Business Unit 1 – Exploring Business Milan Patel
Business: The Effects of the
Environment on a Business
Learning aims C and D
1-31-2020 https://en.wikipedia.org/wiki/
Milan Patel File:Tesco_Logo.svg
,Business: The Effects of the Environment on a Business Milan Patel
Report of Tesco:
Introduction of Tesco:
Tesco is a supermarket that is present in hundreds of countries worldwide. They have over 6800 shops
globally comprising of “Tesco extras” which are large Tesco supermarkets. And “Tesco express” which
are smaller more convenient stores, which stock essentials. Tesco employ over 450,000 people and
made a revenue of £52 billion in 2019. They were originally founded in 1919 by Jack Cohen and have
since grown to operate in over 13 countries including: Thailand, USA, UK, India, Japan, Poland and
France.
PESTLE Analysis of Tesco:
Political factors:
Political stability: One political factor effecting Tesco is the political stability of the areas Tesco operates
in. In 2011 the shooting of Mark Duggan resulted in violent public clashes with the police in Tottenham.
This escalated and caused rioting, looting, arson, mugging, assault, and even murder across England.
This caused 5 deaths and 205 injuries. Among these attacks was the looting of the Stokes Croft Tesco
express store in Bristol. The store was attacked with crowbars and petrol bombs and the looting resulted
in thousands of pounds of damage for Tesco, which will reduce their profits. Data shows that “Food and
supermarkets” were the 3rd most attacked establishment during the riots. This shows that the political
stability of the areas Tesco operates in is very important because political tensions between people can
result in damage to stores, which would be expensive to repair. As well as this it may deter future
customers from visiting the store because they fear the attacks may repeat, so the reputation of the
store has also been damaged. Also, Tesco would have lost out on many sales during the riots, as people
are not visiting their stores as much. This will also have a negative impact on their profits.
Brexit: Brexit is an important political factor for Tesco, because it creates uncertainty. This is bad for
Tesco because it means they cannot plan and make necessary preparations to ensure they won’t lose
money after Brexit or encounter problems. One problem that Brexit may cause is tariffs and delays at
the border. This is especially bad for food imports, which Tesco does lots of. Tesco boss Dave Lewis said
“But the challenge will always be those things which are shorter life - fresh produce. That's what the UK
imports quite a lot of”. This has a big impact on Tesco because delays at borders, will take up valuable
days on the expiration date of many items, which are already short on most fresh items. This will mean
that customers have less time to use their good and could even mean goods going to waste. On top of
this, Tesco may have to pay tariffs which will reduce their profits. To counteract this, it may mean
increasing prices, which cost the customers more, which leaves them with less disposable income.
Alternatively, Tesco may change to cheaper suppliers, which could result in a decrease in quality, and
may result in less sales for Tesco and more of a loss in profits. Tesco have already changed suppliers on
core grocery items from EU suppliers, to more expensive UK suppliers. This will impact customers in the
same way. Ultimately, the main effect of Brexit for Tesco will be on customers, being though the delay
of goods at borders, or increasing prices.
Employment: There are two factors of employment that effect Tesco. Both employment laws and
employment skills of the working force. One way in which employment laws effects Tesco is minimum
2
,Business: The Effects of the Environment on a Business Milan Patel
wage. This effects the lowest amount that Tesco can pay their workers. A change in this would impact
Tesco lots because they have lots of employees who are on minimum wage or close to it, such as
warehouse worker, cashiers and store stockers. So, an increase in their payment would mean Tesco
paying a lot more in wages, which increases cost. The effect of this may result in Tesco having to reduce
costs in other areas to offset the cost of wage payments. This could also mean increased prices or lower
quality goods for customers. The other political factor regarding employment is the employment skills of
the working force. The quality of these skills comes down to the quality of education in the country. In
the UK most schools are government run through the council. Therefore, the effectiveness of the
running of schools will influence how skilled students are when they finish school and how employable
they are by businesses such as Tesco. If the government invests lots of money into schools, the likely
result of this is that they will be run better and produce students with higher quality skills. This will mean
that Tesco can employ higher skilled workers, which will increase their efficiency and productivity. On
the other hand, the skill quality of people coming out of schools could be bad. This would result in a
skills shortage for Tesco, which is bad for productivity. A skills shortage means Tesco may have to train
workers themselves, which would cost more. It could also mean offering higher wages/salaries to attract
skilled workers who are already in active jobs, as an incentive to leave. Therefore, the government’s
effectiveness in running schools can have a big impact on Tesco’s costs, as well as productivity.
