Business Environment
D2
Political Factors
The UK government has recently adopted a tax measure that affected Tesco. In 2011 the UK government increased the VAT rate from 17.5% to 20% with the aim to increase government revenue by £13 billion per year (BBC, 2011, n.p). Crossley et al. (2009, p. 3) contend that an increase in the VAT rate leads to lower customer spending. Therefore, an increase in the VAT rate negatively affected the sales revenue generated by Tesco. Sales revenue is the key source of income of the organisation and thus it holds a substantial effect on profits (Atrill, 2009, p33).
The UK government has also proposed to adopt a fat tax with the aim to control obesity and limit the medical problems associated with it (The Guardian, 2011, n.p.). Such measure can adversely affect the sales revenue of certain products retailed by Tesco. Tesco is responding to such a threat. Indeed, in 2014 Tesco launched a “brand new healthy food range” (Tesco, 2014, n.p.).
Economic Factors
The UK economy is showing positive signs of recovery from the financial crises. Higher economic growth rate was forecasted and the gross domestic product was estimated to be 2.7% higher than the pre-crises peak (BBC, 2014, n.p.). A growth in economy is a positive sign for Tesco because it results in a growth in the supermarket industry, which is the main industry in which Tesco operates. When there is an economic recession, which is the opposite of economic growth the rate of unemployment increases. This results in lower disposable income in the hands of the British people. Therefore, customers will decrease spending and will shift to products of a lower price (Mankiw, 2012, p97). Therefore, recovery from the economic recession stimulates revenue growth for Tesco.
Social Factors
The number of elderly people is increasing in the UK due to the baby boom generation. In the past years there was a decrease in the birth-rate and an increase...