1. 1444578
1
UNIVERSITY CENTRE COLCHESTER
SCHOOL OF BUSINESS AND MANAGEMENT
BUSINESS ENVIROMENT
ASSIGNMENT ONE-REPORT
1444578
Word Count: 2769

2. 1444578
2
Contents
1.0 Introduction............................................................................................................................ 3
2.0 Overview of Supermarket Sector.............................................................................................. 3
3.0 Tesco within the supermarketindustry..................................................................................... 4
3.1 Core Values and Purpose.....................................................................................................4
4.0 Financial Analysis.................................................................................................................... 5
5.0 Rivalry in industry ................................................................................................................... 5
6.0 Main businesses and market share........................................................................................... 6
Figure 1: Grocery market share November 2016 (Kantar Worldpanel 2016) .................................6
7.0 Technology Advancements......................................................................................................7
8.0 Environmental Issues .............................................................................................................. 8
9.0 Impact of EU Referendum........................................................................................................8
10.0 Political changes.................................................................................................................... 9
11.0 Conclusion............................................................................................................................ 9
12.0 Reference list...................................................................................................................... 11
13.0 Appendices......................................................................................................................... 13
13.1 SWOT Analysis Tesco (1).................................................................................................. 13
13.2 PESTEL Analysis Tesco (2)..................................................................................................... 13
Political.................................................................................................................................. 13
Economic Factors.................................................................................................................... 14
Social Factors.......................................................................................................................... 14
Technological Factors.............................................................................................................. 14
Environmental Factors ............................................................................................................ 14
Legislative Factors................................................................................................................... 14
13.3 Porters Five Forces for Tesco (3)........................................................................................... 15
14.0 Appendix 4.......................................................................................................................... 15
14.1 Glossary of Terms............................................................................................................ 15
Tertiaryindustry..................................................................................................................... 15
Oligopoly................................................................................................................................ 16
SWOT analysis........................................................................................................................ 16
PESTEL analysis....................................................................................................................... 16
Porters Five Forces.................................................................................................................. 16

3. 1444578
3
1.0 Introduction
The aim of this report is to research and demonstrate understanding of the business
environment with regards to the supermarket sector, outline the supermarket industry,
highlight the main competitors within the industry, establish market share, outline the
products and services supplied by the, the impact of the EU referendum and to establish
where Tesco fits in to the industry overall. SWOT analysis, PESTEL analysis and Porters
Five Forces analysis will be carried out to underpin understanding of the subject area.
(Perks, 2015) outlines the state of the superstore struggles,
“The grocery superstores are losing market share. The main reasons are underlying socio-
economic changes and the growth of the hard discounters. These changes are not reversible
in the foreseeable future and we think the underlying decline in superstores will continue”
2.0 Overviewof Supermarket Sector
The supermarket industry, which is a tertiary industry operating as an oligopoly market (see
Appenix 4 for definition) is currently in a state of change with new smaller discount retailers
such as Aldi and Lidl offering lower prices with higher levels of convenience to its
customers. This has severely impacted the profit of the larger supermarkets and resulted in a
price war in order to attract higher volume of customers back to their stores (Marketlilne,
2016).
The overall purpose of the supermarket industry is to provide services in the forms of sales of
food and groceries along with non-food items such as homeware and electrical items. Over
the last ten years the supermarket industry has seen major changes with the larger scale stores
being scaled back in favour of smaller convenience stores and online sales. Sales and market
share of the so called ‘big’ supermarkets have decreased significantly over this period as
consumer trends have changed with consumers finding they have a far stronger position
within the market (Marketlilne, 2016) ( Appendix 3 Porters Five Forces, see Appendix 4 for
definition).
Consumers are searching for lower prices and higher levels of convenience (IGD Online
2015A). Being one of the largest sectors in the retail industry supermarkets find themselves
in fierce competition with one another shown by the Porters Five Forces analysis (Appendix
3). Most people use supermarkets for large volume shops and may visit them once a week or

