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PESTLE Analysis: Pestle Analysis On Tesco

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PESTLE ANALYSIS
POLITICAL FACTORS o Tesco operates world-wide. This results in their performance being highly influenced by political conditions in the countries in which they operate. In 2011 the UK government increased the VAT rate from 17.5% to 20% (GOV.UK- 2017). This increase reduced consumer spending power and in turn also negatively affected the sales of Tesco. Considering that sales is their main source of income, this had a substantial effect on their profits.
ECONOMIC FACTORS o An economic recession causes the rate of unemployment to increase. This results in lower consumer buying power and a loss of income for Tesco. The cost of labour also greatly affects companies in the retail industry. An increase in the national minimum wage
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Technology benefits both the company and the consumer as shopping becomes more convenient and goods more readily available.
LEGAL FACTORS o Because of Tesco’s diverse range of products and services, they are affected by many laws. The Food Retailing Commission has suggested an enforceable Code of Practise to be followed that would prohibit many of the current practices, such as changing agreed prices without notice. Government policies regarding monopoly control can limit entry into the sector by implementing controls such as license requirements. Powerful competition in the market with well established brands creates a threat of price wars as well as strong requirements for product differentiation.
ENVIRONMENTAL FACTORS o Increased pressure has been placed on companies to address environmental issues and conduct their business in such a way that it would benefit society. o Tesco has developed an environmental strategy that directly focusses on the areas they have a direct impact on (Tesco PLC-2017)
 Climate: Tesco is investigating renewable
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Substitutes for major food retailers would include small convenience stores and organic shops/markets. However, these entities are not regarded as a threat for Tesco as the company offers high quality products at low prices and also has a well-established brand name.
THREAT OF NEW ENTRANTS INTO THE MARKET o The threat of new entries in the grocery retail market is quite low, especially against a well-known brand like Tesco. It will require large capital investments to achieve competitiveness and establish a strong brand name. Major brands in the food retail market are Tesco, Asda, Sainsbury’s and Morrisons and they account for 80% of all shopping in the UK. Therefore, new entrants have to produce something at an exceptionally low price and/or high quality to establish their market value.

COMPETITIVE RIVALRY o Competition within the sector is very high. Tesco is competing with strong brands like Sainsbury’s and ASDA. Slow market growth has resulted in an increase in market shares from competitors leading to Tesco’s market leadership position being threatened. Rivalry is stronger in an industry where the growth in demand for a product is slow, as in the case of the retail
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