Tesco PLC

Business performance is affected significantly by the business and external environment
in which it operates. This report is an analysis of the environment with regards to Tesco. The
report evaluates the structure of the industry that Tesco operates in and the business organization.
It also includes a STEEPLE analysis of the social, technological, economic, environmental,
political, and ethical environment. The macroeconomic factors that affect the organization have
also been discussed, and the determinants of demand or supply of the goods that Tesco trades in.
Market factors such as competitiveness and the random shocks that could affect UK’s fiscal
policy, as well as the as well as the challenges in the external environment.
Tesco is a retail chain that operates primarily in the United Kingdom. Tesco stocks
various goods and services such as foodstuff, clothing and apparel, home gardening, cleaning,
lighting equipment, and home appliances and electronics.
Industry structure
Tesco’s competitors in the United Kingdom retain industry are Sainsbury’s, Asda Stores
Limited, and Morrisons. These four organizations are regarded as the big four in the UK retail
space. The organizations have a similar business model incorporating physical and online
retailing activities. Their distribution, supply chain models are also similar; the store layout
follows the classification of different sections of products. The customer base is primarily in the
United Kingdom through Tesco has branches outside the UK.
STEEPLE Analysis

This section analyses the social, technological, economic, environmental, political, legal, and
ethical environment.

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Social
The social factors that affect Tesco include the changing feeding habits in the UK
population. There has been an increased emphasis on healthier feeding habits. In response, Tesco
has increased the variety of groceries available in its stores and supported the sale of groceries on
online platforms (Rosnizam et al., 2020). Due to the increased racial and population diversity,
Tesco has changed its product offering to include and serve the Muslim community, such as the
sale of Halal meat, increasing the number of attendants to serve the increasing aging population
and the disabled.
Technological
The retail business relies heavily on technology to ensure critical activities. Tesco has
adopted an e-commerce platform where it sells various products, especially food and groceries.
Technology is also essential in managing stock. In a business model that incorporates foods that
must be kept in a certain humidity and temperature conditions to keep them fresh, Tesco fulfills
such needs through technology (Ju & Li, 2011). Tesco also uses technology for queue and till
management, to provide customers with multiple payment systems, and to manage customer
loyalty points system. Technology is also essential in managing the stock levels to ensure that
customers always have products.
Economic environment
The global economy has been recovering from the effects of the COVID-19 pandemic.
The United Kingdom was under several lockdowns, which affected the organization’s revenues,
as shown in the reduced sales in the 2020 financial year. The imposition of social distancing also
affected its performance. The slow economic recovery characterized by unemployment rates has

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affected populations’ income levels, purchasing power, and Tesco’s return to optimal
performance.
Environmental
Tesco PLC has to consider several environmental factors in its business model. One key
issue is waste management, especially from food. However, Tesco has an elaborate
environmental sustainability program it has partnered with its suppliers in environmental
conservation initiatives. Initiatives include removing plastics from its network to reduce plastic
waste, installation of waste collection centers in its stores to support recycling, commitment to
reducing greenhouse emissions from its facilities, using renewable energy, sustainable sourcing
of seafood, and working with the World-Wide Fund for Nature in preserving global resources.
Political
Tesco has had to restructure its business since the onset of Brexit. For instance, Tesco
needed to amend modalities for the flow of goods and services between Northern Ireland and the
Republic of Ireland.
Legal
Tesco is required to conform to certain laws by the government. For example, since
Tesco sells food, it must conform to food safety and hygienic standards set in the law (Lindgreen
& Hinley, 2003). Other legal, and operational issues include observing labor laws such as
minimum working age and minimum wage. Some of the products that Tesco sells have age
restrictions. For example, alcohol is not supposed to be sold to individuals below 18 years in the
UK.

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Ethical
Tesco has a code of conduct to ensure that its dealings with stakeholders are
straightforward and ethical (Tesco, n.d). The code of conduct touches on many areas of
operations. For example, the code guarantees that Tesco’s marketing communication will always
be above board and honest. The code also guarantees customers that Tesco will always take due
care when handling food and protecting customer data. Externally, the code also details
interactions with suppliers, fair trade with competitors, intellectual property rights, and the need
to uphold the law regarding bribes and gifts, conflict of interest, fraud, and accounting practices.
Internally, the code details how employees should relate to each other, employee integrity and
safety, equal opportunity and inclusion, and human rights.
Determinants of demand for Tesco’s products
Tesco operates in a market with 4 other major organizations signifying that it operates in
an oligopolistic market (Severov et al., 2011). In an oligopolistic market, the firms may easily set
prices because the size of the organizations provides barriers to entry into the market. Due to
their ability to set prices in an oligopolistic market, the firms may be able to affect the demand
for their products. Therefore, the demand curve will be kinked, as shown below.