4. 1444578
4
less frequently (Perks, 2015). However, through PESTEL analysis (Appendix 2, see
Appendix 4 for definition), it is clear to see customers are becoming increasingly aware of
health issues. As a result the larger supermarkets have an advantage over smaller ones with
the ability to stock larger product ranges often including healthy options (Appendix 1, SWOT
Analysis, see Appendix 4 for definition).
Tesco has recently found its sales plummeting, a change in management structure and the
turmoil of an accounting scandal. Dave Lewis was appointed the new CEO of the company in
2014, joining from the highly successful Unilever Company, he was tasked with turning the
sinking ship around.
Figures from Marketline (2016) have shown Tesco is having some success with an increase
in its volume of transactions up 2.8 per cent and sales up 0.1 per cent on 2014/15. Incentives
such as its brand guarantee scheme are helping to attract customers back to its stores.
However, there is still a long way to go for Tesco to regain its once proud status as the giant
of the supermarket industry.
3.0 Tesco withinthe supermarket industry
Tesco was established in 1919 with its first store opening in 1929 in Burnt Oak, Edgeware
UK. Tesco operate stores that offer grocery items, general merchandise, and apparel and
jewellery among others. The company operates in Europe and Asia. Retailing is the
company’s main activity, however, Tesco has recently ventured into the world of banking. At
the end of the 2016 financial year Tesco operated in six thousand nine hundred and two stores
employing four hundred and seventy six thousand people (Tesco, 2016)
3.1 Core Values and Purpose
In their annual report (2016) Tesco mention that one of the most important changes made
over the last year to be its new core purpose which is, ‘serving shoppers a little better every
day’. Tesco’s core focus guides all their decisions and shapes every action they take.
Alongside their core purpose Tesco has three core values which are: no one tried harder for
our customers, we treat people how they want to be treated and every little helps makes a big
difference. SWOT analysis shows Tesco operate a business model aimed at simplicity, stating
that their business model is organised around three pillars of customers, product and channels
(Appendix 1). Through these changes Tesco have recently seen growth at its fastest rate in
three years with year on year sales up 0.8 per cent (Worldpanel, 2016).

5. 1444578
5
4.0 Financial Analysis
The supermarket industry is a major contributing factor to the UK economy. Research carried
out by the IGD (2015A) shows supermarket sales where £178 Billion in 2015 accounting for
51 per cent of total retail sales. The supermarket industry has shown its resilience with sales
post-recession growing 0.5 per cent annually compared with 0.2 per cent in the wider
economy. However, PESTEL analysis shows, with Britain voting to leave the European
Union the economic future is uncertain, this is demonstrated by the drastic fall in the price of
Sterling which now stands at a near all-time low with Sterling dropping 20 per cent against
the Dollar and 15 per cent against the Euro. As a result imports may become more costly
putting pressure on the price of food and commodities (York, 2016).
Total sales in the industry have continued to grow with sales in 2015 of £178 billion
compared to £163.8 billion in 2011. It must be mentioned that, although sales have continued
to grow the year on year increase has not followed this trend with year on year sales falling to
0.4 per cent in 2015 compared with 4.7 per cent in 2011. However, research carried out by
IGD (2015) shows a more positive trend for the coming years with year on year sales
predicted to increase to 2.2 per cent by 2020. Contrasting research shows less optimism,
Perks (2015) shows sales of £157.7 billion in 2015 with minimal growth to £164 billion in
2020.
5.0 Rivalry inindustry
Due to changes within the industry, particularly consumer trends, Porters Five Forces
analysis shows emerging supermarkets such as Aldi and Lidl are starting to pose a threat to
the larger supermarkets market share and sales (Appendix 3). Both Aldi and Lidl have seen
market share increase to 5.5 per cent (2015) and 3.7 per cent (2015) respectively (Perks,
2015), this threat is highlighted in the Porters Five Forces analysis and SWOT analysis
(Appendix1 and 3, see appendix 4 for definition). Aldi and Lidl have seen a surge in growth
as consumer trends have changed with consumers now focused on price and convenience
(Mintel, 2016),(Appendix 2). These two ‘budget’ supermarkets have had much of their
success by keeping focus on low prices yet maintaining high levels of quality. Research by
Perks (2015) demonstrates how Aldi and Lidl very much focus attention on sales of grocery
items rather than general merchandise, just 0.3 per cent of sales in both supermarkets where
through general merchandise in 2014, in contrast at Tesco sales in this area were 3.6 per cent.

