Introduction
This essay examines the impact of changes in the external environment on Tesco PLC, a leading UK retailer, over the last three years (2020–2023). Operating in a highly competitive and dynamic sector, Tesco has faced significant challenges and opportunities arising from macro-environmental factors such as economic shifts, technological advancements, and socio-political developments. By employing a PESTLE framework (Political, Economic, Social, Technological, Legal, and Environmental), this analysis will explore how these external forces have influenced Tesco’s operations and strategic decisions. Furthermore, it will evaluate the company’s adaptive responses to these changes, highlighting its efforts to remain competitive in an evolving retail landscape. Drawing on a range of credible sources, including business reports and academic literature, this essay aims to provide a comprehensive overview of Tesco’s interaction with its external environment, offering insights into the broader implications for international business studies.
External Environmental Changes Affecting Tesco PLC
Over the past three years, Tesco PLC has navigated a complex external environment shaped by multiple intersecting factors. One of the most significant influences has been the economic fallout from the COVID-19 pandemic, which began impacting global markets in early 2020. The UK economy experienced severe disruptions, with a recession in 2020 followed by slow recovery, exacerbated by high inflation rates reaching 11.1% in October 2022 (Office for National Statistics, 2023). This economic uncertainty led to reduced consumer spending power, particularly affecting non-essential retail categories. For Tesco, as a grocery retailer, this initially resulted in increased demand for essential goods during lockdowns, but as inflation soared, customers shifted towards value products and discounters, placing pressure on profit margins.
Politically, the lingering effects of Brexit have continued to shape Tesco’s operations. Post-Brexit trade agreements and border controls introduced in 2021 increased supply chain costs and caused delays in the importation of goods, particularly fresh produce from the EU (House of Commons Library, 2022). These challenges were compounded by labour shortages in logistics and farming sectors, driven by restricted EU migration. Additionally, the UK government’s focus on sustainability, including policies to reduce single-use plastics, has necessitated operational adjustments for retailers like Tesco to comply with evolving regulations (Department for Environment, Food & Rural Affairs, 2021).
Technological advancements have also played a pivotal role. The acceleration of e-commerce, spurred by pandemic-related restrictions, saw a dramatic rise in online grocery shopping. According to industry reports, online sales in the UK food retail sector grew by over 50% between 2020 and 2021 (Mintel, 2022). This shift demanded significant investment in digital infrastructure and last-mile delivery solutions, areas where Tesco faced competition from both traditional rivals and tech-driven newcomers like Amazon Fresh. Moreover, social trends towards health consciousness and sustainability have influenced consumer preferences, with increasing demand for plant-based products and ethically sourced goods, pushing Tesco to adapt its product offerings.
Tesco’s Strategic Adaptations to External Changes
In response to these external challenges, Tesco PLC has implemented several strategies to maintain its market position and ensure long-term sustainability. Economically, to address the pressures of inflation and cost-conscious consumers, Tesco has focused on its ‘Clubcard Prices’ scheme, offering loyalty-based discounts to retain customers. This initiative, relaunched with enhanced digital integration in 2021, has reportedly helped maintain customer loyalty, with over 20 million households using the Clubcard by 2023 (Tesco PLC, 2023). Additionally, Tesco expanded its range of budget-friendly own-brand products to compete with discounters like Aldi and Lidl, a move that demonstrates its awareness of shifting consumer priorities in tough economic times.
To mitigate the impact of Brexit-related supply chain disruptions, Tesco has invested in strengthening domestic sourcing partnerships. For instance, the company increased its collaboration with UK farmers and suppliers to reduce reliance on EU imports, a strategy that not only addresses logistical challenges but also aligns with growing consumer preference for local produce (Tesco PLC Annual Report, 2022). However, while this approach has helped stabilise supply, it has arguably increased costs in the short term due to limited economies of scale compared to EU sourcing.
