OPPapers.com

Tesco A Case Study

Tesco structure > Porters five forces at Tesco PLC
Porters five forces at Tesco PLC
Porters five forces are named after Michael Porter. Strategic analysis of these forces can tell you a lot about a company.


A Porters five forces analysis can complement other techniques, like a SWOT analysis. A SWOT analysis focuses on the company, while a Porters five forces analysis looks at the external factors impacting on a company.
Porters five forces are listed in the left margin. Degree of Rivalry is emboldened because it is the central force, which involves all the other forces.
Porters five forces at Tesco PLC
Classical economics predicts that rivalry between companies should drive profits to zero. This is part of the threat of substitutes. For instance, Tesco has competition from companies like Sainsbury that can provide substitutes for their goods. This drives the prices of groceries down in both companies.

Buyer power also acts to force prices down. If beans are too expensive in Tesco, buyers will exercise their power and move to Sainsbury. Fortunately for Tesco, there are few other large supermarket companies. This means the market is disciplined — the supermarkets have a disciplined approach to price setting. Discipline stops them destroying each other in a profit war.

Another of Porters five forces, supplier power, is wielded by suppliers demanding that retailers pay a certain price for their goods. If retailers don't pay the price, they don't get the goods to sell. Large supermarkets, like Tesco, have an overwhelming advantage over the small shopkeeper—they dictate the price they pay the supplier. 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, Asda, Sainsbury and other supermarket chains put up considerable barriers to entry. Anyone starting up a new supermarket chain has barriers imposed on them, implicitly or explicitly,...