Tesco bargaining power of buyers
Strategic Analysis
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.
- 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.
- Bargaining power of buyers
Because the supermarket industry is an oligopoly, the bargaining power o
...f 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.
- 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.
- 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, Iceland, Somerfield. Therefore, competition is tough between these supermarket chains and they are always competing with each other. (BBC).
- Availability of substitutes
Due to tough competition in the market, it is easy to find substitutes of products in the market. For e. g. prices of groceries are comparatively different when comparing Tesco and Sainsbury’s. Therefore, substitutes are easily available for customers in the market.
A SWOT Analysis can also be done for Tesco in order to assess their business performance.
Strengths (Datamonitor)
Increasing market share – currently holds a 13% share of the UK retail market and will be expected to continue growing in food and also in non- food areas. Tesco online – tesco online is the world’s biggest online supermarket and it is a major source of revenue for them as more than a million households use the online service.
Weaknesses (Datamonitor)
Over reliance on UK market- although the international business is still growing, Tesco is highly dependent on the UK market as almost 2/3rds of the revenues are generated from this. This could be harmful in the long term.
Opportunities (Datamonitor)
Tesco is investing heavily in areas such as banking, insurance and housing.
Expansion in Europe and in health and beauty. Threats (Datamonitor) International expansion is expensive – requires heavy investment and marketing and extra distribution and operation expense. Overseas investment may not yield the desired profit because of economic climate, business model
or competitors’ action. The above frameworks are a good indicator of how competition is shaping up in the industry and also what steps a company needs to take in order to capitalize their current position in the market.
References
- http://news. bbc. co. uk/1/hi/business/4694974.stm Tesco PLC: Datamonitor
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