the sugar tax in January 2014, which was originally put into
place to stop and to take control of the obesity crisis in the UK, in an attempt to diminish health
problems that are associated with obesity. Again, this measure had huge consequences for Tesco.
,A key example of how this political decision affected Tesco was that on the supermarket's shelves
there may be lots of sugary drinks and Tesco's customers will see the price has risen and so they
may feel obliged to not buy the product and go for an alternative option or to not buying any drink
products at all. This put a huge strain on the supermarket's profits as from the introduction of
sugar tax Tesco saw a big reduction in the sales of fizzy drinks. Although fizzy drinks may have a
small influence on Tesco's profits, they still have an impact, leading to Tesco's profits decreasing
from a decision that is out of their control.
A positive of the political external environment is that within the Commonwealth countries that
Tesco has stores in, Employment Legislation exists, meaning supermarkets and many other
retailers must provide a variety of job opportunities for anyone wanting a highly paid, skills-based,
low skilled or a low paid job. Within the legislation, it also states that there should be a mixture of
the sectors of the population offered jobs, for instance, OAPs, teenagers, the disabled, and middle-
aged adults. This could be seen as an advantage for Tesco because if they have a wide range of
different skilled workers, they have a variety of workers that will all be good at different jobs and
tasks making Tesco's stores run more smoothly and it may speed up production, which all results
in making higher profits and customer satisfaction. By hiring a mixer of different people, also it
reflects well on Tesco's stores as it may show a sense of diversity and friendliness to Tesco stores
making customers want to return as they enjoy the shopping environment as well an increase in
customer and staff motavation.
Economic
Economic factors have a huge influence on Tesco as they impact:
o Costs of employment
o Tesco’s profits
o Product demand
o The pricing of goods
o Unemployment rates
o Interest rates
Tesco cannot possibly be in control of these points and so economic factors can have undesirable
effects on particular parts of the business, which can be overwhelming. In my research, I have
found that the international approach to Tesco's firm is to expand more and more each year and to
boost their profits in the next couple of years. Tesco is extremely reliant on the UK's market, which
suggests that any sort of disturbance to the UK's food market would be detrimental for Tesco.
With the Coronavirus destroying people's lives left, right, and centre, COVID-19 finds yet another
way to destroy our country, through the economy. The UK's economy is showing very negative
indications and no real sign of recovery. This is from the national office of statistics.This has a
knock-on effect on Tesco as unemployment levels are sharply rising, which results in customers not
spending their money on luxuries, customers will only be buying essentials as they may not be
able to afford extra necessities. Also, customers may look at shopping elsewhere as they may feel
as though Tesco's prices are too high, so they'll head to a more budget-friendly supermarket for
example Aldi or Lidl, resulting in a huge loss for Tesco. With people around the world not having as
much disposable income in these uncertain times, Tesco may be forced to lower their prices which
may cause the consequence of a decrease in the quality of their products, to keep their costs down
they may have to buy cheaper goods from their suppliers and those goods may be of lower quality,
if Tesco's product quality was to decrease it could leave a long-lasting mark on the reputation of
the business as they may not be seen as a 'high end', high-quality supermarket anymore. A
deduction in profits could also result in Tesco having to let staff go as they do not have the funds to
pay staff wages, the decrease in the workforce may affect the customer service and the
productivity of the business, leading to a bad reputation for Tesco PLC as customers will not be
satisfied with their shopping experience. Overall COVID19 has had catastrophic effects on the
economy, and Tesco has paid the price of it.
Fiscal
Fiscal is a policy known as the Fiscal policy that impacts not just Tesco but every type of business.
The government actually controls it and imposes levels of taxation centred on the price of
borrowing. The government creates its revenue through this, and it is how they decide their
budget. Tesco has to follow the fiscal policy; their business owners and decision-makers cannot
ignore the policy. As I explained before a slight increase in taxes can affect Tesco's whole chain,
, higher costs are caused leading to higher prices being set and therefore unsatisfied customers, but
the government is in charge of the Fiscal policy and it is out of Tesco's control. The government
uses the policy to steer the UK's economy in the direction that it should be in, they do this by
decreasing and increasing the availability and demand of all goods and services. The policy itself
encourages investments, helps long-term economic growth and it also creates jobs. For Tesco, the
Fiscal policy affects their costs of actually doing business, customer demand, and investment
decisions.
