Pest of Tesco
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For the purpose of this essay, I will be examining Tesco and the external factors that influence it and its products. I will also be looking at two of Tescos key competitors, those being Sainsburys and Asda to see how they try and gain a competitive advantage.
Tesco is a retailer of a multitude of products and services, although it primarily focuses on food and groceries. Initially based within the UK it now has stores in twelve different countries, five of which they are market leaders. Tescos Core Purpose, as shown by their website is to create value for customers and to earn their lifetime loyalty. They also put a lot of emphasis on people, those that shop with Tesco and those that work for them.
Sainsburys is a leading UK food retailer with interests in financial services and is one of Tescos largest competitors. Their current Goal is to make Sainsburys great again, there focus being on healthy fresh food.
Asda is again primarily a food retailer and their mission statement, taken from Asdas website, “To be the UKs best value retailer exceeding customer needs. Always.”
In the following paragraphs I will be conducting a PEST analysis of Tesco.
Political/legal
As stated by Kotler And Armstrong (2006), “Marketing decisions are strongly affected by developments in the political environment and so Tesco and its rivals need to be aware of any new legislation that comes into play. A key issue that affects Tesco quite predominantly is that of Planning Permission, a heavily regulated law in the UK. With Tesco opening more and more super-stores across the UK, they now take up a total of 27.8 million square feet of space on sales area alone. This does not count in the stockrooms and car parks that come with each store. With such large stores it isnt surprising that Tesco can find the planning permission stage a difficult one to overcome. In May 2004, as shown on the BBC Action Network website, new legislation was introduced regarding planning laws. This was titled The Planning and Compulsory Purchase Act and with it came the biggest change to the English and Welsh planning laws in over a decade. The new laws were designed to:
Make the whole process faster by simplifying the process of making decisions.
Allow every day people to get involved with making decisions regarding new plans.
Create sustainable development, meaning to protect the local environment.
While these changes seem to benefit the community generally, it does present a new problem for companies such as Tesco that wish to build large stores, often drastically changing the surrounding area. An example of this would be, as shown by Challands ( 2004) when Tesco built a 80,000 square foot store in the town of Stockport, they invested over 6 million to alter the roundabout and surrounding highways to allow better access and transport. This resulted in major changes to the transport networks in that area and created road works that lasted for several months.
Because of this, Tesco often face a lot of opposition when it comes to applying for planning permission for their larger stores. This is perfectly illustrated by a group that was organised after Tesco applied for permission to build in Glasgow a 24-hour Tesco superstore, 580 car parking spaces and a one-way system around Partick Cross. The group, as stated by Bagaeen (2007), is called STOP and are lobbying to have the planning permission refused, with over 1000 objections raised already. With opposition such as this Tesco face a difficult time getting the permission they require, having to spend larger amounts of money to get the permission required and arguably more importantly, the negative press generated by this type of issue could seriously affect their image.
Economic
As shown by BPP (1997), The rate of inflation is both a measure of how the economy is doing and an important factor for most businesses: A business must raise its own prices or save on costs in order to maintain profit.” The economic situation, on the whole does not affect Tesco to a great degree. As their primary market is groceries, people will always need to eat regardless of the state of the economy. Following this reasoning, should there be a drop in income, Tesco, as a food retailer, would not be too much affected. It is however, worth noting that Tesco do try and target all markets by producing different product lines. As shown on Tescos Corporate webpage, Tescos Finest was introduced in 1999 to target the people who had a little more disposable income and were willing to spend more for “something that extra bit special” Tesco (2006). The line was such a success it was introduced into every store across all formats.
Tesco also target those that are on a budget with their Tesco Basic range, ensuring that all markets are covered and ensuring a continued income regardless of the current economy.
It is also worth noting that the Tescos non food lines are the fastest growing part of the business and these are likely to be much more effected by the economy. For example Tesco have created a new format for a store entitled Homeplus. These stores specialise in non-food items such as clothes and items for the home. These are likely to be highly affected by the economic situation.
Social
Tesco and other similar companies are highly susceptible to current trends, having to be constantly aware of customer wants and needs to be able to keep up with competition and customer demand. A single media campaign, for example Jamies School Dinners which was shown in 2004, can have a massive impact on the way people think about food. In the show, Jamie began a campaign to raise awareness of the poor quality of school dinners and to eventually change the way children were fed at school. The show was a huge success, generating massive media coverage which eventually led to The Prime minister promising to provide more money for healthier school dinners. This showed how susceptible people can be to the media which is also backed up by Oliver (1995) when he states “There may be substantial changes evolving in society, but these will be differentially perceived by individuals.” This therefore meaning that Tesco must be aware of such things to be able to keep up with customer demands.
To be able to keep up with customer wants, companies first have to find out what these wants are; This can be done in numerous ways and traditionally businesses developed products that they thought people would want,