Tesco PLC: A Multinational Retail Giant Essay.

Structure of the industry

Tesco PLC is one of the largest multinational general merchandise and groceries retailer based in United Kingdom. The business was established in the year 1919 by Jack Cohen. The company operates its business throughout the world. The headquarter of Tesco Plc is situated in Welwyn Garden City, Hertfordshire, England, UK. It was established as a group of market stalls in Hacknev, London (Monte 2021). It offers retail services to its customers which include supermarket, hypermarket, convenience shop and superstore. Several brands of the company include One Stop, Booker, Makro, F&F and Premier. The company has expanded all over the world since early 1990. More than 350,000 people are employed in the retail giant all around the world (Awadari and Kanwal 2019). the company got engaged in internet grocery in the year 2001. It entered the United States market by starting a chain of small format groceries during the year 2006.

The chosen industry from the United Kingdom Standard industrial classification is Grocery retail. However, it comes under the retail industry as a whole. The retail industry in UK comprises of over 300,000 separate businesses. More than 3 million people are employed in the industry. Around 8% of the employed in UK work for the retail sector. In the year 2019, the value of retail sales was £439 billion (Mattos 2021). The majority of customer spending in the retail industry was in food shops, clothing shops and automotive fuel. The retail industry can be defined as the businesses that are engaged in selling new or used products to the direct customers for utilisation or household consumption (Nazir 2021). It comprises of market stalls, door-to-door sales, internet retailers, department stores, supermarkets, shops and hypermarkets.

Retail sector involves selling of goods to the general public, usually in small quantities. The goods are purchased for direct consumption and not for resale into the market. The UK customers spend vigorously in online retail stores as well as physical shops. In recent years, the retail sector has been under significant pressure in the United Kingdom (Hanninen and Paavola 2018). During the pandemic, the retail industry has experience tremendous growth in online retail services. The growth of supermarkets, covid-19 lockdown pressure and the government regulations have made significant impact on the sales revenue generated in the retail sectors.

The retail sector in UK contributes larger amount to the total GDP of the country. During the period from 2013 to 2020, the workforce employed in retail sector has increased by 55000, with most of the growth in managerial position. Almost half a million businesses are engaged in the retail sector within UK, which accounts for over 10% of the total businesses in UK. There exists stiff competition in the UK sector.

There are different types of ownership in retail industry which include independent retailing, multiple retailing, voluntary retailing and franchises. The independent retailer is the one that manages every activity of the retail business. All the businesses decisions in relation with the business are taken by the owner of the business. The multiple retailing involves multi-channel retailing. In such type of business, the goods are provided to the customers through multiple retail channels. Different retail channels include catalogues, stores and internet. With the utilization of several channels, the business would be able to attract more customers and thereby increase its profitability. The voluntary retailing is less common and it takes the form of grocery retailer in everyday lives. The main aim of such form of business is to serve the community and thereby earn profit. The franchises involves the type of business in which one company gives the right to another company for selling goods using brand name of the former company.

Types of ownership within the retail sector

Tesco Plc operates its business in retailing industry in which it sells, grocery, food and beverage, electronics, furniture, toys, software, internet services, telecoms, books, clothing, and internet services. Tesco is one of the most valuable brands in the United Kingdom and ranks fifteenth globally during the year 2016 (Statista 2022). The market share of the company in retail sector is over 25% and it is among the big four supermarkets along with Sainsbury’s, Asda and Morrisons. The brand value of Tesco Plc was US$ 10.7 billion all over the world during the year 2020. There are more than 4000 Tesco stores all over the world. In 2016, the total value of edible grocery sales by Tesco Plc was US$ 46.6 billion. The business of Tesco Plc has spread in UK, US, Argentina, China, Thailand, Brazil, Greece, Hungary, Poland and others (Krummel 2022).

