What is a PESTLE analysis?
From government regulations to cultural trends, the supermarket industry is shaped by many external forces.
To better understand this dynamic environment, we have decided to conduct the PESTLE Analysis of The Supermarket Industry. This PESTLE analysis will examine the political, social, economic, technological, legal, and environmental factors that affect the industry.
Is it PESTEL or PESTLE Analysis?
PEST analysis is a business tool used by organizations to analyze what external factors impact different businesses and organizations. Now that you are aware of what PESTLE analysis is, let’s proceed forward and conduct the PESTLE analysis of the supermarket industry.
The PESTLE framework and SWOT analysis are commonly used tools for conducting a competitive analysis.
There are numerous other models as well that are used for this purpose, but Pestle is most popular and commonly used because:
It is detailed and provides a clear idea.
It emphasizes only the external factors.
It covers a wide range of factors than other models.
Two examples for your better understanding:
Zara case study
Zara, the leading fashion retailer everyone loves, has experienced a bit rough start in the early 6 months of 2020. The sudden pandemic led to a fall in the sales, causing a loss to the company, but gradually, they shifted more attention to online sales, which helped it recover from the loss.
Nike case study
Nike has always been known for its fashion, style, and comfort. Even in the pandemic situation of 2020, Nike has experienced successful spikes in its sales. The increase in the awareness created among people for workouts and healthy living in the lockdown can be a great reason behind this.
PESTLE stands for Political, Economic, Sociocultural, Technological, Legal, and Environmental factors.
This framework is used to analyze the external factors that may affect a business, and can be applied to any industry.
SWOT analysis, on the other hand, looks at a company’s internal strengths and weaknesses, as well as external opportunities and threats.
To conduct a competitive analysis using the PESTLE framework and SWOT analysis, you would first gather information about your company and your competitors. This information can be gathered through research, interviews, and surveys.
Next, you would use the PESTLE framework to analyze the external factors that may affect your business, such as changes in government policies or advancements in technology.
Then, you would use the SWOT analysis to identify your company’s strengths and weaknesses, as well as opportunities and threats in the market. This will give you a better understanding of how your company compares to your competitors.
Finally, you would use the information gathered from the PESTLE and SWOT analysis to develop strategies to improve your company’s competitiveness.
Both PESTLE and SWOT are suitable for businesses of all sizes and industries, as they both provide valuable information that can be used to identify potential risks and opportunities.
You might have heard both variations and gotten confused as to which out of the two may be accurate. The answer to this doubt is that both are – PESTEL and PESTLE are used interchangeably. The switch occurs in the last letter in the acronym. However, there is no real reason behind this apart from preference. Both variations refer to vital macro-environmental factors but the order in which environmental and legal factors are arranged varies.
PESTEL Analysis or PESTLE Analysis is a tool in business that helps to observe and analyze the external factors that impact the organization’s performance. This framework or tool comes in handy, especially when starting a business from scratch or venturing into foreign markets. The external forces that an organization or business can face are of multiple types. Thus, as an acronym, PESTEL stands for all of them.
Political factors that impact on the grocery and supermarket (retail) industry
Global political stability is essential for the grocery and supermarket industry to thrive. Many of the top retailers such as Tesco, Walmart, Carrefour, Kroger, Sobeys, Lidl, Aldi, and Costco work with both domestic and international suppliers. If there is any problem with the international suppliers, it will have some kind of impact on the retailers. Demonstrations against global retailers in many countries are not uncommon. For instance, many people have protested against Amazon in several French towns and cities and accused it of urbanizing farmland (Aljazeera, 2021). Similar protests have been seen against some other global retail giants in many countries.
Economic factors that impact on the grocery and supermarket (retail) industry
Economic circumstances impact on the grocery and supermarket industry directly. People with jobs and disposable income are likely to spend more on groceries than those with financial limitations. Likewise, supermarkets cater to the needs of different customers differently. For example, basic and value products are for people with financial limitations, whereas premium products are for those who have no financial worries. Lidl, Poundland, and Aldi cater to the needs of budget-constrained customers, whereas Waitrose, and Marks & Spencer appeal to up market.
