3. PESTEL Analysis
PESTEL Analyses tool will help to analyze the indefinite and rapidly changing environment of Tesco. Various forces that are significantly impacting on the performance of the company will be identified for understanding the external environment. Political factor
After China and its market expand to World Trade Organization, foreign trade began to develop in the country as most of the barriers of foreign trade and investments were removed. This was a huge encouragement for big companies to expand to the Chinese market which is the largest market in the world with its huge population of 1.3 million. Tesco also followed Western companies making way to the Chinese market (Straits Times, 2010). In 2009 Tesco and Chinese government made and agreement which allowed Tesco to create various joint ventures to develop shopping malls in the country. The joint ventures consisted of 3 malls: Fushan, Anshan and Qinhuangdao. Additional 18 modern hypermarkets were opened in China in 2011 (Tesco, 2011). This means that the company is rapidly developing its foreign markets sector which accounts for a quarter of Tesco’s total profits. Today’s globalized world has made a way for countries to promote free trade and make a way for international companies to expand to their markets (Lynch, 2003). After 10 ore countries joined the EU countries, all the European states started to promote the trade within the whole continent (BBC, 2013). Hence, it has been a good opportunity for Tesco to operate internationally across the whole European market.
As the economic factor is directly related to the social wellbeing of the customers and hence their purchasing behaviours, it is significantly important for Tesco to consider it for their strategic decisions. Though 2009 was a period of recessions in the United Kingdom, the government agreed to significantly reduce the interest rates. This lead to a higher number of unemployed population in 2010 (Euromonitor, 2011). This had a direct impact on consumers’ purchasing behaviour. However, as UK economy started recovering, people tend to be more positive about their finance and spending. Despite the recovering economy, consumers are not ready to but expensive products which is having a direct impact on the value of sales. For example, consumers prefer eating at home rather than eating out. It gives chances to Tesco to grow their grocery outputs. (Guardian, 2013). It is also important to understand that food is of primary importance for everybody and consumers will not tend to buy fewer groceries. As it can be seen from the figure below consumers are spending significantly more on food in the recent years (Euromonitor, 2010).
Figure 2: UK Spending on Food as percentage of Overall Consumer Spending 2004 to 2009 The following diagram shows the GDP growth before the economic recession. It will help Tesco to better understand the economic environment of the market in which they are operating (Mintel, 2013):
Figure 3: UK GDP Growth 1989-2009
The recent statistics of United Kingdom population show that the number of retired exceed the number of children in the country (Herald Scotland, 2013). This factor is having an impact on Tesco’s sales performance as retired people are eating much less than younger consumers. They also do not like travelling to shops. However Tesco should try to target the aging population by online shopping tools. The level of internet literacy has grown among the population over 65 and many of these consumers find it easy to shop online. This should also be a good opportunity for Tesco to develop its delivery services. Technological
Technologies have had a significant impact in the grocery and food market. Nowdays, retailers are using internet for targeting the consumers. The number of people using Internet in UK has grown steadily by 50% recently and 70% of UK residents are subscribed to the Internet (Office for National...
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