Trader Joe’s PESTLE Analysis
Detailed PESTLE analysis of Trader Joe’s examining political, economic, social, technological, legal & environmental factors.
Political Factors:
Trader Joe’s is an American grocery stores chain and is spread over 42 states and has over 500 stores in the US. The chain is subject to income tax laws in the US. Any change in the laws, such as increase in tax or more regulations could have a material impact in the financial performance of the business. For example, the US government passed the Tax Cuts and Jobs Act in 2017. This law made significant changes in the taxation policy applicable on US companies. There are certain aspects of the Act, for which more clarity is awaited from the tax authority. While the company has made its own estimates, it may have to make changes in due accordance with the law. Moreover, the company is subject to domestic audits. Also, it faces the risk of retrospective or prospective taxation due changes in law. This may result in the company paying more tax than estimated, affecting its profitability.
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This concludes the political factors in the Trader Joe’s PESTLE Analysis.
Economic Factors:
Below are the economic factors in the PESTLE Analysis of Trader Joe’s:
Trader Joe’s chain is affected by macroeconomic trends. Increase in interest rates can make borrowing more difficult or costlier than before.
There are other factors also such as hike in petroleum products’ prices, including crude oil, natural gas, gasoline, diesel fuel, increase in costs for electricity and energy, slowdown in US housing market, inflation, deflation, increase in the cost of essential products and services, increase in unemployment rates, decrease in consumer discretionary spending, reduction in consumer credit, increase in tax rates, increased tariffs on international trade, recession in the economy can significantly affect the financial performance of the business due to decrease in demand. For example, the spread of the pandemic, Covid-19 has adversely affected many economies. It has led to job losses. This implies reduced disposable income in the hands of the consumers. Furthermore, if the government measures like fiscal stimulus are not adequate to lift the economy, it could lead to prolonged periods of less growth, affecting the sales of the company.
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Social Factors:
Following are the social factors impacting Trader Joe’s PESTLE Analysis:
Consumers have become more conscious of brands’ stance on social issues. Even symbolic acts supporting or rejecting such causes can affect the demand of the products of the brand. In 2020, the nationwide protests lead to asking the brand to rename some of its products. The petitioners criticized the labelling and said the company was promoting stereotypes. The company strongly defended its labelling as an attempt to show appreciation for other cultures. Such perceptions may dilute the reputation of the brand and decrease its sales. In recent years, many consumers are purchasing online on e-commerce sites. However, Trader Joe’s still doesn’t have a digital presence and this could negatively affect the sales of the brand in the future.
Technological Factors:
The technological factors in the PESTLE Analysis of Trader Joe’s are mentioned below:
Trader Joe’s is one of the least technologically - evolved chain stores. It doesn’t allow options of digital shopping, and has limited brand offerings also. The stores still have diagonal hallways and this allows consumers to have better visibility of the products. However, post-Covid-19, these strategies may not hold for long. More consumers prefer to purchase online. Consumers are increasingly purchasing on e-commerce stores like Amazon. Moreover, many of its competitor brands like Target, Walmart, Costco, Whole Foods Market, etc. already have a digital presence. These rival brands are also enhancing their digital presence to engage with their consumers. Hence, Trader Joe’s lack of online presence may impact its financial performance in the future, due to reduced demand of its products. Also, the brand spends no amount on above-the-line and below-the-line advertising. They only showcase products in the monthly paper, Fearless Flyer. However, the future of retail presents many opportunities in technological landscape like AI, VR, etc.
which the brand may lose out on.
Legal Factors:
Following are the legal factors in the Trader Joe’s PESTLE Analysis:
Trader Joe’s has to ensure compliance with laws related to safety and packaging disclosures of products. Any non-compliance may result in punitive action on the company. For example, a US court ruled the chain store to pay settlement against a customer complaint. Thus, any future cases could increase litigation costs of the chain, and increase contingent liabilities for the same. This could adversely affect the profitability of the company. Many compliance policies & laws which bound this sector is something which the company needs to take care of.
Environmental Factors:
In the Trader Joe’s PESTLE Analysis, the environmental elements affecting its business are as below:
Trader Joe’s is infamous for its lack of transparency regarding source of its products. The retailer also scored poorly in Green America’s chocolate scorecard as it does not share much information regarding child labor and deforestation due to sales of its chocolates. To protect the environment, they focused on designing a process to track and repair refrigerants. Even after this even, the company is yet to share details on the progress achieved so far. Moreover, the retailer received lowest scores in Climate-Friendly supermarket scorecard, conducted by the Environment Investigation Agency.
The agency assessed Trader Joe’s steps taken to reduce its use and emission of high-GWP, HFCs in refrigeration equipment. Such actions can increase environmental cost of compliance in the future. It can also lead to a negative perception in the minds of consumers and lead to reduced demand.
To conclude, the above Trader Joe’s PESTLE Analysis highlights the various elements which impact its business performance. This understanding helps to evaluate the criticality of external business factors for any brand.
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