Pestle

1. Aim and Methodology

1.1 Tesco PLC (Tesco) is an organisation that has thrived in today's turbulent and uncertain business environment, becoming a successful, high-performing organisation with 'world class' status.

1.2 Many organisations look to their practices to gain competitive advantage over this high-performing rival. But what can Tesco do to retain their 'world class' status?

1.3 This report answers this question by researching Tesco's business performance over the last 3-5 years, and undertaking an analysis of their business environment including a PESTLEE analysis to examine the overall impact of the external environment, a Competitor Analysis to identify the competitive pressures within their industry, and a SWOT analysis to appraise their current position.

1.4 It identifies how Tesco can overcome threats, maximise opportunities and makes recommendations that, when implemented, will ensure they remain 'world class'.

1.5 The following research assisted in writing this report:

* Online Supermarket Customer Survey (OSCS) to assist the business environment analysis (See Appendix 1).

* Information on 'www.tescocorporate.com' for historical and corporate information.

* Internet sites and newspaper articles to ascertain current issues faced by Tesco, media opinions and data regarding market share, monopolies etc.

* CIPD course materials for theory of business environment analysis.

2. Findings and Analysis

2.1 History

2.1.1 Founded by Jack Cohen in 1919, Tesco began its upward move in the supermarket industry in the late 1970's. This growth went hand-in-hand with another expanding supermarket chain, Sainsbury, with both rivals emerging as industry leaders. Explosive growth in the introduction of superstores ensued throughout the 1980's but it wasn't until 1995 that Tesco first took the lead.

2.1.2 The 'superstore explosion' ended, with most of the best sites gone and the government began tightening planning controls on UK developments.

2.1.3 In response, Tesco used their initiative and moved ahead of the market by:

* extending opening hours;

* moving into e-commerce via the implementation of Tesco.com, the first successful on-line supermarket internet shopping site;

* moving back into town centres with the introduction of the Tesco Metro chain; introducing new services into stores e.g. pharmacies and opticians;

* accelerated movement into the convenience store market via their takeover of T&S Stores, a UK organisation owning over 850 convenience stores;

* moving into non-food sales e.g. clothing and books.

2.1.4 Over the past five years Tesco have shown continued innovation, investing in new lines, increasing customer choice, responding to key economic issues and seeking new growth opportunities, basing their long-term strategy for growth on four key areas:

Growth in the core UK business - this has come from new space, existing store extensions and the introduction of a multi-format approach. Tesco now employs 250,000 people across over 1,800 UK stores. Almost 80% of group sales and profits are from the UK.

To expand by growing internationally - Tesco's international market now covers 13 countries across Europe and Asia. They are market leaders in five countries, employ over 100,000 people across over 500 stores. Half their growth space outside the UK.

To be as strong in non-food as in food - Sales in non-food are increasing twice as fast as food sales. They continue to extend their range with 50% of new UK space taken up by non-food products.

To follow customers into new retailing services - Retailing services offered include Tesco Telecoms and Tesco Personal Finance. Over 1.2 million new customers chose one of these services in 2005. A further retail service, Tesco.com, now reaches 98% of UK households and sales in 2004/05 exceeded Ј700 million, making it the largest dotcom grocery store in the world.

2.1.5 The culmination of growth within these areas resulted in an increase of group sales, including VAT, of 10.5% to Ј37.1 billion and an increase in pre-tax profit of 18.8% to Ј2,029 million in 2005. (See Appendix 2).

2.2 The Business Environment

2.2.1 Johnson, Scholes and Whittington (2004), propose a five-stage model to analyse an organisation's business environment:

Stage 1: Audit of Environmental influences

Stage 2: Assessment of nature of the environment

Stage 3: Identification of key environment factors

Stage 4: Identification of the competitive position

Stage 5: Identification of the principal opportunities and threats

2.2.2 I have used three techniques to apply this model to Tesco, using data from my research.

2.3 PESTLEE Analysis

2.3.1 Used to analyse the general external environment that impacts organisations, the main point of this technique is to identify key environmental drivers by considering external factors that organisations face.

2.3.2 Below I list key factors faced by Tesco, matched against the external PESTLEE factors and identify their impact on the organisation.

External Factors Impact

Political

Monopolies Commission

Department for Communities & Local Government (DCLG) prioritising land use for social housing

The supermarket industry is an oligopoly (or complex monopoly) whereby a few large organisations