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Assignment 2 Unit 1 Exploring business

Understanding Business (University of Greenwich )

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In this assignment, I will be analysing how the external environment affects a business, in this case,
Tesco. To do this, I will be using a tool called PESTLE analysis and I will also be using a SWOT analysis.

Tesco PLC is a multinational grocery and general merchandise retailer. Tesco is the UK’s biggest
retailer by sales and has a share of 29% of the whole market. It has more than 6000 stores in 12
countries.

Eternal Environment
The business environment is variable and unexpected as everything can change in matter of seconds.
As a big organisation, Tesco will have to be very aware of the external factors in the business
environment as they can have a great impact on business activities. This impact can be positive or
negative; a positive impact might be, for example, an increase in government grants as it will help
start-up businesses to start off well, on the other hand a negative impact on a business might be an
increase in income tax. With Pestle and Swot analysis businesses look to reduce the damage these
changes can cause. PESTLE stands for:

 Political
 Economic
 Social
 Technological
 Legal
 Environment

Political

The government can affect the operations of Tesco by making new legislation and this can have a
great impact on it. For example, in 2016, the government issued a new legislation that medium (50-
249 employees) and large (250+ employees) businesses will have to sell plastic bags.

Government support

The UK Government offer different supports to help businesses set up successfully. Some supports
include grants, finance and loans, mentoring, consultancy, and funding for start-ups. Grants are
amounts of finance given to a business for a specific business project and this can be obtained by
applying for it online (https://www.gov.uk/business-finance-support-finder). Government loans are
the finances given to a business by a government to help out the economy. As this is a loan, the
business will have to pay it back as soon as they start making profits. The government can give some
mentoring and consulting to new entrepreneurs that are starting up business to set them up for
success.

Support might be offered to Tesco when they were building Tesco Extra in Woolwich. “One reason
why the council has cosied up to Tesco, despite criticism of the chain from the Labour Party is
because the new store has created hundreds of new jobs in Tesco”.
(https://853blog.com/2012/11/26/will-tesco-save-or-strangle-woolwich/). This was beneficial to
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Tesco as it created the opportunity for them to sell their products in a place where a lot of people go
to and it definitely helped the regeneration of the Greenwich Borough as they build close alliances
with selected large companies to promote their work.

Economic

Credit crunch and recession

On 9 August 2007, the credit crunch occurred. The credit crunch refers to a sudden shortage of
funds for lending, leading to a resulting decline in loans available. A credit crunch is caused when
banks carelessly lend money. This led to a recession which is a decline in financial activity. Tesco saw
its worst during the recession as their sales growth got halved and they were losing customers to
competition like Aldi and Lidl. ‘Aldi was the top dog, growing its sales by a whopping 20.7 per cent,
based on the value of till-roll sales, for the 12 weeks to 15 June. The increase gave Aldi its record
share of the UK grocery market at 2.9 per cent. While Lidl's sales increase of 12.8 per cent is below
Aldi's, it is still well ahead of Tesco, Asda, Sainsbury's and Morrison’s’.
(http://www.independent.co.uk/news/business/news/lidl-and-aldi-see-sales-soar-amid-economic-
downturn-853614.html).This was because, supermarkets like Aldi and Lidl, were more cost-efficient
as their prices are affordable while Tesco, since it was the UK’s leading supermarket, had high prices.
To counterattack this, Tesco introduced a discount range to attract customers which delivered low
sales value and profit margins. During this recession, Tesco lost an estimated £22 million to Asda,
and £10 million each to Aldi and Morison’s.
(http://www.dailymail.co.uk/news/article-1091079/Recession-hits-Tesco-Grocery-giants-sales-fall-
lowest-figure-16-years-shoppers-turn-budget-supermarkets.html). In conclusion, ‘Tesco lost an
estimated £22 million from customers who have switched to Asda, while both Aldi and Morrisons
made a profit of £10 million each thanks to shifting loyalties in the 12 weeks until November 2’.
(http://www.dailymail.co.uk/news/article-1091079/Recession-hits-Tesco-Grocery-giants-sales-fall-
lowest-figure-16-years-shoppers-turn-budget-supermarkets.html#ixzz4xYc0vejR)

