1. 5(+1) Porter‘s forces. | |The threat of substitutes | | |Food retail industry at first seems easy to substitute, but in truth the large markets are the ones who state the prices in the market, | | |thus for such large chains like Tesco the threat of substitutes is low as due to high demand it manages to offer high quality products at | | |low costs.
Moreover, Tesco has already started to focus on opening express stores and this creates even more barriers for the substitutes | | |to enter the market. | | |The threat of entry | | |Tesco takes part among 15 largest world’s retailer chains’.
There are a few factors which determine that the threat of a new entrant is | | |fairly low: | | |Due to economies of scale, Tesco offers goods at lower prices. For new entrants it is complicated to achieve this level of sales so that | | |selling at the same level of prices would become profitable.
Therefore, a large investment is a necessity. | | |The access to supply and distribution channels is not complicated, but the demand of products is not high by new entrants and not all | | |products would be acquired at the same price as Tesco and other market’s leaders acquire. | | |Although, products are not differentiated in a food retail industry and therefore customer loyalty is not high. | |The power of buyers | | |Food retail industry is not differentiated, but standardized one which makes the customers tended to change from one brand to another as | | |switching costs are very low. Though, the buyers are not concentrated and every client is responsible for just a small amount of sales, | | |but Tesco still manages to win a large share of client’s by offering products at low costs. | |The power of suppliers | | |By ranking among the largest world’s retailer chain’s Tesco has enough control over suppliers. Tesco places large orders and takes an | | |important role in every supplier’s business this way at a certain level controlling the prices. Moving from one supplier to another is not| | |an expensive issue for Tesco, but the needs of clients should be also taken into consideration, which does not provide full access to | | |control the suppliers. | |Competitive rivalry | | |Taken into the consideration the worldwide market, Tesco has some competitors, including the discounters Aldi and Lidl and when it comes | | |the economic recession those retailers win the market share by offering goods at low prices when the quality of goods becomes not that | | |important for the customers. | |Similar size of the largest retailers and no differentiation of the products offered make the competition even more intense as customers | | |are switching between the brands easily. | | |Public authority power | | |Public authority role in this case plays a limited role.
This can appear on certain products which can be not admitted in one or another | | |country but usually can be changed by another good. Although, public authorities are able to control the prices of products and set a cap,| | |but this will be valid for all the competitors and for a large retailer it this will not create any barriers. |