Tesco Company Overview:
Tesco is a multinational grocery and general merchandise retailer which operates the largest chain of supermarkets in the United Kingdom, with over 1250 stores. It also has an online presence and provides financial services to shoppers and small businesses. The company was founded by Jack Cohen and Thomas Jackson as a wholesale operation in London in 1919. From the beginning Tesco aimed to provide value for money and was known as a “pile it high, sell it cheap” shop. Today we are going over Porter’s five forces model analysis of Tesco.
Tesco Competitive Rivalry:
Tesco has little direct competition in its primary retail sector; while some of its stores are situated near competitors such as Sainsbury’s, Asda and Morrisons, in many areas Tesco is the only major supermarket. The closest rival for online sales at the moment is Amazon. Tesco’s main competitor within grocery retail in the UK is Sainsbury’s, which has a 28% market share compared to Tesco’s 27%. For general merchandising (GM), Tesco’s main competitor is Asda, which has a 16% market share compared to Tesco’s 31%.
Tesco Bargaining Power of Suppliers:
Tesco receives its merchandise from a variety of suppliers. In the UK only a small number of those products are branded as such. All other products fall under the Tesco brand. Suppliers include branded and unbranded food, drink and household products. The main suppliers of groceries to Tesco in the UK are:
• Unilever: Dishwashing liquid, washing powder and fabric softener
• Coca-Cola Company: PepsiCo – Cola beverages (Diet Coke®, Fanta®, Sprite®, Schweppes® and others)
• Danone: Penguin mints, Actimel yogurt drinks and Evian water
Tesco’s main supplier of GM products is Procter & Gamble, which supplies a range of branded household goods.
Tesco Bargaining Power of Buyers:
In the UK there are many different grocery retailers all competing for the customer’s business. There is no dominant player in this market; Tesco represents about 27% of the total UK food market, Sainsbury’s accounts for 28%, Asda 16%, Morrisons 13%. This means that Tesco does not have much bargaining power against its customers – if it fails to keep its prices low, customers can easily shop elsewhere. Tesco is a latecomer in the online retail sector; it only began to sell products online in September 2010 under the Tesco Direct brand. This means that compared to its competitors Tesco has little bargaining power against its customers due to the short history of this business line.
Tesco Threat of New Entrants:
Since the supermarket market is so competitive, new entrants have little to gain from entering this market. The larger Tesco becomes as a retailer, the harder it will be for any rival with comparable aspirations to enter the UK grocery sector. An entrant may determine that starting small and expanding gradually is a more effective way of competing, as it allows the company to better understand both the market and its own capabilities. In this situation Tesco has very low potential threats from new entrants as they have been operating for over 60 years in the UK and have many years experience being a leader in their industry.
Tesco Threat of Substitutes:
TESCO’s products are mainly grocery and household goods, which means that the retailer is exposed to the threat of substitutes. Consumers can easily switch from one product or retailer to another if they feel they will benefit from doing so, and this exposes Tesco to a threat of substitution.
Tesco is exposed to a high level of substitute for its grocery and household goods, such as:
• Supermarkets: Sainsbury’s, Asda, Morrisons.
• Convenience stores: Cooplands Food & Wine Ltd., Spar Group Plc., Euro Garages plc.
• Cash and carry operators: Costco Wholesale Europe Ltd., Booker Group Plc.
• Online pureplay retailers: Amazon.co.uk, The Hut Group Ltd., Cdiscount SA, Amazon Inc.
Tesco Porters Five Forces Conclusion:
From the above analysis it can be seen that Tesco is a very strong and stable company, with little threat from new entrants or substitutes. The main threats to Tesco come from its competitors, who are all fighting for a share of the UK grocery market. Tesco has a strong market position and is able to use its bargaining power to negotiate with suppliers and keep prices low. However, the company needs to be aware of the threat from its rivals and continue to invest in its online presence in order to stay ahead of the competition.