Similarly Asda, being the prominent part of UK’s retail industry, has recently introduced a new shopping bag where it is written quite notably that “reuse this bag and be environmental friendly”.
Well on the other hand these retail markets have been really engaged in employing big part of population. Specially international students and immigrants from Europe and different places. This helps to bring a better economic situation in the economy as the people tend to spend more.
These socio-environmental elements may not look of great significance but they definitely are. In such a competitive environment where customers have plenty of choice, businesses have to take these things consideration in order to stay in the market and gain more consumer loyalty.
Technological:
Technology has undoubtedly influenced the retail market as a whole quite alot. All the giant supermarkets have to stay up to date with all this new technology being introduced on regular bases. As the competition increases among the businesses, they find the new ways of gaining the level of sales. These include online service such as M&S Direct, Sainsbury’s Online, Tesco Direct, and so on.
According to Sainsbury’s Annual Report 2008, “their online shopping operation has had an outstanding year. Sales grew by 43 per cent with a record Christmas performance”.
“Tesco uses technology to improve fleet’s green credentials (Computing.co.uk, 1st May 2007)”
“Supermarket giant has upgraded its transport management software to improve cost effectiveness and of its delivery fleet”. Technology is always useful, or most of the times useful in reducing the cost for any supermarket or any particular departments. This article here tell us that by bringing in this software in to their operations Tesco can well save their number of deliveries to its Tesco Express shops, will also enable to improve planning as well as make better use of their resources. Tesco can avail plenty of other benefits from this software.
Impact of technology on consumers is that the products now come fresh to the markets straight from the manufacturing plants or farms as the case might be. They tend to get a better product and the durability increases for a product. Apart from such ways of increasing the level of sales, and making your operations more flexible and efficient other factors which may influence the business can include government spending on research and development and speed of technology transfer, etc.
b)
The best tool which discusses the micro environmental aspect of a firm or an industry in good depth is Porter’s Five Forces. Fundamentally, it takes into account the intensity of rivalry among the established firms, risks affiliated with the potential competitors, bargaining power of buyers and suppliers, and also the threats from the substitute in the existing market.
Intensity of Rivalry Among the Established Firms: Rivalry basically refers to the competitors struggle between companies in an industry to gain more and more market share. It happens to take place on a very high scale in UK’s retail market. If we see in context to Tesco, three more mainly accepted supermarkets make up a strategic group that is Sainsbury’s, Morrison’s and Asda. We see a very intense rivalry among them. For instance, if Asda is trying to beat all of them on price, Sainsbury’s will still maintain its market share with same higher prices but good quality. If Morrison’s try to adopt different marketing strategies, Tesco will come up with “deals and value offers” which will keep them where they are.
Tesco as we know is advancing in non food sector as well with some electronics, clothing, etc. However, Tesco faces some immense amount of competition in these already as Curry’s, PC World and companies like Comet have already got name and high reputation in selling electronics. Potential customers will most likely go to these stores as they are specialists in electronics rather than buying it from Tesco. Similarly with clothing, M&S, Next, Gap and many others have a name in clothing sector. Hence Tesco might face some rivalry in such areas.
Risk of Entry by Potential Competitors:
Tesco, Asda, Sainsbury and other supermarkets put up considerable barriers to entry for the newcomers. Anyone starting up a new supermarket chain has barriers imposed on them, implicitly or explicitly, by the existing supermarkets. For instance, Tesco may have cornered the market for certain goods. The new supermarket will not be able to find cheap, reliable suppliers. Tesco also has the advantage of economies of scale. The amount it pays to the suppliers, per item, is a lot less than the corner shop. It achieves economies of scale through buying large volumes of goods. A small supermarket chain can only buy a relatively small volume of goods, at higher price.
We can understand the impact of threats by the potential entrants by the help of example. Take the example of Wal Mart taking on Asda in 1999 as their step to enter UK retail industry. Now, instead of Wal Mart coming into UK, starting all the way from scratch i.e. doing market research and start from the basic level, they straight away bought an established and successful business in the industry, so that they can start competition with ones already in the industry. This was due to the threat of being thrown out of the industry being a small business or not operating on the level where the Tesco and Sainsbury’s were.
The Bargaining Power of Buyers:
Bargaining power of buyer also acts to force prices down. For instance, if tomatoes are too expensive in Tesco, buyers will put into effect their power and move to other supermarkets in same strategic group. For Tesco, there are fewer other large supermarket companies. This means overall the market is disciplined; the supermarkets have a disciplined approach to price setting. Fundamentally, discipline stops them destroying each other in a profit war.
Telegraph discusses it as:
“Tesco cut more food prices, expanding discount brands, (Telegraph, 22 Oct 2008)”.
We can straight away analyse the impact of power of buyers. Due to the choice of buyers have got in the market, Tesco may well have to reduce prices in order to retain the consumer loyalty. Impact on society for this is that consumers get fairly a better product for lower prices. As the matter of fact, almost everybody is faced by the credit problem so they will go for the products with the lower prices
The Bargaining Power of Supplier:
Implications for Tesco are many. Supplier power is manipulated by suppliers, demanding that the retailers pay a certain price for their goods. If retailers don't pay the price, they don't get the goods to sell. However large supermarkets like Tesco have an overpowering advantage over the small corner shops. This is because they can dictate the price they pay to their suppliers. If the supplier does not reduce the price, they will be left with a much smaller market for their product.
“Tesco to change payment terms for suppliers (Financial Times, 24th October 2008)”.