Social factors that impact on the grocery and supermarket (retail) industry
High property rent, local authority fees, and tax rates increase the operating costs of the supermarkets which in turn increase the selling prices of the products. Last few years were difficult from many economies; however, things are expected to get better in coming years which is a very good news for the grocery industry. Many retailers in the UK, the USA, Canada, Australia, and many other countries now cater for products that address the needs of people with different ethnic backgrounds. Similarly, demand for vegetarian and vegan products is also increasing rapidly offering good opportunities for the retailers to seize.
Technological factors that impact on the grocery and supermarket (retail) industry
Human-served checkouts have been replaced with automated machines. Most retailers have electronic loyalty cards and inventories have long been computerized. They also use social media to promote their products. Online shopping is one of the biggest trends impacting the grocery industry.
Environmental factors that impact on grocery and supermarket (retail) industry
Waste is a major environmental issue in the industry, as grocery stores generate a large amount of it. This includes everything from packaging to food waste. Grocery stores must take steps to reduce their waste, such as using more sustainable packaging and implementing waste reduction programs. Food packaging is directly responsible for several environmental problems such as pollution, and overcrowded landfills.
Legal factors that impact on the grocery and supermarket (retail) industry
Retail industry is also highly regulated, with laws and regulations in place to ensure that food is safe and that customers are treated fairly. This means that all grocery and supermarket stores must adhere to certain standards in order to stay in business.
PESTEL analysis is a straightforward tool that can give rise to both risks and opportunities for an organization. The objectives of this framework are:
Realizing the external factors that are currently affecting your business.
To keep track of the external factors that may undergo some change in the future. The impact on organizations changes quite naturally.
Making full use of the trends in change to reap the best opportunities for your business.
Better defense practices against the risks as observed from the changes in the external factors.
Overall, the PESTEL tool provides an assessment of a new market for the growth of a business.
Why do companies use pestle analysis?
Pestle analysis is useful in six key areas; political, economic, sociocultural, technological, legal, and environmental.
Political factors account for tariffs and regulations affecting an organization, such as the cost of selling a product or service overseas
Economic factors help determine how much potential customers would be willing to pay for a product or service
Sociocultural factors give insight into the demand for a product or service
Technological factors give some level of insight into whether a particular target market is ready for a specific product or service
Legal factors to into consideration rules and regulations that have to be complied with to sell a product or service
Takes into consideration the factors regarding sustainability and the impact a product or service has on the environment as a whole (from its manufacture, its use by consumers right through to when the product or service has come to end-of-life and has to be disposed of, or replaced
How do you elaborate a PESTLE analysis on a hotel?
PEST analysis.. Political Economic, Social & Technological
Listen one can elaborate only with a sample organization, industry, property and their location.
However in a nutshell, If it is about the Hotel Industry
Government incentives, policies, tourism promotional activities
Industrial growth in the country, investment scenario, investments in hotels, growth in aviation, and tour operations, (inbound tourism)
Quality manpower, local demand for hotel services
Sales through eCommerce sites, inflow of budget rooms, and websites catering to offbeat accommodation options, change in booking patterns etc.
Both PESTLE and Porter’s Five Forces are reliably applicable for a small single business. Let’s begin with Porter’s Five Forces.
A small single business will be weak with regard to the bargaining power of suppliers and the bargaining power of buyers.
However, you are the new entrant and, therefore, your pose the threat of a substitute if you can deliver a solution to an existing problem in a new way.
If a product is novel enough and you are able to protect it, then the rivalry among existing firms may not impose a hardship upon you. But if your product is no different that those already in existence, then this rivalry may be costly and difficult to overcome.
Regarding PESTEL, let’s first list out what the letters represent:
Political: How does the political situation in a country affect the industry you plan to compete in? Consider Venezuela. Would you launch a business there today?
Economic: Do the current economic forces favor a decision to launch a business? This is essentially Porter’s Five Forces. But this also takes into account the economy’s growth rate, the prevailing wages, interest rates, total consumer debt, etc.