The policy covers things like cutbacks in government spending, changes in taxation, and the
launch of brand-new taxes like the sugar tax, fat tax, or normal tax on big supermarkets.
Authorities are continually hitting the UK's biggest supermarkets with business rates which cause a
lot of damage to them in times of recovery from the Corona viruses' effect on the economy.
Sainsbury's, Tesco, and Asda along with other supermarkets face more than £110000 per store in
additional bills per store in 2015-2016 compared to 2010-2011. Increased rates for only bigger
supermarkets are viewed as being unfair, vicissitudes in this policy affect Tesco as an increase in
rates means growth in their costs and reduces their revenue which could have been used to benefit
the business, this demolishes Tesco's profits. Another impact that it has on Tesco is that they may
need to increase prices on their products, to manage the increase of business rates and so
customers may not go shopping at Tesco and go to alternative smaller stores that do not have to
increase their prices due to increased business rates, which overall means Tesco are losing out as
a consequence.
Monetary and other government policies
Monetary policy affects Tesco because it correlates to our currency value and its interest rates. The Monetary policy is
decided by the government and all the decisions about how to meet expectations are monitored by the Monetary Policy
Committee and the bank of England. The choices made by the MPC affect Tesco. The value of money concerns Tesco
because if the value of the pound increases and becomes stronger then food and their stock that they import from other
countries become cheaper and so this results in Tesco's costs being kept down, meaning their prices can stay 'low'
therefore they are satisfying and meeting the needs and wants of their customers. If the opposite were to happen and the
value of the pound was to weaken then the same effect would happen but just the opposite way round, so materials are
more expensive, and Tesco may need to increase their prices.
Interests’ rates have a huge impact on Tesco because when interest rates are low people are more likely to spend because
there is not much sense in them saving as they will not receive much money in interest, leading to customers shopping
more and possibly splashing out a little bit more on their weekly shop, and therefore Tesco benefits from this as their
revenue will shoot up meaning their profits increase. However, if interest rates are high then customers are encouraged to
save their money as they will receive more out of doing this, this will result in customers not spending excessive amounts
in Tesco stores and online as they want to save as much money as they can to get more back from it.
Both of these policies help to try and produce economic growth but also improve productivity in some ways to improve
this include lowering taxes, like in 2014 with income tax, in 2015 deducting corporation tax and this is the tax that is paid
by public and private limited companies.
The Government is trying their best to grow our economy so that the UK does not get any worse in terms of the economy,
authority is constantly trying to find ways to improve the economy at a global, local, national, and international levels, in
accordance with opportunity and need, they do this through help to buy schemes, increasing job and training activities,
Tesco is benefited by this in a way as they may get more trained staff and more government support. Right now, the
government is also trying to keep open as many supermarkets and essential shops as possible, Tesco is benefited through
this as they can keep their stores open, and they can continue selling their goods to make a profit.
Social
Around the years 1946 to 1964, there was an enormous baby boom, this had and still has an
impact on society because in the UK there's a huge amount of 57+-year-old adults within the
population. I have found that within the past few years there has been a decrease in birth rates but
an increase in people's life expectancies. Tesco has to take this into account because there is a
bigger proportion of the population that is within the older generation compared to any other age
category and so it would make sense for Tesco to spend money on marketing its brand to the 60-
year-old+ and focusing on them as a target market a little bit more. However Tesco can focus on
adapting its products and stores so they appeal to the elderly it's also important that they do not
forget about the rest of the population as if they only focused on a certain segment of the market it
would result in a loss of customers as Tesco would be ignoring a huge opportunity and gap in the
market, so Tesco needs to make sure that all of their products aren't aimed too much at
pensioners because Tesco wants their stores to be for everyone and they don't want younger
customers not returning because the supermarket doesn't appeal to them. But it is a huge
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