Porter's Five Forces analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. TESCO is UK's largest retailer, having around 1900 stores in UK alone and more than 2700 stores employing over 370,000 people worldwide, with group sales crossing m 37,070 worldwide at the end of financial year 2005. An international retailer of food, non-food and retailing services, Tesco currently operates in the China, Czech Republic, France, Hungary, Japan, Malaysia, Poland, Republic of Ireland, Slovakia, South Korea, Taiwan, Thailand, Turkey and the UK. Michael Porter's Five Forces have become a yardstick for assessing industry profitability. They are;
Customers' bargaining power: Buyer power acts to force prices down. I apples are too expensive in Tesco, buyers will exercise their power and move to Sainsbury. Fortunately for Tesco the market has a disciplined approach at the moment which stops the competitors from destroying each other in a profit war. Growing competition within the retail supermarket has forced TESCO to diversify in many other areas and products including overseas ventures. While it is true that nearly 80% of group sales and profits come from the UK business, it is equally true that the buyer now has more options in the form of Asda/ Wal-Mart and Sainsbury.
Suppliers' power: This is the power wielded by suppliers demanding that retailers pay a certain price for their goods to sell. Large supermarkets like Tesco have the overwhelming advantage over the small shopkeepers - they dictate the price they pay the supplier (while the small shopkeeper has to make adjustments as demanded by suppliers) If the supplier does not reduce the price, they will be left with no retailers to sell to, Tesco and the other large supermarkets will have all the customers. Tesco buys its own brand products from suppliers. All products are supplied to Tesco in a finished state. The suppliers buy the raw materials for their products from a variety of other suppliers, producers, growers or farmers and then process the product in some way to produce the finished product that Tesco sells. So, Tesco does not buy directly from any primary producers, growers or farmers. But now there is a general perception gaining the ground that it is squeezing the value out of its supply chain. For the moment this might not matter to its customers and shareholders who, it seems, are happy enough with its "pile it high, price it low" approach. But the supermarket chain needed to look at positioning itself so that, if perceptions did start to change significantly, it did not get its fingers burnt.
Competition: Holding a number one position in the retailing business in UK for quite a while a now, TESCO has started feeling the heat of growing competition from the likes of ASDA and Sainsbury the number two and three respectively. As of June 2006, Tesco has 31.1% of the UK grocery market while