Tesco and the the UK Grocery Retail Industry.

As noted in the previous question and also in sync with the case, it has been seen, that the Porter’s Five Forces also influence the companies to enter into the high street stores to a great extent and the below mentioned forces help understand the reasons to a great extent. Firstly, the barriers to entry are very low in this industry. Cost advantages can be minimized by smart outsourcing of production, and doing so can allow new entrants in the market with relatively little capital requirements. As seen in the case there are several small grocery stores that are being opened every single day on the high streets. These form a great threat to the super markets. However, building an appealing brand image is crucial to success, and this is where new entrants may have difficulty. Additionally, acquiring the necessary distribution points may prove challenging as a newcomer, and so some obstacles do exist for newcomers. Secondly, considering the buyer power, the current period has had a number of issues with the buyer power of the nation. This is mainly due to the recession. However in the case of Tesco, the threat is relatively low as the company operates on providing the customers with ‘Everyday Low Prices’. Also, in the current markets, it is the consumers who dictate what will sell and what won’t – ultimately, if they disapprove of the item, then it will not be sold. Next the supplier power, as seen in the case, since there are many suppliers in the industry, and there is little room for forward integration or differentiated inputs as many of these suppliers outsource production to the same or similar factories. In this industry it is the end consumer who must accept the product for it to be successful, and with no shortage of competing brands, the supplier has a limited ability to control the market. In the case of Tesco again this is relatively low as the company does apart from the various brands also manufacture their own brands. Hence this gives them an edge and allows them to be able to cope with the supplier power. Also, the threat of substitutes is relatively low in this industry.

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