Taxation (including Supply Side Policy) : Another political factor is taxation. This is the amount of money
that Tesco are charged by the government. In 2018 Tesco paid a total of £1.6 billion worth of tax. Some
of these taxes compromised of: Business rates (£702m), corporation tax (£176m), customs and fuel duty
(£153m) and employment tax (£492m). In 2014 a group of local councils in England formally requested
to impose an extra tax on large supermarkets, this is reported to increase Tesco’s yearly tax payments
by up to £190 million. The taxes would then be used to support small local businesses. The government
says the impact of this would mean “additional taxes on supermarkets would push up food prices”. The
effect of this would mean that customers end up paying more, which could reduce the amount of
disposable income people have, after they do their food shopping. As well as this, an increase in the
taxes Tesco pay, would mean they have less money to reinvest into the business in thing such as
improvements to stores or new stores. This relates to supply side policy, which aims to improve the
productivity and economic growth of businesses and markets. This can be done by reducing taxes, which
increases the amount of money Tesco has available to reinvest. Another factor of supply side policy is
education and training, this affects the skills of the work force, which effects workers productivity and
effectiveness, which effects economic growth.
Economic factors:
Fiscal Policy: One economic factor effecting Tesco is Fiscal policy. This is the adjustment of government
spending and taxation levels, to influence the amount of money in the economy and the amount of
public spending, as well as many other things. Levels of taxation affect how much consumers are taxed.
This will change the amount of disposable income people have. Consumers disposable income effects
Tesco greatly because it influences how much money people can afford to spend and so how many sales
Tesco gets. If levels of taxation are high, consumers will have less disposable income, and so may only be
able to afford necessities and cheap goods. However, if levels of taxation are low, people will have more
disposable income and will be able to afford luxury goods and may purchase higher quality goods, which
cost more. This is good for Tesco because it will increase their sales, especially in premium goods. An
increase in sales benefits Tesco as it increases their profits.
3
, Business: The Effects of the Environment on a Business Milan Patel
Monetary policy: Monetary policy involves the management of money supply and interest rates. This is
all controlled by the monetary policy committee (MPC). The MPC influences how much the pound is
worth as well as what percentage interest rates are. Interest rates are important because it influences
the cost of borrowing, or the reward for saving. Previously the base interest rate has been as high as
15%. This is good for people who are saving because they will receive a high reward from banks and get
a high return on their savings. However, this is not so good for people who want to borrow money, such
as loans or mortgages. This is because a high rate will mean they are charged more on whatever amount
they want to borrow. So, a high interest rate encourages spending and discourages borrowing. On the
other hand, a low interest rate such as the current rate at 0.75% will discourage saving, because the
reward is low. However, it encourages borrowing because the cost of borrowing is low, as the amount
someone is charged is a low percentage. So, a low interest rate encourages borrowing and discourages
saving. This effects Tesco because it influences how much people are spending. Higher interest rates are
better for Tesco as it means people are earning more on their saving, so have more money available, to
spend with Tesco, which increases sales and profits.