According to Tesco spokesman, “We have written to suppliers to seek their agreement to the change and hope to implement it before the end of the year.” This payment procedure will have a very profitable impact on Tesco as “the timing of the payment terms will leave Tesco with millions of pounds extra in working capital in the run up to Christmas”.
The Threats of Substitutes:
It is a big threat for Tesco that consumers today have very complicated buying behaviour and little deficiencies can change their choice and they can move to other substitutes in the market. Specially Lidl and Aldi are two firms operating in the industry which are constantly engaged in pulling the customers from bigger supermarkets like Tesco on the bases of price.
“Tesco targets Aldi and Lidl (Financial Times, 17th September 2008)”.
This article in Financial Times is evidence of the fact that there is some sort of price war going on between them. This is the reason why Tesco trying to target both of them. Consumers are today suffering from economic recession, credit crunch. This may not have a very pleasing impact on Tesco but definitely for Aldi and Lidl as consumers are turning down to them now.
c)
Let us have a look at some of the competitive advantages for Tesco which makes it number one in the retail industry today.
Market Share: Tesco has undoubtedly managed to achieve a decent market share over the years to 2008. Despite the fact, they have been operating in a highly competitive environment and in a situation where customers are suffering from economic recession. It is a significant competitive advantage for Tesco to attain a good market share. The following graph extracted from The Economist shows the situation:
Tesco’s market share has been on the increasing trend from the beginning, reaching its peak in 2006/07 and then currently on roughly 30%. Obtaining a market share of 30 odd percent in an environment where every firm is striving hard to gain sales and more customers, is a great achievement.
Marketing Tactics: Tesco’s success is not possible without an effective marketing strategy which gives them another leading competitive advantage. I think the way they are increasing their sales and profits over the past few years is been quite impressive. An effective marketing strategy has enabled them to take advantage over their rivals.
According to Telegraph (18th April 2007):
“46.6bn Tesco sales last year and profit of £6,912m every day last year”
This is not merely a coincidental success, but definitely board of directors and Tesco officials have been working on making an effective marketing strategy to penetrate the UK retail market. This Marketing Strategy can make them standout in the market where no other retail market has done so well.
Multinational Growth: Sainsbury’s, Asda and other firms operating in the Tesco’s strategic group have not significantly crossed the boundaries in terms of expanding the business whereas Tesco have grown their scale of operations to USA, UK and rest of Europe, Turkey, India, China and Japan (Source; tesco.com, interactive map). It gives them another competitive advantage over their rivals. Exploring the market like China in 2004 is definitely a good decision as due to the increasing population the demand for the retail products must be higher. Such decisions will make Tesco pioneer in many other markets around the globe.
d)
Following are some of the limitations associated with the PEST Analysis:
- This can be argued that PEST may be based on mere assumptions which might not be realistic. It may happen that the facts we take into consideration while undergoing a PEST for any organization may not be either assumed on certain criteria or they do not have any ground reality at all.
- Another disadvantage which can be faced by the analysts is that PEST only covers the external environment, but the results need to be considered in accordance with other factors, such as the organisation itself, competitors and the industry in which it is operating.
- In order to make the PEST more effective, it should be done on regular bases. We know the variables and figures we take into consideration change every day every moment for instance, law rules and regulations, perhaps inflation and foreign currency rates.
- To gain the best results for the analysis it is necessary to know about the different perspectives which come from different people. This probably may not be possible in most cases because it will consume more time and it will incur high level of costs as well.
- The frequency of the change in the macro environmental factors makes it even more difficult to anticipate developments that may affect an organisation in the future years. It means PEST done in January 2007, for example, will not be seen as equally accurate in mid 2007 or the year after. This is due to the everyday change in the corporate world.
- It has also been argued that PEST is a list of simple factors which are not critically presented.
These are some of the limitations which users might face while undergoing a PEST for an organization. However, yet PEST has its own merits which make the users use it.
References:
Web Pages and Sites:
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Urry M. and Braithwaite T. (2008). Tesco growth slows as consumers cut back. [Online] The Financial Times Limited 2008. Available from: [accessed 08 November 2008].
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Rigby E. (2008). Tesco to change payment terms for suppliers. [Online] The Financial Times Limited 2008. Available from: [accessed 10 November 2008].
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Kollewe J. (2008). Tesco defies credit crunch with sales and profit rise. [Online] Guardian.co.uk. Available from: [accessed 10 November 2008]
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Friedlos D. (2007). Tesco uses technology to improve fleet’s green credentials. Computing.co.uk. Available from: [accessed 10 November 2008].
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Voyale Susanna. (2004). Tesco pledge on non-food sales growth. [Online] The Financial Times Limited 2008. Available from: [accessed 12 November 2008].
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Rankine K. (2002). Tesco goes for growth with £1.2bn. [Online] Telegraph.co.uk. Available from: [accessed on 13 November 2008]
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Rigby E. (2008). Tesco Targets Aldi and Lidl. [Online] The Financial Times Limited 2008. Available from: = [accessed on 15 November 2008]
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Derbyshire D. (2007). Tesco just keeps on growing. [Online] Telegraph.co.uk Available from: http://www.telegraph.co.uk/earth/earthnews/3290587/Tesco-just-keeps-on-growing.html [accessed on 18 November 2008]
Bibliography:
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Hill C.W.L & Jones G.R. (2004) Strategic Management an Integrated Approach. 6th edn, Houghton Mifflin.
- Tesco Annual Report 2007/08
- Sainsbury’s Annual Report 2007/08