Social: Does the cultural climate portend any negative or positive consequences on your business? What about any emerging cultural trends?
Technological: What technological innovations have emerged that you can build a business around? Are there any that pose a competitive threat to your idea? Are there any emerging technological innovations that you can adopt or that you should fear?
Legal: Are there any regulations in place that would pose a barrier to your entry into the market? Are there any that might impose a great cost to your young business? Are there any currently being considered?
Environmental: Does your business pose any environment concerns to your industry or to the community you wish to operate within? Is there any environmental legislation on the books that might affect your business?
Why are SWOT analysis and PESTLE essential to a business firm?
The main reason companies use both SWOT and PESTLE is because these tools offer broad and effective analyses of key areas of a strategic plan. SWOT is an acronym that stands for strengths, weaknesses, opportunities and threats. PESTLE has wider coverage of business and external issues, including political, economic, social, technological, legal and environmental factors. Small businesses can better compete by using these critical tools to assess opportunities and challenges.
Starting a Business
Typically, you first use SWOT and PESTLE during early stages of developing a business plan and strategy. SWOT allows you to consider strategic advantages that may help distinguish your business from competitors.
Analyzing weaknesses offers a reality check regarding possible concerns about potential customers.
Opportunities and threats analyses help you determine the current and long-term viability of your business plan. With PESTLE, you also can consider the external factors that may positively or negatively affect the development of your business.
For instance, some companies thrive during a tough economy, while many struggle because of more budget-conscious customers.
Companies go through strategic planning processes usually at least once per year.
Doing so allows you to review your company’s position and to reassess the strategic elements of SWOT and PESTLE.
By conducting a reassessment, you can detect emerging strengths and opportunities as well as threats or external factors you need to address.
Economic conditions fluctuate constantly. Social shifts and changes in values can affect the way the company’s brand and products succeed in the market. Technology evolves quickly as well, so you need to consider opportunities for investment in technological advances.
Identifying a target market, developing a business format and building sustainable competitive advantages are three major components of a thorough business strategy.
SWOT and PESTLE both offer ways to explore possible sustainable advantages for your business.
The strengths and opportunities components of SWOT allow you to compare your unique strengths to underserved areas of the market.
Aligning these creates an ideal business scenario. Similarly, by monitoring trends in the environmental issues of PESTLE, you could develop your sustainable advantages to either fit with trends or evolve with them over time.
Avoid Major Mistakes
Along with gaining positive realizations about your company’s position in the marketplace, you also can protect against major mistakes by using SWOT and PESTLE.
Knowing your real or perceived weaknesses helps you avoid trying to build or market your business around ideas that would not work.
For instance, if your small business excels at service and customer support but has difficulty competing on price, trying to evolve into a price leader could lead to failure against larger chains with cost advantages.
The threats portion of SWOT and the PESTLE analysis helps you avoid barriers to success. Using PESTLE can ensure that you stay current with any legal issues, such as industry regulations.
Avoid major gaffes by engaging in business activities counter to the current social and environmental situations.
A SWOT analysis of a company is an integral part of the strategic planning process
It provides a good all-around view of the company’s current and forward-looking situation. The strengths (S) and weaknesses (W) sections provide a look at the company’s current position. The opportunities (O) and threats (T) sections help the company project possibilities and challenges going forward. Each of these four sections has specific advantages to the overall analysis.
Capitalizing on Strengths
The strengths section allows the company to consider its competitive advantages in the marketplace.
These advantages are typically a focal point of the company’s operation and strategic planning. They also often coincide with the way the company markets.
Companies that have strengths related to manufacturing and production quality often promote themselves as high-quality brands.
Companies that have very efficient distribution systems and good bargaining power with suppliers as strengths can often leverage those to provide low costs to buyers.
It may seem counterintuitive that a company would see advantages in assessing its weaknesses, but understanding them makes them easier to deal with.
Generally, companies have two approaches to dealing with weaknesses.
They can either seek to improve them if those weaknesses restrict the company from implementing its strategies to achieve objectives.