Exchange rates

An exchange rate is the value of a currency expressed in terms of another (for example from pounds
to euros). If there is an increase in the value of the pound and a business imports product to
England, then the products will be cheaper for the business in England. On the other hand, if a
business exports abroad, the products will be more expensive causing the demand for it to fall
abroad. The exchange rates can affect Tesco for good or bad depending on the exchange rates going
up or down, and if it imports goods from abroad or exports its own products. For example, if they
were to buy olives from Italy and the UK exchange rate has increased then they would buy the olives
for a much lower price than expected but since the Brexit vote, the value of the pound has hit its
worst and has gone down. This means it will be more difficult for Tesco to be buying supplies from
abroad. For example, Unilever (the world’s largest supplier of food products), “raised the price of its

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products by 10% in a bid, it said, to offset the higher cost of importing caused by the weak pound
following the Brexit vote and in response Tesco decided to pull dozens of Unilever’s brands from its
shelves”.( https://www.marketingweek.com/2016/10/17/tesco-price-dispute-sends-unilever-brand-
perceptions-tumbling/). Although this dispute was settled 24hrs after it became general knowledge
with Tesco winning it, it had a negative impact on Unilever’s consumer perceptions. On the other
hand, it made Tesco look like “hero” as they stood up to the “bullies” so as to enable their customers
to still receive their value for money; it had a positive impact on Tesco’s consumers’ perceptions.

Fiscal Policy

The government utilizes fiscal such as tax and government spending - to control the economy in the
correct course by expanding or diminishing the demand and accessibility of products and services.
Fiscal policy can boost investments, create jobs and contribute to an economic growth. For retail
organizations, like Tesco, fiscal policy influences purchaser demands, investments decisions and
competition. This is because tax-related fiscal policy changes the amount of disposable income
consumers have, to spend. If the government decides to increase the taxes, then the customers
would decide to start saving and spending less on the products offered by Tesco. For example, when
VAT raised in 2010, Sir Terry Leahy (Tesco’s chief executive) warned that raising VAT from 17.5pc to
20pc will hit consumer spending. This was proved to be true as a survey of 2000 people suggested
that the VAT rise could cost each household in the UK almost £500 a year, with reduced spending
notably on computing and electronic devices, holidays and eating out. (http://www.telegraph.co.uk/
finance/budget/7852544/Budget-2010-VAT-rise-to-hit-spending-says-Tesco-chief-Terry-Leahy.html).

Supply side policy

These are measures that have the aim to improve factor productivity and help the economy grow.
This can be done by reducing tax rates, for example income and corporation tax. Bringing down the
income tax will go about as a motivating force for unemployed people to join the workforce, or for
existing laborers to work harder. Bringing down the corporation tax gives an incentive to business
people to start up a business which in turn can increase national output.

Social

Attitudes to savings and spending

Some people save to satisfy their wants and aspirations and others save in order to cover future or
unexpected costs. Throughout the years, people’s attitudes towards savings has changed
dramatically. People are more willing to spend their money now than to save it for later. A research
from (http://www.yourmoney.com/retirement/uk-consumers-prioritise-spending-now-over-saving-
for-later/) has found out that one of the UK’s largest city, Sheffield, has 54% people who are inclined
to spend their money now. This is beneficial for Tesco because it means that more customers are
likely to shop there as people’s attitude towards saving is poor. However, this can be detrimental to
economic growth. In fact, banks and the government rely on people to save money because it can
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boost economic growth as businesses can use that kind of money to invest more and it can also be
used for household mortgages. To encourage saving, the government has introduced cash ISAs and
premium bonds, savings accounts that attract customers because of the chance of winning a big
reward in cash.

Demographic trends

Population trends change over time for example Great Britain has increased by more than 20 million
in just 2 decades. This offers big opportunities for various businesses such as house builders since
the government will have to construct a lot of houses in the UK. But this will also impact Tesco as the
growth in population should lead to higher sales.

As we can see from the table the population

growth of the Greenwich borough is increasing
over the years. This is very beneficial to Tesco
because there will be a greater chance to get new
customers. In addition, having a long-term
relationship with them is the key to gain profit
over time and employing people will be easier as
they will have a range of people to hire.

Having people of different nationalities coming to the UK creates new opportunities for businesses
like Tesco. For example, the Tesco in Woolwich has recently added a world’s food section in their
store e.g. Hallal meat, because they noticed that in that area there are a lot of Muslims in need of
that kind of product. Tesco found a gap in the market and acted accordingly to meet that need. This
has contributed in increasing their profits.

Technological

Technological factors which have perhaps had the most impact on Tesco has been the growth in the
use of the internet. Internet has given new shape to new day shopping They have capitalised on the
use of online shopping forum Tesco direct and provide a delivery service through their website at
www.tesco.com this has aided the company to cater to a larger segment of people at their
convenience.

