5 Forces Analysis- Tesco
Strategic Analysis
Michael Porter’s 5 Forces Analysis is a useful tool in analysing an industry and the business strategy of a company and also helps in evaluating the overall attractiveness of the market. In this case, Tesco will be taken as an example and a 5 Forces Analysis will be conducted.
1. Barriers to entry
The barriers to entry are considerably high, in this case as, someone entering into the market would have literally no gaps to fill because of the fierce competition between Tesco, Asda, Sainsbury’s and other supermarket chains. For e.g. Tesco may have already established the market for certain goods so it will be very difficult to find cheap and reliable suppliers.
2. Bargaining power of buyers
Because the supermarket industry is an oligopoly, the bargaining power of buyers is only restricted to the major chains. For e.g. If a customer does not like the vegetables of Tesco, then they can always move to Sainsbury’s and vice versa. Therefore, the bargaining power of the buyers is decent as they can always pick the goods of competitors at any time.
3. Bargaining power of suppliers
The laws of supply and demand must be considered here. For e.g. if the supply of a certain good is low and the demand is high, supermarkets would have to buy it from their suppliers. However, if the supply is high and demand is also high then supermarkets have the choice to select the supplier offering them the best prices. Also, for e.g. Tesco have a major advantage over the small shopkeeper, as in they dictate the price they pay the supplier. Therefore, if the supplier does not reduce the price they would be left with no supermarkets that would sell their goods.
4. Industry rivalry
Even though it is an oligopoly, there is still cut-throat competition between the likes of Tesco (30.6%), Asda (16.6%), Sainsbury’s (16.3%), Morrisons (11.1%), and have most of the market share. Other chains being Waitrose, Lidl,
Michael Porter’s 5 Forces Analysis is a useful tool in analysing an industry and the business strategy of a company and also helps in evaluating the overall attractiveness of the market. In this case, Tesco will be taken as an example and a 5 Forces Analysis will be conducted.
1. Barriers to entry
The barriers to entry are considerably high, in this case as, someone entering into the market would have literally no gaps to fill because of the fierce competition between Tesco, Asda, Sainsbury’s and other supermarket chains. For e.g. Tesco may have already established the market for certain goods so it will be very difficult to find cheap and reliable suppliers.
2. Bargaining power of buyers
Because the supermarket industry is an oligopoly, the bargaining power of buyers is only restricted to the major chains. For e.g. If a customer does not like the vegetables of Tesco, then they can always move to Sainsbury’s and vice versa. Therefore, the bargaining power of the buyers is decent as they can always pick the goods of competitors at any time.
3. Bargaining power of suppliers
The laws of supply and demand must be considered here. For e.g. if the supply of a certain good is low and the demand is high, supermarkets would have to buy it from their suppliers. However, if the supply is high and demand is also high then supermarkets have the choice to select the supplier offering them the best prices. Also, for e.g. Tesco have a major advantage over the small shopkeeper, as in they dictate the price they pay the supplier. Therefore, if the supplier does not reduce the price they would be left with no supermarkets that would sell their goods.
4. Industry rivalry
Even though it is an oligopoly, there is still cut-throat competition between the likes of Tesco (30.6%), Asda (16.6%), Sainsbury’s (16.3%), Morrisons (11.1%), and have most of the market share. Other chains being Waitrose, Lidl,
References: http://news.bbc.co.uk/1/hi/business/4694974.stm Tesco PLC: Datamonitor