6. 1444578
6
This is also reflected in how Aldi and Lidl allocate space within their stores with Lidl
allocating 8.7 per cent and Aldi 9.7 per cent of store space to general merchandise. Contrast
this to Sainsbury’s who allocate 43.6 per cent of store space to general merchandise (Perks,
2015). It must be considered each individual supermarket has a different focus, for example,
Aldi and Lidl are highly focused on the sale of food items, whereas, Sainsbury’s has been
putting more emphasis on the sale of homeware and non-food items (Perks, 2015). However,
in light of the vast and rapid success the most recent market research has shown that growth
of market share for both Aldi and Lidl has slowed significantly (Worldpanel, 2016).
6.0 Main businesses and market share
Within the supermarket industry there is currently a growing amount of competition as
highlighted by the Porters Five Forces analysis (Appendix 3). This competition is not only
among the big supermarket i.e. Tesco, Sainsbury’s and Asda but also between the budget
supermarkets that are rapidly increasing their market share by eating into the bigger
supermarkets market share via competitive prices and offering higher levels of convenience .
The table below shows the market share of the main supermarkets
Figure 1: Grocery market share November 2016 (Kantar Worldpanel 2016)
Source:http://www.kantarworldpanel.com/global/grocery-market-share/great-britain
[accessed 7/12/2016].

7. 1444578
7
The chart above shows Tesco, although perceived to be in crisis, is still the leader in the
market by a considerable margin, however, their market share fell from 29.9 per cent in
January 2014 to 28.2 per cent in November 2016 (Worldpanel, 2016).
A SWOT analysis pinpoints several high profile scandals over the past several years; firstly
the horsemeat scandal which hit Tesco hard and caused a lot of controversy over where their
products were sourced from resulting in a loss of consumer confidence. Moving forward in
2014 Tesco was at the centre of an accounting scandal, profits were overstated by £250
million, shares at the time where hit hard falling almost 8 per cent to an eleven year low
wiping of £1.5 billion in value (Farrel, 2014), (Appendix 1). More recently Tesco has drawn
criticism with their new farm brands range which states meat products are sourced from local
farms however the farms where the produce is supposed to be coming from are fake causing
further customer dissatisfaction.
The chart also shows how the main supermarkets are suffering in relation to the budget
supermarkets with Aldi increasing profit share from 4 per cent to 6.2 per cent in the same
time period. When considering why certain supermarkets have lost market share and why
some have gained consideration must be given to the environment the supermarket operates
in. Through SWOT analysis (Appendix 1) it is clear that Tesco has lost market share through
the horsemeat scandal and the accounting fix. However, Tesco has many opportunities such
as e-commerce and multi-channel approach.
7.0 Technology Advancements
Tesco is recovering some loss of sales through the opportunity in technology via online sales
through Tesco direct and there online grocery service, also through technological invention
Tesco has managed to reduce labour cost by introducing self-service checkouts into its stores
(Appendix 1 SWOT analysis and appendix 2 PESTEL).
Online grocery sales have boomed over the last ten years with Tesco representing 40 per cent
of the overall market. However, recent research has shown that online growth at Tesco has
slowed, yet like for like sales have increased (Rigby, 2016). Mintel (2016) states online tills
are ringing as a result, with online grocery sales forecast to reach £9.8 billion in 2016, up 13
per cent from an estimated £8.6 billion in 2015. Further to this, sales are forecast to grow a
further 73 per cent to reach £15 billion by 2020. The main reason consumers cite for
shopping online more is convenience, with 60 per cent of consumers shopping more online