Inflation: Inflation is the gradual increase in the price of goods over time in an economy. As inflation
rises, the purchasing power of the pound decreases. This is because prices are going up, but wages and
salaries are staying the same. This essentially means that people are getting a wage decrease, because
basic goods that people need are going up in price. For example, if bread cost 50p in 2000 and increased
to £2 in 2030, and in the same time someone’s wage remained the same, the person is getting a wage
decrease. Inflation is caused by a demand pull, where the demand for a good or service exceeds
production capacity. This then results in higher production costs, which pushes up prices, so businesses
can maintain profits. These higher prices then cost consumers more of their money. This effects Tesco
because if inflation is high, the price of goods will be increased. This means that customers may not be
able to afford as many goods as before, and so purchase less. This will reduce Tesco’s sales and so
reduce their revenue. The effect on the customer could mean that not only do they have to pay more
for their goods. But Tesco may increase their prices further to compensate for less sales. Or Tesco could
cut costs in other places like suppliers or less workers. This will result in a worse experience or less
quality for Tesco customers.
Gross Domestic Product (GDP): GDP is the total amount of money spent on goods and services within a
country, in a certain time period. The GDP of the UK in 2017 was £$2.622 trillion. The current growth is
1.8% annual change. The effect of an increasing GDP on Tesco is that more money is being spent on
goods and services. This benefits Tesco because it means more money is being spent, which should
result in increased sales for Tesco and so increased profits.
Exchange rates: Exchange rates are the worth of one currency in relation to another. For example, £1 is
currently worth $1.30. Exchange rates effect Tesco because their import many goods from outside the
UK. Depending on how good the exchange rate is, it will change the purchasing power Tesco has when
purchasing from suppliers outside the UK. A depreciation in exchange rate negatively effects Tesco,
because it means they get less money of another currency for their pound. This is bad for importing
because it means once money has been transferred into another currency, Tesco get less than they
otherwise would if the exchange rate was higher. The effect of this is that Tesco have less money to
spend on goods. The effect of this for the consumer could be stock shortages for goods from abroad.
This may have an impact on Tesco’s sales if people decide not to shop with Tesco because they don’t
stock their favored items from abroad.
4
Business: The Effects of the
Environment on a Business
Learning aims C and D
1-31-2020 https://en.wikipedia.org/wiki/
Milan Patel File:Tesco_Logo.svg
,Business: The Effects of the Environment on a Business Milan Patel
Report of Tesco:
Introduction of Tesco:
Tesco is a supermarket that is present in hundreds of countries worldwide. They have over 6800 shops
globally comprising of “Tesco extras” which are large Tesco supermarkets. And “Tesco express” which
are smaller more convenient stores, which stock essentials. Tesco employ over 450,000 people and
made a revenue of £52 billion in 2019. They were originally founded in 1919 by Jack Cohen and have
since grown to operate in over 13 countries including: Thailand, USA, UK, India, Japan, Poland and
France.
PESTLE Analysis of Tesco:
Political factors:
Political stability: One political factor effecting Tesco is the political stability of the areas Tesco operates
in. In 2011 the shooting of Mark Duggan resulted in violent public clashes with the police in Tottenham.
This escalated and caused rioting, looting, arson, mugging, assault, and even murder across England.
This caused 5 deaths and 205 injuries. Among these attacks was the looting of the Stokes Croft Tesco
express store in Bristol. The store was attacked with crowbars and petrol bombs and the looting resulted
in thousands of pounds of damage for Tesco, which will reduce their profits. Data shows that “Food and
supermarkets” were the 3rd most attacked establishment during the riots. This shows that the political
stability of the areas Tesco operates in is very important because political tensions between people can
result in damage to stores, which would be expensive to repair. As well as this it may deter future
customers from visiting the store because they fear the attacks may repeat, so the reputation of the
store has also been damaged. Also, Tesco would have lost out on many sales during the riots, as people
are not visiting their stores as much. This will also have a negative impact on their profits.
