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macro, meso and micro business environment of Tesco
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Descriptionmacro, meso and micro business environment of Tesco
Threat of entry of new competitors
The threat of entry of new competitors into the food retail industry is low.
It requires huge capital investments in order to be competitive and to establish a brand name. Major brands that have already captured the food retail market are Tesco, Asda, Sainsbury’s and Morrisons and they account for 80% of all shopping in the UK (Mintel, 2010). Therefore, new entrants have to produce something at an exceptionally low price and/or high quality to establish their market value.
Gaining planning authorisation from local government takes a considerable amount of time and resources to establish new supermarkets and this is therefore a considerable barrier to new entrants.
Intensity of competitive rivalry
The intensity of competitive rivalry in the food and grocery retail industry is extremely high.
Tesco faces intense competition from its direct competitors, including Asda, Sainsbury’s, Morrisons and Waitrose, which are competing with each other over price, products and promotions intermittently. It should therefore be highlighted that Asda is one of the key competitors in this segment with an increase of market share from 16.6% to 16.8% during the fiscal year 2010/ 09, while Sainsbury’s has shown an increase to 16.1% from 15.8% and Morrisons to 11.6% from 11.3% through the same period (Euromonitor, 2010). The slow market growth essentially means that these increasing market shares from competitors have intensified the market rivalry, which is threatening Tesco’s market leadership position.
In rural areas where the nearest superstore can be some distance away, some primary consumers are attracted by retailers like Somerfield and Co-op .
Hard discounters like Aldi and Lidl have taken over the market in times of recession. During 2008 they recorded a growth of sales of over 25% (Keynote, 2010).
Bargaining power of buyers
The bargaining power of buyers is fairly high.
In cases where products have a slight differentiation and are more standardised, the switching cost is very low and the buyers can easily switch from one brand to another.
It has been proposed that customers are attracted towards the low prices, and with the availability of online retail shopping, the prices of products are easily compared and thus selected.
Bargaining power of suppliers
The bargaining power of suppliers is fairly low.
It should be noted that the suppliers are inclined towards major food and grocery retailers and dread losing their business contracts with large supermarkets. Hence, the position of the retailers like Tesco, Asda, and Sainsbury’s is further strengthened and negotiations are positive in order to get the lowest possible price from the suppliers.
Detailed SWOT Analysis
A strengths, weaknesses, opportunities and threats (SWOT) analysis of Tesco has been provided below.
Drawing upon Datamonitor (2010), Tesco is ranked third largest grocery retail company in the world, operating over 4,331 stores primarily within the USA, Europe and Asia. The company held 30.7% share of the UK grocery retail market in 2010 (Euromonitor, 2010).
A strong financial performance has been shown by the company over the years, which underlines its strategic capabilities. According to Datamonitor (2010), Tesco is a £ 54billion turnover company recording an increase of 14.9% when compared to 2008. The foremost strategy that has been adopted by the company is the product and services customization in accordance with the market demands. The efficiency in performance of the company over the last decade can be summarised with the help of growth in following key indicators ( Fame, 2010):
Fig 4: Tesco – Yearly Growth in Key Performance Indicators
Tesco’s strategy aims to focus on product affordability which ensures that customer gets the product to suit their budget without compromising on the quality. During 2009 the sales from online non-food retail company Tesco Direct have increased by over 50% (Tesco, 2010).
Tesco has a proven customer retention strategy with the help of its loyalty scheme called ‘ Tesco Clubcard’ . Drawing upon DunnHumby (2008), the company uses data collected from this loyalty scheme in its powerful CRM systems named Crucible and Zodiac, and this information is then used for effective direct marketing and various other promotional techniques.
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