The analysis of the UK supermarket and Tesco
The role of supermarket is becoming far more significantly in daily life. Consumers could see different kind of brands and variable goods. The role of the supermarket is tried to satisfy the consumers’ demands. Since the supermarket came out, the advantages such as low price and cost, much convenience made the supermarket develop quickly. As a consequence of the rapid development, the supermarket plays an important role in the retail industry. It not only saves large amounts of labor capital and operating cost, but improves the shopping environment. In this essay I will make a specific analysis of the UK supermarket system through economic theories. Firstly, I will analyse the situation of the UK supermarket via Five Forces Model (Michael Porter 1979). And then, I will select the largest supermarket in UK, Tesco, to analyse the strategy of this firm by using the value chain (Michael Porter 1985).
Tesco is the largest British retailer both by global and domestic market share. And it is the third largest retailer in the world followed the Wal-Mart and Carrefour. Tesco opens around 2,440 stores and employing more than 400,000 people. Tesco has entered into areas such as clothes, electronics, financial services, internet services and gas stations. Currently, the market share of the retailer in UK is more than 30 percent. As of March 2008, Tesco could be found in every postcode of the UK.
Five forces analysis
The aim of the five forces model illustrated by Michael Porter (1979) is to analyze an industry to determine that which forces can influence the industry strongly so that the firm could make the best position in this industry. And the five forces include: the threat of new entrants; the power of buyers; the power of suppliers; the threat of substitute products and the competitive rivalry among the existing companies.
Threat of new entrants
Firstly, the threat of new entrants is rather low. It is pretty difficult for new entrants to enter the UK supermarket because of many barriers such as economies of scale, capital requirements of entry, cost advantages, differentiation, etc. There are many supermarkets in UK and the four largest Tesco, Sainsbury's, Asda and Morrison account for 75.6 percent of the UK supermarket in the 12 weeks ending 1 November 2009 (Wikipedia). For new entrants, it is difficult to occupy the market share of the UK supermarket in current structure. The first barrier is that small scale of supermarket could not create high margin. It is necessary for the entrants to consider the capital requirement according to the large scale of the operation.
Many supermarket firms like Tesco and Asda have the cost advantages in supplication factor and other economic factors. It makes a large barrier for new firms to enter the market because of the disadvantages in cost requirement. Comparing the existing firms, the new enters need more cost and capital to establish the new brand and the access to marketing channels in order to attract the consumers. The existing supermarkets have built the famous brands, stable consumer groups and distribution channels. The strength of the brand name and channels could be a very powerful mean to build a barrier to entry. In order to keep the market stable, government also has the ability to establish a barrier. For instance, if the government can make a determination that how many supermarkets could be established in one region, as a result, the entrants will not be limited to build new facilities. And the new entrants may require many licenses from the government of other legal branches in order to operate. That is also a type of barrier for entry. The existing companies will make a specific analysis aim at the threat of the new entrants and then publish relevant measures to prevent the entrants to enter the supermarket system. There are so many barriers for new entrants to enter the supermarket system...
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