The STEEPLE analysis is often used for scanning the external factors affecting the business organization. It helps in understanding the opportunities and threats for the business. It is a framework that helps the busine3ss in understanding its position in the market. various factors that are considered in STEEPLE analysis include social factors, technological factors, environmental factors, political factors, legal factors, ethical factors and economical factors. Each of the factors with respect to Tesco Plc are discussed in detail below:

The social factors considers the cultural standards, diversity, consumer attitudes towards the product, changes in lifestyles, and safety emphasis. The Tesco Plc has planned out its stores to facilitate bulk purchasing by customers due to the fact that the people prefer buying everything they need in one go. In order to meet the changes in consumer demand and their tendency to purchase, Tesco Plc has switched its model from food to food cum non-food model. The demand of the products is dependent on the societal influence or social influence. In addition, the product choices of the customer also depend on several cultural factors with which the individual lives. Tesco Plc focuses on assessing the changes in the cultural factors and the consumer behavior pattern for providing its product and services. The business also needs to ensure that it will be able to provide sufficient number of products to choose from. With the shift of consumer products towards the organic products, Tesco Plc has also shifted its attitude towards the promotion of organic products so that they can satisfy the needs and wants of the customers. The company believes in benefitting the society through local hiring and creating high level of employment within the community in which it operates.

In the last two decades, the technological industry has grown remarkably throughout the world. In order to remain relevant in the market, it is important for the businesses to develop themselves with the change in trends and technology. Tesco Plc has been spending large amount of fund on research and development while experimenting various aspects in relation with the retail business. The company has also achieved success in few of the endeavors. Social media promotions, online shopping and other similar factors are all part of influencing the customers. This is usually done by providing various technological benefits to the customers. Tesco has been able to shift the trends of physical shopping to online shopping. Around 43% of Tesco shopper’s purchase their products through online platforms. Recently, the company has announced that it is looking forward to create a new technology of cashier less billing, along with Amazon Go. It will take the retail shopping to the next level all over the world. It will help customers in evading the long queues and save their time. Overall, Tesco Plc gives larger emphasis on improving the technological aspects of the business.

Business Organization and its nature

The environmental factors deal with the environmental elements that affect the business operation of Tesco Plc. The company has undertaken several initiatives for creating a more sustainable society and improve the environment. Tesco Plc has recently launched its phase 2 of Remove, Reduce, Reuse and the Recycle plan. The company has focused on reducing the wastage of non-recyclable plastic to the minimal level. In addition, one of the company’s primary focus towards sustainable environment is to find ways for reusing the residual plastics. The company is operating as a retail chain business and therefore, it becomes the major responsibilities to ensure sustainable sourcing. All the marine products of Tesco Plc are sustainable sourced and certified.

Though, officially based in United Kingdom, Tesco Plc operates in several countries all over the world. It is one of the largest retailers of the world, which makes it important for the company to comply with the rules and regulations made by the government in which it operates. For successful international operation, it becomes important for Tesco Plc to keep a tab on the changing political conditions in countries it operates. Political stability is one of the critical external factor that may affects the operation of the business. The company is currently facing dilemma due to Brexit which can affect the sales revenue of the firm. Another political issue that is affecting the business is the trade war between US and China. The change in taxation policies in different countries will eventually affect the profitability of the business.

The operations of Tesco Plc is directly affected by the changes in government policies. The company operates in global market and therefore, requires to comply with both local and international market laws like, regulations imposed by Food Retailing Commission. Tesco Plc was alleged for discrimination in work culture on grounds of gender and age. Recently, the company is being sued for unequal payment for men and women. Such legal regulations should be followed by the company so that it could maintain its reputation in the market.

The ethical consideration is of much importance for Tesco Plc as it creates the reputation of business among employees and other stakeholders of the firm. Tesco Plc keep its ethical promises by supporting the local communities actively, providing healthy choices for customers, caring for the environment and creating jobs for the local people. The activities of Tesco Plc was often criticized for killing off the local businesses, damaging the environment for cheaper food and bullying the suppliers. However, the business focuses on delivering its product and services in the most ethical manner.