Environmental

Environmental trends in a business involve the decrease of carbon footprints, the use of more
renewable energy sources and recycling. Businesses around the world are working to use more
renewable energy sources because they can lead to a lower operation cost. Tesco’s are instrumental
as a retailer in supporting carbon reductions and have created a £100 million Sustainable Technology

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Fund for this purpose. They also encourage their customers to make low carbon choices. Yet if
Tesco’s did not take their corporate responsibilities seriously in relation to environmental issues it
could have face consequences for Tesco’s reputation.

A real life example of businesses who recycle is Tesco. Tesco considers its environmental obligation
important and they as of now recycle the cardboard utilized in more than 95% of their shops. They
recycle all the delivery cases and boxes they use for their product packaging. The test which Tesco
countenances, is that a significant part of the waste delivered in the stores is “food contaminated',
which exhibits troubles for recycling. While they are investigating food partition opportunities, they
are likewise sending so as to redirect waste from landfill it to vitality from waste offices where it is
changed over into power. As well as working to recycle as much of their own materials as they can,
they also use as much recycled material as is safe and practical.

Legal

There are many laws affecting personal selling which are Sale of Goods Act 1979, Supply of Goods
and Services Act 1982, Consumer protection Act 1987, Consumer Credit Act 1974, Consumer
Protection from Unfair Trading Regs 2008 and Consumer Protection (Distance Selling) Regs 2000.
Legislations give the consumers protection from unsafe products and deceitful traders. For this task,
I will be considering the impact of some legislation on Tesco.

The legal factors that could influence Tesco's activities might be business/contract law. Each of
which may protect employees and consumers. They have to ensure their workers individual details
of interest so that nobody else can get a grip of them but the business itself or the employees that it
relates as well. There have been numerous occurrences where representative’s details of interest
have disappeared inside a business and organizations have fallen apart because of it. There must be
composed confirmation inside the agreement that the employee signs to say that the business will
ensure that any details given to them will be secured and shared with no one else. Confidentiality is
not the only thing that must be incorporated inside the agreement. The amount of hours that the
employees work and the working conditions are additionally included inside this so the worker
recognizes what is in store from Tesco and Tesco knows what to expect from the worker. This
agreement must be signed by both the business and the employee to ensure they both consent to
the terms and conditions.

The consumer protection that falls under the Sales of Goods Act is fundamentally an act of
parliament, which identifies with "goods" been sold and purchased. It includes conditions such as if
the price is not agreed, the buyer will be required to pay a sensible price. There are seven parts of
these sales and goods act contract, which should be followed by Tesco to ensure they consent to the
terms and conditions of purchasing and offering products. These include the background, the

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contract formation, effects of the contract, contract performance, and the rights of the unpaid seller
and finally act of the contract breach, which are the consequences if the contract has been broken.

Another law that may influence Tesco's activities may be the national minimum wage act 1998. This
essentially sets the lowest pay permitted by law the workers can work. This can likewise affect the
number of employees Tesco can get since it affects the amount of cash they can pay out to
employees. This will likewise be included in the agreement of job.

Another Act that could influence Tesco's activities would be the health and safety & work act 1974.
This again will be included inside the employment contract, which states that the working
environment that the employees will work in within their working days. This is to guarantee the
safety of both workers and customers over the long run. If somebody somehow happened to be
harmed at Tesco's they could be eligible to be sued because it is Tesco's obligation to ensure that
everybody is protected inside the environment. It may also include maintaining a working
environment, which is protected, and without danger to wellbeing and providing equipment and
frameworks of work. This act additionally states that businesses like Tesco's with five or more
representatives must have a composed health and safety statement, which shows that the business
has the responsibility to health and safety.

By doing a PESTLE analysis we can analyse the development and the success of Tesco’s in addition to
the day to day management of each store in line with strategic decisions. Without knowing what
external factors affect the organisation, it is difficult to manage the business in an efficient manner

Internal Environment
Corporate culture

Corporate culture alludes to the convictions and practices that decide how an organization's
employees can handle outside business exchanges. Frequently, corporate culture is inferred, not
explicitly characterized, and grows naturally after some time from the total attributes of the general
population the organization procures. An organization's way of life will be reflected in its DRESS
code, business hours, office setup, representative advantages, turnover, contracting choices,
treatment of customers, customer fulfilment and each other part of operations.

