Tesco is one of the largest food retailers and a supermarket company in the world and the biggest retail company in the UK. It is the third-largest retail company after Wal-Mart Stores Inc. & Carrefour SA. The article will explore the economic factors affecting Tesco.
Economic Factors Affecting Tesco
Tesco now has expanded its line of business from food to toiletries, household goods, clothing and electronic items. It has been successful over these years since it started its business. However, like any other company, Tesco also do PESTLE analysis to assess its external factors. One of the important factors of PESTLE analysis is Economic Factor. Like every other company, Tesco faces economic challenges as well while running its business.
Tesco PESTEL analysis involves an evaluation of political, economic, social, technological, legal and environmental factors. Specifically, we will be discussing the economic factors here.
Economic Factors affecting Tesco
The High Rate of Unemployment: Tesco is getting affected by the economic factors as those factors affect its profits and product costs. Unemployment is one of the economic factors that are responsible for affecting the company’s profitability. Unemployment is not controllable and this is why it is a major concern for the company. It hinders company’s overall performance in both local and international markets.
Demand and Supply: Another economic factor that affects Tesco is demand and supply. The reason is Tesco has been facing lots of challenges for its products’ demand and supply. The demand for its products has dropped because of its competitors. As a result, Tesco has to negotiate now fair prices which other companies could not able to match.
Competition: One of the most significant economic factors affecting Tesco is it faces competition from the rivals. Over the last few years, it is facing an extreme level of competitions from the close rivals. As a result, it is now witnessing low-profit margin for supermarket chains and suppliers.
Labor Cost: It is another important economic factor which has lot more impact in decreasing the revenues of Tesco. According to a statistics in 2016, company’s annual wage bill accounts to GBP 4.5 billion. Tesco has to focus on labor costing now in order to have a sound financial condition.
Market Collapse: Tesco has stores in different countries but still it is completely depending on the UK market. If somehow UK market collapses then Tesco will be in a greater amount of risks. they will be extremely affected by any slowdown in the UK food market.
The Threat of Substitutes: Threat of substitutes is another big economic factor which creates a lot of negativity for Tesco. Tesco was the leading grocery store over the years and its products were second to none. Tesco deals with wide range of products now. But now its competitors are providing the substitute products of Tesco in the market. Consumers often switch to other brands because of various personal reasons including fair and convenient price.
Innovation: The market share of Tesco has been reduced because of innovation and advanced technologies. It used to be the market leader in the grocery business but now many small retailers came up and occupied the market. Therefore, Tesco has to refocus on innovative production and refocus on using technology to adjust the price of its products.
Besides these economic factors, there are other factors too which may affect Tesco directly or indirectly. Such as –
- Higher Interest Rate
- Inflation Rate
- Higher Tax Rate
- Consumers may spend less on premium products
- Overall macroeconomic situation in the UK
- Monetary and Fiscal policies introduced by the government
- Availability of credit and others etc.
From the discussion stated on economic factors affecting Tesco above, we can conclude that a PESTLE analysis is very important especially the economic factor for the company like Tesco to get success in the global market. Without knowing the effects of external factors like economic factor, it is difficult for an organization like Tesco to run the business in an efficient manner.
Related: Economic Factors of PESTLE Analysis Affecting Business Organization
Reference(s):
1) https://businessteacher.org.uk/pestel/tesco.php
2) http://www.premiumessays.net/articles/sample-essay-on-economic-factors-affecting-tesco/#sthash.fTqKLjuI.JqMxuNRK.dpbs
3) https://research-methodology.net/tesco-pestel-analysis/
4) http://www.assignmentwritinghelp.net/blog/sample-essay-on-economic-factors-affecting-tesco/
5) http://www.essay.uk.com/free-essays/business/tescos.php
6) http://123articlesworld.blogspot.com/2012/04/pestle-analysis-of-tesco.html
7) https://www.coursehero.com/file/p3djt2m7/3-Analysis-of-External-Factors-affecting-Tesco-Plc-Every-business-is-subjected/
Hey Guys! My name is Richard Andrew. I am a contributor to the Strategy Watch. I have finished my graduation with a major in Economics. My interest areas are Economics, Financial Analysis, Stock Analysis, and Business Strategy.