8. 1444578
8
doing so because it is more convenient than visiting stores showing further trends in changing
consumer habit (Mintel, 2016). SWOT analysis shows Tesco to be capitilising on one of its
strengths.
8.0 Environmental Issues
Tesco has to be very aware of the environment and as a result has recently decided to give its
waste food to charities rather than to simple throw it away. Tesco is to work with five
thousand local charities in an aim to eradicate all food waste by 2017. It said the plan
followed a "farm to fork" commitment to tackle food waste by its suppliers. Tesco’s
commitment to the environment is shown by its CEO Dave Lewis.
“We believe no food that could be eaten should be wasted”. (Dave Lewis, cited in Mortimer
2016).
9.0 Impact of EU Referendum
Tesco’s financial performance has been highly criticised of late, however, when the latest
numbers are analysed it is not as bad in context, when compared to other supermarkets.
Market research carried out by Kantar Worldpanel (2016), Tesco’s sales have increased 0.8
per cent in the twelve weeks ending sixth November 2016 in comparison, sales at Asda fell
by 5.0 per cent and Sainsbury’s sales fell by 0.7 per cent contributing to an actual fall in
overall market share. It must be mentioned that although these figures are after the EU
referendum and the sharp fall in the sterling the bleed through is still unlikely to be felt by
supermarkets due to the current price war. These factors will take a while to impact the
possible price of food and commodities as supermarkets often have long standing price fixes
with suppliers (Perks, 2015).
Tesco are likely to fight prices rises with robust force in an attempt to stop consumers
jumping ship to the cheaper alternatives such as Aldi and Lidl, in the current climate
consumers are finding they have an increasing amount of power over the supermarkets as
they all battle each over in order to gain market share (appendix 3). Through SWOT and
PESTEL analysis (Appendix 1 and 2) it is clear the EU referendum has cast uncertainty over
the supermarket industry as 40 per cent of food we consume is sourced from overseas, any
long term change in exchange rates may threaten the current period of cheaper groceries, with
this in mind food prices could rise (York, 2016). This change in exchange rates has attracted

9. 1444578
9
attention in recent news with the battle between Tesco and ones of its suppliers Uniliver.
Porters Five Forces analysis highlights supplier power, Uniliver asked supermarkets to raise
the cost of its products by 10 per cent, with the company blaming the drop in Sterling as the
reason behind its price increase. However, this attracted criticism as most of its products are
made in the UK (Butler, 2016) (Appendix 3).
This is where the threat of new entrants (Porters Five Forces Analysis) comes in as high
prices often lead consumers to seek out cheaper alternatives, this can be seen by Aldi and
Lidl now accounting for a combined 10.5 per cent of the market with Lidl increasing sales by
13.8 per cent and Aldi by 11.5 per cent on a year ago (Worldpanel, 2016).
10.0 Political changes
With the recent announcement of Phillip Hammonds first Autumn Statement Tesco will be
impacted slightly by some of the economic policies within the statement (Appendix 2,
PESTEL). Firstly, the national Living Wage will be increased from April 2017 from £7.20 to
£7.50 (ACAS, 2016). This will mean Tesco have to pay its employees this higher earnings
rate. As a result one of two things could occur within Tesco, firstly and most obvious is,
Tesco will suffer reduced profit margins due to the increased labour costs. However, Tesco
could look to offset this by increasing prices and passing the cost onto consumers, this is
unlikely to happen due to the previously mentioned price war within the industry.
Secondly and possibly more likely is Tesco could either reduce its staffing numbers or stop
recruiting new staff in order to cover the cost of the new wage. A reduction in staff numbers
or keeping staff numbers stagnant could have an adverse impact on the customer experience
which if at all possible Tesco would very much like to avoid this as the customer experience
is one of the company’s core beliefs (Tesco, 2016)
11.0 Conclusion
In conclusion it is clear that Tesco, although still the leader in the supermarket sector, has a
long way to go to return to its former glory. Research has shown that Tesco is still the leader
in the market and has survived multiple high profile incidents that could have easily derailed
a smaller organisation. However, the treat form emerging discount retailers is impacting upon
sales and profit at Tesco and this threat is being taken very seriously with the emergence of a
price war within the industry. Tesco is regaining some of its profit loss through the

10. 1444578
10
emergence of online, home delivery and click and collect of which it is the market leader and
continues to develop and grow this area of its business through technological resource. In the
long term Tesco is continuing to adapt, as shown by changes in store layout and the opening
of more smaller convenience stores to satisfy the need of the consumer, to the environment in
which it operates in and is showing that even the biggest of organisations have to change the
way in which it operates in order to not only continue to grow but in order to survive. The
impact of the EU Referendum is slowly beginning to emerge evidenced by the price battle it
has recently had with one of their supplier, however the full impact will not been seen until
article 50 has been invoked by the Government.

