TESCO

TESCO

1. THREAT OF SUBSTITUTES

   • The threat of new substitutes is high since there are many other companies in the UK grocery industry , including Sainsburys, Lidl,Asda, Waitrose. This affects the competitive environment of Tesco and influence their ability to make profit. Customers can decide to purchase the substitute products in the stead of Tesco's product, if the substitute product quality is superior to Tesco's product quality, or better still if Tesco's product quality is superior to the substitute product. For example, the issue of MRSA strain found in Sainsbury's pork shows reduction in the quality of the product, this will make customer switch from buying Pork from Sainsbury to other stores like Tesco.
   • The availability of close substitutes in terms of stores makes UK grocery industry more competitive. Tesco as one of the UK grocery store faces more competition from other stores like;; Sainsburys, Lidl,Asda,Morrison,Waitrose and other stores in the grocery industry.
   • In terms of services provided by Tesco, for example the issuance of loyalty cards (clubcards) is not only done by Tesco as its main competitor Sainsburys also gives out loyalty cards to customers (Nectar Card). Nectar card is a close substitute of services of Tesco clubcard.
   • Competition; There are other stores apart from Tesco, stores like Lidl, Sainsburys, Asda, Waitrose. As a result of this customers can decide to shop in any of the stores apart from Tesco. If the price of a particular product is high in Tesco, customer can decide to shop elsewhere where the price is lower or cheaper compare to Tesco product. For example, the price of Tesco fresh pasta and pasta sauce is £2.30p while Sainsburys fresh pasta and pasta sauce price is £2.25p. Customers can decide to purchase their fresh pasta and pasta sauce from Sainsburys because of the difference in orice. This means the threat of new substitute could be low when substitue product is cheaper than the industry product.

2. THREAT OF NEW ENTRANTS

   • In recent year, German grocers Aldi and Lidl have also become string competiti0n in the UK grocery market. This makes the grocery and food industry very competitive for the existing competitors like Tesco, Sainsburys,Morrisson, Waitrose. This will influence Tesco as the new entrants (Aldi and Lidl) will carry out a market penetration in order to gain market share by selling existing products (groceries products, consumable items) by dropping the price of their products to attract customers. Aldi and Lidl are called the discounters due to the low price of products they offer.
   • The threat of new entrry into the food retail industry could be low as it requires more capital in order to have band name and to gain market share and to be able to compete within the industry. The big four supermarket in which Tesco is part, includung Sainsburys, Asda and Morrisons account for 70.1% of all shoping in the UK (Statista 2016). Therefore new entrants have to come up with something special,new that will be of high quality especially in the form of price.

3. BARGAINING POWER OF SUPPLIERS

   • Suppliers of Tesco have lots of competitions as there are many suppliers in the grocery and food industry. The bargaining power can be low because Tesco can choose from which supplier to purchase products from and since there is no significant cost to switch supplier. For example in 2013, the issue of the horsemeat scandal made Tesco drops Irish supplier over the horsemeat found in the burger, And the issue of the the superbug found in the pork in Sainsburys will make the supplier lose customes.
   • The issue of BREXIT could also affects suppliers ,for example British farmers because they depend on EU subsudues. Without the EU subsidies many of them would go out of business (Spectator 2016). When supermarkets fights for market share and they keep food prices artificially low, this makes farmers need subsidies to survive. A litre of milk,for example costs a farmer about 30p to produce, but the supermarket pay the farmer an average of 23p. This is why the number of diary farmers has halved in the past decade from 20,000 to 10,000 and why 2,000 more are expected to go bust this year. (Spectator 2016). At present farmers recieve subsidies and other payments under the Eu's Common Agricultural Policy(CAP). They get about £3bn a year subsidies with the biggest farmers pocketing cheques of £1m. (BBC 2016)
   • The supply chain of the supplier can also be affected, because of bad weather condition. When there is bad weather the distribution is always low, especially in the UK when there is snow supplier do not supply goods.For example, when there is snow and there is ice everywhere it makes it difficult for farmers to cultivate crops, it makes it difficult for the suppliers to supply vegetables, fruits to Tesco and this will affect Tesco as products might not be available at the needed time. Bad weather makes the bargaining power of suppliers low.
   • Supply Side Policies: The government can decide to increase productivity through; Fiscal policy, Monetary policy, Subsidies. The UK government is trying to help to stimulate growth. For example, UK government promises to replace EU funding concerning the BREXIT. (The Parliament Magazine 2016).

4. RIVALRY AMONG COMPETITORS

   • Competition within the food and grocery retail industry is extremely high. Tesco faces lots of competition from its direct competitors, which includes Sainsburys, Asda, Morrisons and Waitrose. Competition exist between these companies in the form of price differention,products, different types of marketing mix. Sainsburys is one of the main competitors in the food and grocery retail industry with a market share of 15.9%,while Asda has shown 15,7%, Morrisons with 10.4%.

5. BARGAINING POWER OF BUYER

   • Switching Cost: The switching cost of customers is low and this make the bargaining power of Tesco's customers high since they can decide to switch to other stores like Sainsburys, Lidl, Asda, Waitrose depending on their choice and satisfaction.
   • Availability of Substitutes:The availability of close substitutes of Tesco product available in other stores makes the bargaining power of Tesco's customers high. Also the products sold by grocery stores are the same ,there is no much difference in the products as it involves green groceries like vegetables,fruits. The product customers can get in Tesco are also available in Sainsburys and other stores.
   • The bargaining power of buyer is also high as buyers decide the price of products. If Tesco should increase the price of a particular product customers can decide to shop in other stores like Lidl and Aldi where prices are low.

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