Essay on Porters 5 Forces on Tesco

Tesco's has recently had to make many changes in their staff and have had to change the management structure to be able to pay every manager fairly and pay the wages for their general employees. These effects were taken place due to a major profit change and an unstable financial system. Another effect that has been changed is the Tesco pension scheme back in 2012. The Tesco pension scheme had changed due to financial problems however this would mean employees who have a pension scheme with Tesco will have to work longer if they were in their early 60's . This became a challenge for Tesco's as they couldn't afford to pay out on pension schemes at that precise moment.

The Competition Act 1998 states that you must not agree to fix prices or terms of trade, or discriminate between customers. In the supermarket sector there are many types of business like Sainsbury’s including: Tesco, Morison’s, Aldi, Lidl, Asda and Marks & Spencer’s Food this shows that competition is strong in

The main factor in an oligopolistic market is that there are only a few dominant competitors in the marketplace. According to Anderton (2008: 322), 'An oligopolistic market is one where a small number of interdependent firms compete with each other '. For this assignment I’ve chosen to focus on the UK super market industry as there is clear evidence that the UK supermarket sector is increasingly dominated by four main firms. These are Tesco’s, Sainsbury’s Asda and Morrison 's.

The market in which Tesco operates is supermarkets. Although this is a highly competitive one Tesco holds a disproportionate amount of power. The figures below indicate that Tesco holds over a third of the market share, and even double the amount of Asda 's market share, the second leading supermarket. Market share is ‘the percentage or proportion of the total available market or market segment that is being serviced by a company ' (Wikipedia 2006).

Most businesses need a supplier of some sort, Tesco and Sainsbury’s are no different. Tesco Plc are an extremely large organisation, and therefore need to keep expenditure to a minimum, as if supplier costs get too high then profit margins will undoubtedly decrease, meaning prices will have to go up in order to retain a sustainable

Tesco also have social factors that affect them, as the business have charity centre in helping the less privilege people and the more these people gets poor, the more they will have to stretch to help out which also spending money.

Supply and Demand change frequently and Tesco 's is currently in a state of disequilibrium. There is an issue that relates to demand due to the desirability of a product, and is unlikely that income will increase enough to cause a change in the demand, therefore Tesco have to create product that are desirable.

The UK supermarket industry resembles an oligopolistic industry, with several characteristics. Oligopolistic markets tend to be characterised by high concentration ratios, barriers to entry and…Since the turn of the century, the industry has been scrutinised by both the Office of Fair Trading and has been referred to the Competition Commission on two occasions. (Seely, 2012)

Since acquiring number one ranking in 1996, Tesco has developed a successful multiformat strategy that has accelerated its advantage. Its UK sales are now 71% larger than Sainsbury’s. Also the Competition Commission’s report makes it very difficult for a competitor to challenge its scale and has effectively scuppered Wal-Mart’s chances of stealing UK leadership. Therefore, Tesco is in an enormously strong position in its domestic market.

By doing so, they have placed more of an emphasis on non-food products – clothing, photolabs, televisions, flowers, pharmaceutical products, etc. – which have higher profit margins than Tesco’s traditional source of revenue, groceries. From here, Tesco differentiates its subsidiaries from its previous owners by aggressively negotiating with local suppliers, implementing its customer loyalty program, adding gas stations to the property, opening its stores for 24 hours and by offering discount brands to go along with its “good, better, best” value pricing strategy (Corporate Watch Site). Also, within the past two years Tesco has been outsmarted by Asda and Sainsbury in price-comparison initiatives and targeted marketing campaigns in UK. This has lead to trailing growth trends and stagnating market share for Tesco as displayed in Exhibit A (Tesco UK PDF). This is in turn, places more of an emphasis on the company’s growth and profitability in foreign markets.

There are three fundamental rivals of Tesco and the superstore sector including, Sainsbury’s, ASDA, and Morrison’s and they apply multiple tactics independently to attracting the customers. The strategy of Sainsbury’s for its customers is on delivering an effective service quality, whereas ASDA is engaged in procuring value for its customers and these competitive attempts employed by the Tesco’s rivals are creating the issue of managing price and quality of its commodities (Which, 2012). Moreover, the customers of Tesco independently have an insignificant amount of strength in terms of the entire corporate strategy of the company (Tesco, 2011a). Nevertheless, customers jointly exposed meaningful strength because of the little expenditure and convenience in transferring to another brand (Tesco, 2011a). The past records of Tesco showed that the vendors appeared reluctant to trade with Tesco, which ultimately influenced Tesco to reduce prices as the company deals with numerous agriculturists instead a sole broad supplier (Independent, 2011). Nowadays it is very complex for non-established retailers to ensure survival in the marketplace because of the significant control of Tesco on the marketplace which taught newly entrants to modify the behavior they execute trading involving the improved part of cooperatives and they reveal the risk of fresh companies and this will be a fundamental aspect for Tesco to determine its expected competitive strategy

Tesco had achieved measurable success in the UK market which was highly regulated and competitive. Due to regulatory pressures, Tesco focused on its operations and capital investment within UK, which also led to opportunities in the international markets as they were a profitable business.

Small convenience stores are appearing within the grocery industry therefore supermarkets are opening small scale shops in local towns and city centers. Tesco represents a giant proportion of the supermarket industry therefore private shops can not be placed anywhere they can only be substitutes. Tesco has enormous buying power so local retailers find it impossible to compete. On average Tesco contracts with wholesalers are 11.5% cheaper than for private independent retailers. Londis (the corner shop) stated its cheaper to purchase brands from Tesco and resell them rather than buy from wholesalers.

Threat of substitute products: We are a market or sector is not attractive when there are many

The core strategic advantage for Tesco is the brand value and reputation. The retailer has been able to establish a strong brand name that is famous throughout the world. The company invested in carefully branded packaging that has built it a strong brand image. The company also has a good brand image due to the high quality and trustworthy products and customer services that represent excellent value. According to Jenkins and Williamson (2016), the company has focused more efforts on re-engineering their services and products that have ensured a more efficient delivery of broad range of goods to customers and better management of product lifecycles. The company has been innovative enough to enhance the quality of products and improved the shopping experience