Microeconomic Factors that affect the demand

The microeconomic factors that affect the demand for products and services offered by Tesco Plc include the supply tax rates, government regulation, competitors, increase in labor costs, price of the product, change in customer preference in favor of competitors, and the availability of distributional channels. The microeconomic factors that affect the market demand in the retail industry include taste and preferences, income of the consumers, expectations of the consumers, elasticity, numbers of customers and the availability of substitutes (Dzwigol 2021). 

STEEPLE Analysis

Let us consider, the price of the Tesco Plc was P2 and the quantity demanded at price P2 is Q2. In the above figure, the quantity demanded is affected by the change in price. When the price of the product increases from P2 to P1, the quantity demanded decreases from Q2 to Q1, and when the price decreases from P2 to P3, the quantity demand increases to Q3. The demand curve of Tesco Plc follows the law of demand.

The determinants of supply curve include the cost of production, technology level, number of sellers in the market, price of the product, expectations of future prices, changes in factor price, government regulations and others (Shirasishi 2022). The change in price of the commodity affect the level of supply in the market. The supply curve shows that with the increase in price, the level of supply increases. However, when the price remains fixed and other factors changes, it results in shift in the supply curve. 

The retail market in UK is highly competitive in which the major market share is occupied by the big players. Tesco Plc acquire the market share of 25%, however, the business faces tough competition from market leaders including Sainsbury and ASDA. The company enjoys the competitive advantage of maintaining low prices for its products.

The increase in corporate tax rates have direct impact on the profitability of the business (Christophers 2019). In addition, the deficit funding also affects the operations of the business. The fiscal policy affects the consumer demand for the products. Other factor includes change in interest rate by the government.

The Tesco Plc has been facing several issues in its business operations such as dealing with poor customer service, accounting scandal (Mohapatra 2021), horsemeat scandal. In addition, the quality of products and services have also created concerns for the business.

Conclusion

The above discussion and the analysis of several factors have indicated that the company is going through several issues in relation with the quality of products and services. The STEEPLE analysis reveals that the company focuses on serving its customers and developing the society as a whole. Overall, the activities of Tesco plc is affected by several factors including the governmental fiscal policies.

References

Awadari, A.C. and Kanwal, S., 2019. Employee participation in organizational change: A case of Tesco PLC. International Journal of Financial, Accounting, and Management, 1(2), pp.91-99.

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Christophers, B., 2019. The rentierization of the United Kingdom economy. Environment and Planning A: Economy and Space, p.0308518X19873007.

D?wigo?, H., 2021. The Uncertainty Factor in the Market Economic System: The Microeconomic Aspect of Sustainable Development. Virtual Economics, 4(1), pp.98-117.

Hänninen, M. and Paavola, L., 2018. Digital Platform Led Industry Transformation: A Case Study from the UK Grocery Retail Industry. Academy of Management Global Proceedings, (2018), p.115.

Krummel, D., 2022. Expansion in the Retail Sector—Market Entry Strategies in Consideration of Formal and Informal Institutions: A Tesco Case Study. Open Access Library Journal, 9(2), pp.1-19.

Mattos, L., 2021. UK Retail Industry: Scoping Document.

Mohapatra, P., 2021. Accounting Scandal at Tesco. IUP Journal of Accounting Research & Audit Practices, 20(4).

Monte, A., 2021. A study of value chain reconfiguration processes under Covid-19 pressures: the case of Tesco PLC in the United Kingdom.

Nazir, H., 2021. Evaluating the significance of the learning work culture in UK’s retail industry for long term business sustainability: case study of Primark UK (Doctoral dissertation, University of the West of Scotland).

Shiraishi, K., 2022. Determinants of VAT pass-through under imperfect competition: Evidence from Japan. Japan and the World Economy, 61, p.101120.

Topic: Tesco PLC (2022). Available at: https://www.statista.com/topics/3807/tesco-plc/#topicHeader__wrapper (Accessed: 22 April 2022).