Or, they realize that their weaknesses are simply a part of the overall business approach and company leaders try to downplay those weaknesses in marketing their brand.
The opportunities section is critical to development of company strategies as it helps the company identify ways to improve and grow.
Constantly reviewing market opportunities helps companies take advantage of emerging markets or changes in the marketplace that the company has strengths to match.
These are significant advantages over companies that fail to routinely assess opportunities and miss out on the ability to gain new business, market share and access to capital.
Again, analyzing threats to your business is not a fun part of a SWOT analysis, but it helps the company insulate itself as well as possible from external threats.
The environment, regulations, technology and trends are among possible factors that can threaten the viability and ongoing success of a business.
By assessing these risks and challenges, company leaders can better prepare them or decide how to respond from a strategic standpoint.
Implementing the SWOT analysis onto paper allows you to step back and see how you can more effectively run your business.
Employ management team in the strategic planning to help reap the benefits of SWOT analysis. You may recognize things you wouldn’t have been able to see bogged down in the details of the day-to-day operations of your business.
What is a PESTLE analysis?
PESTLE Analysis stands for Political, Economic, Socio-cultural, Technological, Legal and Environmental Analysis. Some models also extend this to include Ethics and Demographics, thus modifying the acronym to STEEPLED.
This analysis is done more from the perspective of a business which is looking to setup unit offshore and analyzing several countries to choose from.
This model primarily analyses the external environmental factors that will act as influencers for a business. To do business in any country, a business must know each of the above factors very well and how changes in any/either of these would impact business. Let us see each one of these individually in brief here.
Political Factors: Countries can have a variety of political structures. Communist countries would have social objectives above anything else while capitalist ones would not necessarily have all responsibilities of a welfare state.
Economic Factors: The economic parameters of a country such as GDP growth and its contributors, inflation and interest rates, composition of imports and exports, balance of payment and exchange rate stability, stable monetary and fiscal situation, well developed financial markets, taxation and others, will define its attractiveness as an investment destination.
Socio-Cultural Factors: The social and cultural aspects of the population of the country, such as the demographic profile in terms of age, education and skills, health, social values, lifestyle factors, all affect the choices that people make in what they buy and consume.
Cultures affect businesses in multiple ways. With young population in India, India offers different opportunities and challenges in comparison to say Japan with aging population. With the change in culture, there is a change in the economic activity as well.
Technological Factors: No dimension of life can ever be imagined today without technological support.
Technology is playing crucial role in taking businesses and society to the next level. Development of a scientific temper amongst students leads to an ever technologically evolving society.
Legal Factors: Legal architecture of the country and ability of legal system to support and protect businesses is what businesses look for in a country.
Consistency of legal aspects and no arbitrary changes give comfort to the businesses and investors both.
In India, recently the Vodafone retrospective tax case and also the cancellation of telecom licenses and mining licenses etc. have been examples of discomfort to the investing community.
Transparency in the legal environment and enforcement of laws are things which investors would favor.
Environmental Factors: Developing nations are generally bound to emit environment harming gases in the atmosphere.
A country’s awareness of environmental issues and the policies relating to pollution control, waste disposal, mining and protection of natural flora and fauna, rehabilitation of displaced local residents, are all thorny issues, which if not clearly spelt out unambiguously can lead to operational and legal issues in the future and ultimately loss of time, money and resource for a business.
Investors look for clear polices of government on these issues
How do you do a pestle analysis?
The process of PESTLE analysis is somewhat similar to that of other gap analysis tools. One may proceed with the following steps while conducting this analysis:
Determine the scope of research by stating the present situation and desired future position clearly.
Gather ample information about the different macro-environment factors that influence the organization in any way.
Arrange the data and understand the impact of changes in these macro environment elements over the business operations.
Discover the prevailing opportunities which these developments bring for the company.
Also, beware of the forthcoming dangers or risks indicated through the macro environment changes.
Disclose every bit of information related to your analysis in a report and present it in front of the stakeholders or the board of directors.
Lastly, the top management, stakeholders and the board of directors can jointly take appropriate decisions.