11. 1444578
11
12.0 Reference list
ACAS,2016. Nation minimumwageand Nation living wage. [Online]
Available at:http://www.acas.org.uk/index.aspx?articleid=1902
[Accessed712 2016].
Boten,N.,2009. EnterpriseStratergy. PaperE3 ed.Oxford:CimaPublishing.
Butler,S.,2016. Tesco and Unilever settle Marmite dispute. [Online]
Available at:https://www.theguardian.com/business/2016/oct/13/tesco-unilever-resolve-marmite-
dispute-price-supermarket
[Accessed211 2016].
Distribution,T.I.o.G., 2015 (A). Key industry facts. [Online]
Available at:http://www.igd.com/About-us/Media/Key-industry-facts/
[Accessed610 2016].
Distribution,T.I.o.G., 2015. Whatis the size of the Ukgrocery market. [Online]
Available at:http://www.igd.com/Research/Retail/UK-grocery-retailing/
[Accessed610 2016].
Farrel,S.,2014. Tesco suspendsseniorstaff and startsinvestigation in overstated profit. [Online]
Available at:https://www.theguardian.com/business/2014/sep/22/tesco-investigators-overstating-
profit-250m
[Accessed911 2016].
Guardian,T., 2016. Tesco and Unilever settle Marmitedispute. [Online]
Available at:https://www.theguardian.com/business/2016/oct/13/tesco-unilever-resolve-marmite-
dispute-price-supermarket
[Accessed211 2016].
Marketlilne,2016. Company profileTesco PLC, Marketline.
Mintel,2016. 29% of UKgrocery shoppersareshopping forgroceriesmoreonline now than an year
ago. [Online]
Available at:http://www.mintel.com/press-centre/retail-press-centre/29-of-uk-online-grocery-
shoppers-are-shopping-for-groceries-more-online-now-than-a-year-ago
[Accessed10 11 2016].
Mortimer,C.,2016. Tesco to giveall unsold food to charity afterfinalising deal. [Online]
Available at:http://www.independent.co.uk/news/business/news/tesco-to-give-all-unsold-food-to-
charity-after-finalising-deal-a6925971.html
[Accessed712 2016].
Perks,R.,2015. Supermarketsata glance, UK: Mintel.
Pettinger,R.,2007. Introduction to management. 4thed.Hampshire:Palgrave.

12. 1444578
12
Rigby,C.,2016. Online grocery growthslowsatTesco butoverall sales rise. [Online]
Available at:http://internetretailing.net/2016/06/online-sales-growth-slows-tesco/
[Accessed10 11 2016].
Tesco,2016. AnnualReportsand FinancialStatements, Hertfordshire:Tesco.
Worldpanel,K.,2016. Aldi and Lidl hit 10.5% combined marketshare. [Online]
Available at:http://uk.kantar.com/consumer/shoppers/2016/july-kantar-worldpanel-uk-grocery-
share/
[Accessed13 10 2016].
Worldpanel,K.,2016. Grocery marketshare. [Online]
Available at:http://www.kantarworldpanel.com/en/grocery-market-share/great-britain
[Accessed13 10 2016].
Worldpanel,K.,216. Tesco continuesto grow marketshare. [Online]
Available at:http://www.kantarworldpanel.com/en/Press-Releases/Tesco-continues-to-grow-
market-share-
[Accessed13 11 2016].
York, C.,2016. Pound to Euro exchangeratesplungeis good newsformanufacturing exports.
[Online]
Available at:http://www.huffingtonpost.co.uk/entry/pound-to-euro-exchange-
rate_uk_5818967be4b0672ea68a0e25
[Accessed111 2016].