Technologically, Tesco has significantly enhanced its online presence to capitalise on the e-commerce boom. The company expanded its online delivery capacity by recruiting thousands of additional staff and investing in automated warehousing systems. By 2022, Tesco’s online sales accounted for approximately 16% of its total revenue, a marked increase from pre-pandemic levels (Tesco PLC, 2023). Furthermore, Tesco partnered with delivery platforms like Whoosh to offer rapid delivery services, responding to the growing expectation for convenience among digital-savvy consumers. Nevertheless, sustaining profitability in this area remains a challenge due to high operational costs and intense competition.
In terms of social and environmental pressures, Tesco has taken proactive steps to align with consumer values and regulatory demands. The company committed to becoming carbon neutral by 2035, implementing initiatives such as reducing plastic packaging and introducing plant-based product lines under its ‘Plant Chef’ brand (Tesco PLC Sustainability Report, 2022). These efforts reflect a strategic response to both legal requirements and societal expectations, though the pace of change required to meet ambitious sustainability targets remains a complex undertaking.
Critical Evaluation of Tesco’s Responses
While Tesco’s adaptations demonstrate a sound understanding of its external environment, the effectiveness of these strategies varies. The focus on digital transformation has positioned Tesco as a leader in online grocery retail, with its investment in technology yielding measurable growth in market share. However, the high costs associated with delivery infrastructure and competition from pure-play online retailers highlight a limitation in this approach, as profitability in e-commerce remains lower than in traditional retail (Porter and Heppelmann, 2015).
Similarly, Tesco’s response to economic challenges through loyalty schemes and budget products has helped retain customers, but it risks eroding brand perception by over-emphasising price over quality. In contrast, the move towards domestic sourcing post-Brexit, while strategically sound, has faced criticism for limited scalability and increased costs, suggesting that Tesco must balance short-term losses with long-term supply chain resilience (Hill, Jones and Schilling, 2014).
On sustainability, Tesco’s initiatives are commendable and align with broader industry trends towards corporate social responsibility. Yet, achieving carbon neutrality by 2035 is an ambitious target, and without significant technological innovation or government support, it may prove challenging to implement fully. This reflects a broader tension in international business: balancing profitability with ethical and environmental imperatives.
Conclusion
In conclusion, Tesco PLC has faced a multitude of external environmental changes over the last three years, driven by economic uncertainty, political shifts like Brexit, technological disruptions, and evolving social expectations. The company has demonstrated resilience through strategic adaptations, including digital expansion, loyalty schemes, domestic sourcing, and sustainability initiatives. While these responses largely address the challenges posed by the external environment, they also reveal limitations in terms of cost, scalability, and long-term viability. This analysis underscores the complexity of operating in a dynamic international business context, where firms must continuously adapt to macro-environmental forces while maintaining competitive advantage. For Tesco, the ability to balance short-term financial pressures with long-term strategic goals will be critical to sustaining its position in the UK retail market. More broadly, this case highlights the importance of environmental scanning and strategic agility for multinational corporations navigating an increasingly interconnected and unpredictable global landscape.
References
- Department for Environment, Food & Rural Affairs. (2021) UK Plastics Pact: Progress Report. UK Government.
- Hill, C.W.L., Jones, G.R. and Schilling, M.A. (2014) Strategic Management: Theory: An Integrated Approach. 11th ed. Cengage Learning.
- House of Commons Library. (2022) Brexit: Impact on UK Trade and Supply Chains. UK Government.
- Mintel. (2022) UK Online Grocery Retailing Report. Mintel Group Ltd.
- Office for National Statistics. (2023) Consumer Price Inflation, UK: October 2022. UK Government.
- Porter, M.E. and Heppelmann, J.E. (2015) How Smart, Connected Products Are Transforming Companies. Harvard Business Review, 93(10), pp. 96-114.
- Tesco PLC. (2022) Annual Report and Financial Statements 2022. Tesco PLC.
- Tesco PLC. (2023) Sustainability Report 2022. Tesco PLC.
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