Brexit: Brexit is an important political factor for Tesco, because it creates uncertainty. This is bad for
Tesco because it means they cannot plan and make necessary preparations to ensure they won’t lose
money after Brexit or encounter problems. One problem that Brexit may cause is tariffs and delays at
the border. This is especially bad for food imports, which Tesco does lots of. Tesco boss Dave Lewis said
“But the challenge will always be those things which are shorter life - fresh produce. That's what the UK
imports quite a lot of”. This has a big impact on Tesco because delays at borders, will take up valuable
days on the expiration date of many items, which are already short on most fresh items. This will mean
that customers have less time to use their good and could even mean goods going to waste. On top of
this, Tesco may have to pay tariffs which will reduce their profits. To counteract this, it may mean
increasing prices, which cost the customers more, which leaves them with less disposable income.
Alternatively, Tesco may change to cheaper suppliers, which could result in a decrease in quality, and
may result in less sales for Tesco and more of a loss in profits. Tesco have already changed suppliers on
core grocery items from EU suppliers, to more expensive UK suppliers. This will impact customers in the
same way. Ultimately, the main effect of Brexit for Tesco will be on customers, being though the delay
of goods at borders, or increasing prices.
Employment: There are two factors of employment that effect Tesco. Both employment laws and
employment skills of the working force. One way in which employment laws effects Tesco is minimum
2
,Business: The Effects of the Environment on a Business Milan Patel
wage. This effects the lowest amount that Tesco can pay their workers. A change in this would impact
Tesco lots because they have lots of employees who are on minimum wage or close to it, such as
warehouse worker, cashiers and store stockers. So, an increase in their payment would mean Tesco
paying a lot more in wages, which increases cost. The effect of this may result in Tesco having to reduce
costs in other areas to offset the cost of wage payments. This could also mean increased prices or lower
quality goods for customers. The other political factor regarding employment is the employment skills of
the working force. The quality of these skills comes down to the quality of education in the country. In
the UK most schools are government run through the council. Therefore, the effectiveness of the
running of schools will influence how skilled students are when they finish school and how employable
they are by businesses such as Tesco. If the government invests lots of money into schools, the likely
result of this is that they will be run better and produce students with higher quality skills. This will mean
that Tesco can employ higher skilled workers, which will increase their efficiency and productivity. On
the other hand, the skill quality of people coming out of schools could be bad. This would result in a
skills shortage for Tesco, which is bad for productivity. A skills shortage means Tesco may have to train
workers themselves, which would cost more. It could also mean offering higher wages/salaries to attract
skilled workers who are already in active jobs, as an incentive to leave. Therefore, the government’s
effectiveness in running schools can have a big impact on Tesco’s costs, as well as productivity.
Taxation (including Supply Side Policy) : Another political factor is taxation. This is the amount of money
that Tesco are charged by the government. In 2018 Tesco paid a total of £1.6 billion worth of tax. Some
of these taxes compromised of: Business rates (£702m), corporation tax (£176m), customs and fuel duty
(£153m) and employment tax (£492m). In 2014 a group of local councils in England formally requested
to impose an extra tax on large supermarkets, this is reported to increase Tesco’s yearly tax payments
by up to £190 million. The taxes would then be used to support small local businesses. The government
says the impact of this would mean “additional taxes on supermarkets would push up food prices”. The
effect of this would mean that customers end up paying more, which could reduce the amount of
disposable income people have, after they do their food shopping. As well as this, an increase in the
taxes Tesco pay, would mean they have less money to reinvest into the business in thing such as
improvements to stores or new stores. This relates to supply side policy, which aims to improve the
productivity and economic growth of businesses and markets. This can be done by reducing taxes, which
increases the amount of money Tesco has available to reinvest. Another factor of supply side policy is
education and training, this affects the skills of the work force, which effects workers productivity and
effectiveness, which effects economic growth.
Economic factors:
Fiscal Policy: One economic factor effecting Tesco is Fiscal policy. This is the adjustment of government
spending and taxation levels, to influence the amount of money in the economy and the amount of
public spending, as well as many other things. Levels of taxation affect how much consumers are taxed.
