PESTEL analysis of Tesco
This detailed PESTEL analysis of Tesco aims to explore some of the political, economic, social, technological, environmental, and legal factors that affect Tesco today. Tesco is the market leader in the UK supermarket industry. It is in fact, one of the largest and leading retailers in the world.
Political factors affecting Tesco
Tesco is a British retailer that operates in a number of countries e.g. Ireland, Hungary, Slovakia, Malaysia, China, Czech Republic, and others. Its home market has a politically stable environment though Brexit has created a lot of uncertainty.
Like the home market, all of Tesco’s overseas markets are politically stable as well. Therefore, it can be said that Tesco is operating in the political environments that are mostly conducive to business.
Likewise, Tesco has proved over the years that it is capable to respond to the current and future legislation, and adjust its business and marketing polices accordingly. However, it is worth mentioning that it had to pull out of Poland because of several market challenges.
Economic factors affecting Tesco
An important element in the PESTEL analysis of Tesco is the economic environment. As the global economies have been severely affected by the lockdowns, it is expected that many people’s earnings are likely to go down, and many may lose (or may have already lost) their jobs. This may result in less spending by customers or switching to cheaper brands. This may severely affect the operations and profits of Tesco.
However, some customers though price conscious during an economic downturn, may still spend more if they feel they are getting a good deal with quality products. This is a positive thing for Tesco as its products are generally perceived of good quality.
Apart from economic downturn, another significant economic factor that costs Tesco (particularly in the UK and Ireland) millions of pounds every year is high labour cost. Therefore, Tesco has employed a lot of part-time and flexible workers over the years.
Tesco has been able to benefit from the lower cost of production in some countries, which has allowed it to reduce its costs and remain competitive in the market. Additionally, it has been able to benefit from the increased demand for its products, which has allowed it to increase its sales and remain profitable.
Social factors affecting Tesco
Tesco has taken several initiatives in recent years in response to social changes and demands. For example, due to high demands, it sells branded halal meat to Muslim customers or have independent meat counters in some stores in the UK. Likewise, it sells both branded and own-label halal meat in Malaysia and Thailand (Tesco, 2023).
Tesco sells some branded kosher products in the UK for Jewish customers. Like the rising demands for specific types of meat/chicken, demands for vegetarian and vegan foods and drinks are also rising very high in the European markets that offer Tesco good opportunities for further growth.
Failure to understand sociological contexts can be costly. For example, having spent 8 years and millions of pounds, Tesco had to pull out of Japan. According to many analysists, it failed to understand Japanese customers and consumer behaviour.
Many Japanese customers switched from buying branded luxury products in Tesco and focused on more reasonably priced private label products. However, this failure has provided Tesco with valuable insights into the complexity of international markets.
Technological factors affecting Tesco
Technology is a key element in the PESTEL analysis of Tesco. Tesco has benefitted greatly from technological advancements over the years. For instance, it introduced ‘Clubcard’ long time ago. This loyalty card has been a big force behind the success of the company. Millions of people use it both in the UK and many other countries where Tesco operates.
Tesco has introduced more self-service checkouts across its stores in the past several years. Its self-service checkouts provide customers with convenience and help itself reduce operating costs.
However, Sensi (2022) reports that many customers ae not happy with the self-service checkouts as evidenced from their angry comments on social media. Having said that. Tesco has plans to introduce more self-service check-outs across its stores.
Tesco has been able to capitalise on the rise of online shopping, which has allowed it to reach a wider customer base and increase its sales. Its website is well organised, which helps consumers find what they look for and provides an easy experience that encourages loyalty.
However, technological glitches can stall business operations and hurt consumer confidence. For instance, Tesco’s website and app were hit with outages in October 2021 making customers unable to place any orders (Coles, 2021). Similarly, home deliveries for thousands of customers were cancelled in the previous glitches as well.
Environmental factors affecting Tesco
Companies in the UK, the EU, and in fact, many countries around the world are facing enormous pressure from the governments to address environmental issues. This pressure is not from governments only, but also from the public who are concerned about the environment.
To respond to this pressure, Tesco has taken a number of initiatives. For instance, it removed one billion pieces of plastic from its UK business in 2020. It has also made a commitment to be carbon neutral in its own operations by 2035 and net zero across its whole footprint by 2050 (Tesco, 2023).
Tesco has been able to benefit from the increased focus on sustainability and environmental responsibility. By introducing recyclable packaging and reducing its carbon footprint, it has been able to remain competitive in the market.
Legal factors affecting Tesco
Government policies and legislation impact on Tesco directly. For instance, Davis (2020) reports that UK and EU competition law prohibit anti-competitive activities and therefore, Tesco cannot just simply merge with, or purchase another supermarket of its size in the UK as the country’s competition watchdog (The Competition and Markets Authority, CMA) can block such moves.
Tesco cannot pay any employee less than the minimum wages set by the government. Likewise, it cannot sell alcohol to underage customers. Any breach may result in substantial penalties.
It should be mentioned that Tesco was sued and fined in the past for misleading customers and other issues. For instance, it was fined £7.56 million in 2021 for selling out of date food in some of its stores in Birmingham (UK).
Summary of PESTEL analysis of Tesco
Tesco has been able to use a variety of factors to remain successful and competitive in the market. It has been able to take advantage of political changes, economic trends, social trends, technological developments, and environmental concerns to further its success.
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Last update: 27 January 2023
Coles, A. (2021) Tesco website and app back up and running after suspected hack, available at: https://news.sky.com/story/tesco-website-and-app-crash-following-attempt-to-interfere-with-our-systems-12443243 (accessed 24 January 2022)
Davis, A. (2020) Competition law – the basics, available at: https://www.pinsentmasons.com/out-law/guides/competition-law—the-basics ( 27 January 2023)
Sensi, J. (2022) Tesco faces backlash, available at: https://www.grocerygazette.co.uk/2022/09/15/tesco-backlash-tills/ (accessed 27 January 2023)
Tesco (2023) available at: https://www.tescoplc.com/sustainability/downloads/religious-slaughter-policy/ (accessed 27 January 2023)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.