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Competitive environment
In business, a company that offers a similar product to another is a competitor. It is important to
consider one’s competitors because they could surpass them when it comes to sales and customer
retention. For this section of the assignment I will be using the Tesco Extra in my local area
(Woolwich) as an example. In Woolwich, Tesco face competitors such as Sainsbury’s, Lidl, Iceland
and Poundland thus they are in a highly competitive market. A highly competitive market is one in
which an extensive amount of producers rival each other to fulfil the wants and needs of the
members of the general public. In such a market, no one can direct or predict how the market works
nor would they be able to decide the cost of merchandise and services.

Tesco has a solid brand image with great quality, confidence commendable merchandise that speak
to brilliant esteem, the item and administration improvement have additionally been fundamentally
revamp and giving better administration of item lifecycles and more proficient conveyance of wide
scopes of items to clients. Tesco nonstop development, proficient operations and vital extension has
viably turned into the biggest and best retailers. So as to proceed with increment client's shopping
background, Tesco additionally enhance their operational effectiveness through including new items,
new administrations and different capacities. As Tesco is chipping away at extending to new regions,
and store arrange, item blend and administration attributes and different elements will start on the
IT framework design, legacy frameworks and business accomplices to survey the execution of these
arrangements keeping in mind the end goal to figure out what the centre and which meet every one
of the prerequisites of the framework most.

Factors influencing competitive advantage include: differentiation, pricing policies, market

leadership, reputation, market share, suppliers and employees.

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Swot Analysis
Strengths

Tesco is one of the largest and renowned grocery retailers. The brand name is one of the biggest
strengths they possess. They have diversified into different countries with about 1 million
workforces from different backgrounds and different age groups. During the decline of global retail
overall sales the company has still shown a growth of 13% within the UK markets and 26%
internationally .They have won several retail awards for keeping up their standards and providing
best retails services keeping in mind their corporate responsibilities . They are continuously
expanding with propositions of opening several stores on an international level.

Of the supermarkets in the UK, only Tesco, The Co-operative, Iceland and Sainsbury's offer loyalty
card schemes to customers. Customers can collect two Club card points for every £1 they spend in a
Tesco store, or Tesco.com, and 1 point per £1 in petrol station. Customers can also collect points by
paying with a Tesco Credit Card, or by using Tesco Mobile, Tesco Homophone, Tesco Broadband,
selected Tesco Personal Finance products or through Club card partners, E.ON and Avis. Each point
equates to 1p in store when redeemed or 4p when used with club card deals. Club card points can
also be converted to Air miles. Club card points are also converted into coupons which can be
redeemed for extra points or cash totals.

Weaknesses

Due to the current economic conditions Tesco’s may suffer from the rising cost of living and lower
incomes available to the public resulting in less demand for the non essential and mid to high priced
items.

Due to the ongoing recession Tesco’s Finance profit levels were impacted through bad debt, credit
card arrears and household insurance claims. This could continue if the market doesn’t see change
soon.

Tesco’s has retained its position as a price leader in UK markets for which they had to reduce profit
margins in order to retain the key price points on commercial items.

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Grocer outlets are not set up to operate as specialist retailers in specific areas of product which can
be capitalised on by smaller retailers and things can be sold locally.

Threats

Due to the ongoing recession UK and American markets have been affected by economic concerns.
Loss of employment and Lower income available will impact and strategic focus may need to change
to lower priced basic products with less focus on higher priced brands and luxury products
suggesting a change in pricing structure.

Due to modern development and constant changes in technology there are a lot of changes to
consumer buying behaviours. Requiring further analysis - as technology develops consumer buying
patterns change which will result in product areas requiring evaluation constantly to keep up with
the demands.

Tesco has always feared the threat of takeover from the market leader Wal-Mart who has both
means and motive to pursue such action. Wal-Mart has been a leader especially in the US market for
few years now. With its alliance with ASDA in the UK they are one of the nearest competitors.

Opportunities

After researching the growth figures and sales of Tesco the statics suggest that TESCO is the third
largest global grocer which indicates a level of buying power to ensure mainstream economies of
scale.

Tesco Direct has been one of the recent and great achievements which have been seen as one of the
important tools in increasing the sales margins. The online and catalogue shopping will grow the use
of technology, providing the launch pad for larger non-food based products with moderate to high
margin returns and less focus on sales and margin per foot return to space. The development of such
platforms not only helps in saving retail space but reach a larger number of people.

Tesco mobile have grown a quarter million customers in 2008 and moved into profitable status
suggesting further growth and development within this technological area can be developed.

Tesco's Steering Wheel (1997) - Key performance indicators: The rationale for the strategy is to
broaden the scope of the business to enable it to deliver strong sustainable long-term growth by
following the customer into large expanding markets at home – such as financial services, non-food
and telecoms – and new markets abroad, initially in Central Europe and Asia, and more recently in
the United States.