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The diagram above shows Tesco’s demand curve. If Tesco increased its prices, the
customers would move to one of the other four rivals. The prices of the other organizations
determine the price controls by Tesco. If customers move to one of the other 3 rivals available,
the demand for Tesco’s products decreases significantly. As such, Tesco would lose revenues.
The effect of reducing the price would also be different. If Tesco reduced its prices, it could
experience an increase in quantity demanded and have increased revenues in the short term. The
other rivals in an oligopolistic market would respond by reducing their prices. In the long run,
the revenues would reduce, and Tesco would not be able to maintain the advantage in the long
run.
Determinants of supply for Tesco’s products
Agricultural market. Tesco is a renowned seller of vegetables and food items. The global
food market has experienced shocks due to the suspension of farming activities in the COVID-19
era (Pu & Zhong, 2020). As a result, global food prices have significantly increased. For Tesco,
which purchases food items in bulk, their profit margins are likely to reduce.
One current issue is the fluctuations and shocks in global oil markets. The global increase in oil
prices affects energy generation, which directly affects manufacturing processes and overheads.
Price

Quantity

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Manufacturers often transfer the cost to customers, and the overall effect is an increase in prices.
Hover, Tesco operating in an oligopoly market puts it in a weak position to control the prices.
Additionally, fuel prices can affect Tesco’s logistical operations and significantly its supply
chain. Since Tesco operates in an oligopolistic market, it is not in a position to set prices and
does not have a supply curve.
Market competition
The big four retail and supermarket chains take up most of the market share in the UK.
Other small-scale retailers and online retailers share the e-commerce space. The organizations
also have similar strategies to attract and maintain customers. They focus on customer service
and offering the best price for customers to remain more competitive.
Fiscal policy
The government is the primary developer and implementor of fiscal policy in the UK.
The government’s actions determine the interest rates and currency circulation in the economy.
This, therefore, matters because it affects how Tesco accesses credit and how actions of the
government affect the value of Tesco’s assets held in Great Britain Pounds.
Government activities to simulate the economy affect employment. In the aftermath of
the COVID-19 pandemic, the UK government-initiated measures to cushion individuals and
businesses from the adverse effects. These initiatives were essential in ensuring that citizens
maintained their employment opportunities. The rates of unemployment affect Tesco because
they influence purchasing power (Rosnizam, 2020)
Government actions also take actions to control inflation. Inflation affects the value of the
currency, causing a rise in the cost of goods and services. Inflation could affect Tesco

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significantly because Tesco operates in a cash-intensive business and, therefore, would be
significantly affected by currency devaluation.
External challenges
Tesco also has to consider the forex rate. The primary currency in the United Kingdom is
the Great Britain Pound (GBP). The resilience of the GBP in comparison with other currencies is
an important factor to consider, especially for forex transactions for the goods that it pays for
outside the UK borders (Ren, 2021). Suppliers of such goods may be unwilling to provide goods
and services if they do not get value for the goods they provide. Therefore, Tesco’s international
and local supply chain may be significantly affected by inflation. The value of Tesco’s assets
may be affected by currency devaluations.

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References

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Supermarket” e-commerce mode of TESCO. In 2011 International Conference on
Information Management, Innovation Management and Industrial Engineering (Vol. 2,
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Lindgreen, A., & Hingley, M. (2003). The impact of food safety and animal welfare policies on
supply chain management. British Food Journal, 105(6), 328–349.
https://doi.org/10.1108/00070700310481702
Rosnizam, M. R. A. B., Kee, D. M. H., Akhir, M. E. H. B. M., Shahqira, M., Yusoff, M. A. H. B.
M., Budiman, R. S., & Alajmi, A. M. (2020). Market opportunities and challenges: A
case study of Tesco. Journal of the Community Development in Asia (JCDA), 3(2), 18-
27.
Pu, M., & Zhong, Y. (2020). Rising concerns over agricultural production as COVID-19 spreads:
Lessons from China. Global Food Security, 26, 100409.
https://doi.org/10.1016/j.gfs.2020.100409
Ren, J. (2021). The Research of Tesco’s Current Investment Portfolio and Some
Recommendations. In 2021 3rd International Conference on Economic Management and
Cultural Industry (ICEMCI 2021) (pp. 1461-1465). Atlantis Press
Severová, L., Kopecká, L., Svoboda, R., & Brčák, J. (2011). Oligopoly competition on market
with food products. Agricultural Economics (Zemědělská Ekonomika), 57(No. 12),
580–588. https://doi.org/10.17221/107/2010-agricecon

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Tesco. (n.d.). Our Code of Conduct. Tesco.Com. https://www.tescoplc.com/media/1239/tesco-
code-of-business-conduct-2018.pdf