13. 1444578
13
13.0 Appendices
13.1 SWOT Analysis Tesco (1)
13.2 PESTELAnalysis Tesco (2)
Political
Tesco operate worldwide therefore political influences impact on their performance. Things
such as tax rates, changes of law and instability in the political scene. Also changes in the
economic environment mean governments encourage retailers to create jobs. With the recent
decision to exit the European Union Tesco if currently fighting with suppliers (Uniliver) who
want Tesco to increase its prices. Also certain food products are frowned upon and even not
sold in certain countries, therefore Tesco need to be aware of any religious/political views.
Strength
 Multi-channel approach
 Significant presence in the private
label market
 Service portfolio complementing
core retail business
 Strong buying power
 Simple business model
 Large product range
Weakness
 Bad accounting denting Tesco’s
image and resulting in an
investigation
 Several product recalls
 New farm brands criticism
 Horsemeat scandal
Opportunity
 New joint venture with Tata
group
 Growing e-commerce
 Growing online sales
 Reducing product scale
 Simplifying store layout
Threat
 Intense competition with discount
retailers
 Increase in labour costs
 Decreasing profitability
 Brexit impact
 Fall in price of Sterling

14. 1444578
14
Economic Factors
Economic factors are a main concern for Tesco, therefore Tesco need to be aware of any
changes in legislation such as tax changes. Also due to households having less disposable
income Tesco has shifted its advertising more to its value products in order to attempt to
boost sales. The Brexit vote will change the way in which Tesco operate as some of its
suppliers are based in Europe add this t the fall in the price of the sterling prices ae likely to
rise (York, 2016).
Social Factors
Due to a variety of social changes, trends show consumers have moved towards larger shops
and one-stop shopping. Therefore, Tesco has increased the number of non-food items offered
for sale. With customers becoming more aware of health issues, their approach to food is
changing, Tesco is adapting to these changes by accommodating the demand for organic
products. Increase in the minimum wage in 2017. Convenience has become key for
customers (Mintel, 2016) (ACAS, 2016).
Technological Factors
The advancements in technology have brought several new opportunities for Tesco. Two of
the most obvious ones include, firstly, the development and introduction of online shopping
with facilities for home delivery in which they are the market leader. Secondly, self-service
checkouts have provided more convenience for customers, which in turn has reduced labor
costs (Mintel, 2016)
Environmental Factors
As pressure on companies increases to address environmental issues they must adopt ways of
operations which benefit society. Tesco has recently introduced a scheme to give all waste
food to charities (Mortimer, 2016)
Legislative Factors
Government policies and legislations also impact the performance of Tesco. For example, the
Food Retailing Commission suggested a Code of Practice should be introduced which would
ban some current practices, such as changing prices without notice or demanding payments
from suppliers.

15. 1444578
15
13.3 Porters FiveForces for Tesco (3)
14.0 Appendix 4
14.1 Glossary of Terms
Tertiary industry
The part of a country’s economy that is concerned with the provision of services.
Rivalry: Tesco, Asda,
Sainsburys, Morrisons, Aldi,
Lidl
Large scale suppliercanexert
power
Low switchingcostforTesco
Limitedamountof suppliersfor
certainproducts
No buyerswitchingcosts
Similarproductsoffered
Lowerprices
Smallerconvienience stores
Large numberof buyers
Supermarketscannotaffordto
lose customer
Buyersensitivetoprice change
Buyerhas accessto substitutes
Highlycompetitive market
Tough to gainmarketshare
Large marketavailable

16. 1444578
16
Oligopoly
Oligopoly is a market structure in which a small number of companies have a large majority
of market share.
SWOT analysis
A study undertaken by an organization to identify its internal strengths and weaknesses, as
well as its external opportunities and threats (Pettinger, 2007)
PESTEL analysis
A tool used by marketers to analyse and monitor the macro-environmental (external
marketing environment) factors that have an impact on an organisation (Pettinger, 2007)
Porters Five Forces
A tool used to understand how profitable a target industry might be and to understand the
forces impacting upon the current industry’s profitability (Boten, 2009).