The strategies and objectives of the company: Tesco has a well-established and consistent strategy
for growth, which has allowed us to strengthen our core UK business and drive expansion into new
markets.

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 To be a successful international retailer: Tesco is focusing on not only a full expansion within
the UK but also throughout the world. Currently they have several projects including
reopening of retail outlets in countries like China, India, Brazil.

 To grow the core UK business: Tesco wants to provide excellent customer service and value
to all customers thought the UK

 To put community at the heart of what we do: Tesco emphasis on providing value services
and to earn life time loyalty. They take initiative in developing the community and making an
effort to shape the environment for betterment. The policies they follow include using fair
trade policies, creating shared value, social accounting etc. They have close affiliations with
charitable organizations like cancer research, race for life etc

The growth of any product sale depends on different aspects. I have visited nearly all Tesco formats
and had a view of what Tesco is offering and how the services are provided for the same

Earning Customer Loyalty

What is in place and how have they improved over the five year – loyalty card, membership

Tesco’s Club card program boasts 10 million active households and captures 85% of weekly sales. It
is also a symbol of Tesco’s commitment to their customers as individuals: multidimensional
customer segmentation and tailored communications. As of last June, four million unique quarterly
mailings--- prove to Tesco’s customers that they can count on their “local grocer” to know them.
Mailings are tailored to the needs, interests, and potential interests of Club Card members.
Customers are segmented into cost conscious, mid-market, and up-market segments, which are in
turn segmented into healthy, gourmet, convenient, family living, and so on. These sub segments are
then segmented further and communications are tailored to each.

Impressively, Club Card coupon redemption is in the 20%-40% range and cost per redemption
decreased since the inception of the Club Card Program. By targeting in such a relevant way and
treating customers according to their individual behaviours, needs, and desires, Tesco came to
understand that a higher-value coupon is not needed when you’ve reached the right person in the
right way with a tailored message.

In the five year period following the implementation of the Club Card program, sales have increased
by 52% and still grow at a rate higher than the industry average. Store openings and expansions have
increased Tesco’s floor space by 150%.

In the online space, tesco.com boasts 500,000 transactions weekly, totalling nearly two billion
pounds in sales each year. The profitability, plus the size of the tesco.com business and the number
of transactions it completes, makes tesco.com a truly unique online grocery store.

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Different market structure

Perfect Competition

Perfect competition is a market in which many businesses offer similar products at similar prices.

Features of perfect competition

1. Many firms.

2. Freedom of entry and exit.

3. All firms produce an identical product.

4. All firms are price takers, therefore the firm’s demand is perfectly elastic.

5. There is perfect information and knowledge about the products.

Imperfect Competition

Imperfect competition is a competitive market situation where there are many sellers, but they
aren’t selling goods as opposed to the perfect competitive market.

Features of imperfect competition

1. Variable number of firms.

2. Restrictions when it comes to entry and exit of the market.

3. Firms sell different products

4. There is flexibility in pricing

5. There are many substitute products

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Perfect competition Imperfect competition

Number of sellers Many Variable, possibly not identical

Barriers to entry None Potentially significant

Type of substitute products None Many

Nature of competition Price only Price, quality, location, etc.

Pricing power None Potentially significant

Table from the business book page

Tesco is neither a perfection nor an imperfect competition market rather, it is an oligopoly. An

oligopoly is an industry dominated by a few firms and this is true as the supermarket section is
mainly dominated by Tesco, Asda and Sainsbury’s.

The main features of oligopoly:

1. An industry which is dominated by a few firms.

2. Interdependence of firms, firms will be affected by how other firms set price and output.

3. Barriers to entry, but less than monopoly.

4. Differentiated products, advertising is often important.

Relation between demand, supply and price

Influences on demand

Affordability

This can really affect the demand of a product. If people’s income is not enough for them to afford a
product from Tesco, they will not buy that product or they will just go for substitute products that
are cheaper than that.

Availability of substitutes

If Tesco were to be having a reduced profit margin, they could consider buying their supplies of
products from another supplier for a cheaper price or they could go for a high-quality product and
sell it for a higher price, however, a situational analysis will have to be undertaken to make sure that
the product will sell and thus make profit for the business.

Competition
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If Tesco’s competition were to reduce the price of certain products, customers will most likely go to
the competition for that product/s. This will, therefore, benefit the competition as they will be
increasing their sales and retaining customers while Tesco’s sales will be decreasing as they will be
losing customers too.

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