Tesco Plc is a British public limited company dealing in the retail industry and providing services in the form of supermarkets, hypermarkets, and superstores across the country and other areas of Europe. In context to the retail segment, the company was founded in 1919, having its headquarters in Hertfordshire, England, United Kingdom. As of 2019, the corporation showed substantial revenue of 64.760 Billion Pounds and has involved an employment figure of almost 423,000 (Tesco, 2020). The firm is operating over a vast network of around 7000 locations worldwide. From the global retail industry perspective, the assessment of Porter’s five forces would be a practical means for maintaining appropriate strategies to better understand the company standing position.
Competitive Rivalry in the Market
The competitive rivalry in the retail industry is high due to the community’s increased demand for and supply of commodities to meet basic needs. As a result of this increase, a number of groups and companies have captured the market to provide multiple platforms for the customers to purchase from, resulting in fierce competition among established players. The major competitors of the group are Sainsbury’s, Asda, Morrisons, Aldi, and The Cooperative. As of December 2020, Tesco is considered the consistent market leader in terms of the grocery market share of 27 percent. In comparison, others are fighting behind with 15.7, 14.1, 10.3, 7.7, and 6.3 percent of the grocery market share, respectively (Statista, 2021). Hence the existence of such big names in the industry makes the environment more competitive for each other in terms of operations.
Threat of Substitutes
The threat of having substitutes is typically low in the retail industry because, in order to meet the demand and supply of groceries and other food products, retailers are considered key players. There are a few alternatives to retail stores products that are commonly accessible. However, the differentiating factor of a limited selection of substitutes makes it difficult for customers to switch away from Super chains-branded products. Furthermore, some alternatives are more costly than the store’s low-cost items & services. The use of advanced technology and the influence of online shopping and e-commerce have changed the way of doing business and making more aware (Pantano et al, 2017), but it cannot be termed an alternative for retailing. Therefore, the risk of substitutes in the retail sector is minimal.
The Threat of New Entrants
The threat of new entrants in the retail business is usually high as even in the presence of retail giants, and emerging store businesses can simply enter the market. Small businesses might come into the market and participate in convenient accessibility, locality, specialty, and other reasons. However, the capital is not considered the issue as retail products can be set up as per the requirement of new entrants that could be either on a small or medium level. Although the floor space requirement could be a barrier to entry for new startups (Sadun, 2015). It increases a sense of healthy competition among firms due to the nature of the retail industry. Hence, the new entrant likelihood is high.
Bargaining Power of Buyers
The Bargaining power of customers in the retail industry’s perspective is high because there are various vendors in the market; people can purchase from whichever one they like. Furthermore, the product offers, and prices of such groceries and outlets are comparable, resulting in a significant level of buyer power. The awareness of the customers has increased due to the internet channels regarding the product prices and offers, which influence the buying behavior of customers. Also, there is no binding to shop from a specific retailer, and the switching cost is low among retailers, further increasing consumer power (Stan, 2015). Therefore, consumers have more influence in the context of the retail industry.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the industry is considered to be low to moderate because of the presence of a large number of suppliers in the industry, which usually have a low impact on firms. Furthermore, Individual Suppliers have a reduced effect on large retail firms. In addition, a large number of suppliers compete for a limited room in retail outlets. The increased supply capacity makes it challenging for suppliers to have an effect on the successful growth of the company, which allows them to hold specific authority over them (Wang, Tang and Zhao, 2018). Thus, supplier power of bargaining in context to the retail industry is kept low to moderate.
References
Tesco, 2020. Annaul Report. [online] www.tescoplc.com. Available at: https://www.tescoplc.com/media/755761/tes006_ar2020_web_updated_200505.pdf.
Statista, 2021. Great Britain: Grocery market share 2017-2021 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/280208/grocery-market-share-in-the-united-kingdom-uk/.
Pantano, E., Priporas, C.V., Sorace, S. and Iazzolino, G., 2017. Does innovation-orientation lead to retail industry growth? Empirical evidence from patent analysis. Journal of Retailing and Consumer Services, 34, pp.88-94.
Sadun, R., 2015. Does planning regulation protect independent retailers?. Review of Economics and Statistics, 97(5), pp.983-1001.
Stan, V., 2015. Antecedents of customer loyalty in the retailing sector: the impact of switching costs. Journal of Applied Business Research (JABR), 31(2), pp.371-382.
Wang, Y., Tang, W. and Zhao, R., 2018. Information sharing and information concealment in the presence of a dominant retailer. Computers & Industrial Engineering, 121, pp.36-50.