This will change the amount of disposable income people have. Consumers disposable income effects
Tesco greatly because it influences how much money people can afford to spend and so how many sales
Tesco gets. If levels of taxation are high, consumers will have less disposable income, and so may only be
able to afford necessities and cheap goods. However, if levels of taxation are low, people will have more
disposable income and will be able to afford luxury goods and may purchase higher quality goods, which
cost more. This is good for Tesco because it will increase their sales, especially in premium goods. An
increase in sales benefits Tesco as it increases their profits.
3
, Business: The Effects of the Environment on a Business Milan Patel
Monetary policy: Monetary policy involves the management of money supply and interest rates. This is
all controlled by the monetary policy committee (MPC). The MPC influences how much the pound is
worth as well as what percentage interest rates are. Interest rates are important because it influences
the cost of borrowing, or the reward for saving. Previously the base interest rate has been as high as
15%. This is good for people who are saving because they will receive a high reward from banks and get
a high return on their savings. However, this is not so good for people who want to borrow money, such
as loans or mortgages. This is because a high rate will mean they are charged more on whatever amount
they want to borrow. So, a high interest rate encourages spending and discourages borrowing. On the
other hand, a low interest rate such as the current rate at 0.75% will discourage saving, because the
reward is low. However, it encourages borrowing because the cost of borrowing is low, as the amount
someone is charged is a low percentage. So, a low interest rate encourages borrowing and discourages
saving. This effects Tesco because it influences how much people are spending. Higher interest rates are
better for Tesco as it means people are earning more on their saving, so have more money available, to
spend with Tesco, which increases sales and profits.
Inflation: Inflation is the gradual increase in the price of goods over time in an economy. As inflation
rises, the purchasing power of the pound decreases. This is because prices are going up, but wages and
salaries are staying the same. This essentially means that people are getting a wage decrease, because
basic goods that people need are going up in price. For example, if bread cost 50p in 2000 and increased
to £2 in 2030, and in the same time someone’s wage remained the same, the person is getting a wage
decrease. Inflation is caused by a demand pull, where the demand for a good or service exceeds
production capacity. This then results in higher production costs, which pushes up prices, so businesses
can maintain profits. These higher prices then cost consumers more of their money. This effects Tesco
because if inflation is high, the price of goods will be increased. This means that customers may not be
able to afford as many goods as before, and so purchase less. This will reduce Tesco’s sales and so
reduce their revenue. The effect on the customer could mean that not only do they have to pay more
for their goods. But Tesco may increase their prices further to compensate for less sales. Or Tesco could
cut costs in other places like suppliers or less workers. This will result in a worse experience or less
quality for Tesco customers.
Gross Domestic Product (GDP): GDP is the total amount of money spent on goods and services within a
country, in a certain time period. The GDP of the UK in 2017 was £$2.622 trillion. The current growth is
1.8% annual change. The effect of an increasing GDP on Tesco is that more money is being spent on
goods and services. This benefits Tesco because it means more money is being spent, which should
result in increased sales for Tesco and so increased profits.
Exchange rates: Exchange rates are the worth of one currency in relation to another. For example, £1 is
currently worth $1.30. Exchange rates effect Tesco because their import many goods from outside the
UK. Depending on how good the exchange rate is, it will change the purchasing power Tesco has when
purchasing from suppliers outside the UK. A depreciation in exchange rate negatively effects Tesco,
because it means they get less money of another currency for their pound. This is bad for importing
because it means once money has been transferred into another currency, Tesco get less than they
otherwise would if the exchange rate was higher. The effect of this is that Tesco have less money to
spend on goods. The effect of this for the consumer could be stock shortages for goods from abroad.
This may have an impact on Tesco’s sales if people decide not to shop with Tesco because they don’t
stock their favored items from abroad.
4
