Group No: 2

Aswin Kumar Ankit Jain Nipun V K Manikandan R Harshit Shukla Shivranjani Kumar Shruti Garg
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THE COMPANY
UKs leading supermarket retailer and worlds 3rd biggest retailer

Headquartered at Cheshunt, Hertfordshire, England

Founded by Jack Cohen in 1919 Kicked off as a group of market stalls Revenue of 64,826 billion Dominant in more than 70% of Britain Holds 31% of market share among UK supermarket retailers
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CORE COMPETENCIES
Environment friendly products Customer focused strategy
o Club card a loyalty scheme (1995)

Quality products at low price Improved labeling Self checkout

TESCOS STRATEGY - THEN AND NOW!

o Before 2010
o To grow its core UK business by Partnering strategy with existing businesses (gain access to existing investment in systems and infra., limit risk & investment) o To be a successful international retailer o To be as strong in non-food as in food o To develop retailing services such as Tesco Personal Finance, Telecoms and Tesco.com o To take account of community needs in all they do, as part of CSR

o After 2010
o o o o Be an outstanding international retailer in stores and online To grow retailing services in all possible markets To be a creator of highly valued brands To develop a team that creates more value
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KEY ISSUES
Competition
o Decrease in the market share of TESCO
o Low switching cost customers change brand loyalty during hard economic conditions o Restrictions imposed by the Competition Commission Restrictions on adding space

Increasing Competition from the remaining among big four i.e., ASDA,
Sainsbury, Morrisons. Increasing cost of Raw materials Farm produce (milk to poultry), vol. dependent Challenge to provide new product innovation & services
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RECOMMENDATIONS
Providing additional benefits to the consumers for example Club loyalty cards Proper Management of Brand value & Reputation will build trust among the consumers Integration of IT Better supplier management to reduce raw material cost

Formulating a strategy to cater to domestic market while expanding in

international market
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Q1. The FIVE FORCE Analysis

HIGH

a. Threat of substitute products and services

The threat of substitutes is considerably low for food items and medium to high for non-food items in the grocery retail market. In the food retail market the major substitutes are small chains of convenience stores, off licenses and organic shops. But this cannot be seen as a threat to supermarkets like Tesco that offer high quality products at considerably lower prices. Further, Tesco is getting hold of these shops by introducing Express stores in local towns and city centers creating an obstacle for these substitutes to enter the market. On the other hand the threat of substitutes for non-food items is fairly high. It should be kept in mind that so long as the economic recession prevails customers will be inclined towards discounted prices and hence Tesco is a threat to the specialty shops.
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b. Threat of entry of new competitors

For the food retail industry the threat of entry of new competitors is low. A huge capital investment is required in order to be competitive and to create a brand name. Tesco, ASDA, Sainsbury and Morrison are the major brands that have already captured the food retail market. They account for approx.80% of all shopping in the UK. So the new entrants have to produce something impressive at an exceptionally low price and high quality in order to create and then sustain their market value. New entrants also have barrier to entry as gaining planning authorization from local government takes an ample amount of time and resources to establish new supermarkets.

c. Intensity of competitive rivalry

The intensity of competitive rivalry in the food and grocery retail industry is very high. Tesco has severe competition from its direct competitors, including, Sainsbury, ASDA, Waitrose and Morrison, which are competing with each other over price, products and promotions every now and then. The following things about the competitors must be highlighted: The slow market growth essentially means that these increasing market shares from competitors have intensified the market rivalry, which is threatening Tescos market leadership position. In rural areas where the next-door superstore are some distance away, majority of the consumers residing in those rural areas are attracted by such retailers like Somerfield and Coop. Consumers are more interested in discount offers especially during the time of recession
ASDA is one of the key competitors in this segment with an increase of market share from 16.7% to 17.2% during the fiscal year 2009

Sainsbury

has shown an increase to 15.9% from 15.6% and Morrisons to 11.4% from 11.1% through the same period
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d. Bargaining power of buyers

The bargaining power of buyers is fairly high. The switching cost is very low in cases where products have a slight differentiation and are more standardized. The buyers can easily switch over from one brand to another. It has been proposed that customers are attracted towards the low prices. With the availability of online retail shopping, the prices of products can easily be compared and thus can be selected easily.

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e. Bargaining power of suppliers

The bargaining power of suppliers is fairly low. The position of the retailers like Tesco, Asda, Sainsbury and Morrison is strengthened further and also the negotiations are positive in order to get the lowest possible price from the suppliers. This is mainly because the suppliers are inclined towards major food and grocery retailers and dread losing their business contracts with large supermarkets.

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Q2. If supermarket retailers are all producing similar products with low switching costs, how do you account for TESCOs superior profitability?
Even where the industry have constrains the market leader can achieve profits way above average Strategic partnerships- less investment and risk, profitable business models Product diversity and international expansion reduces Tescos reliance on a single market or product line. This creates stability in the long-term which has become increasingly important in the uncertain economic environment. Customer retention techniques - Clubcard creating long-term customer loyalty.

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Q3. Although not one of the five forces, what impact might the competition

commission have on TESCOs ability to achieve superior returns? Why should the
competition commission be taking a keen interest on TESCO? Negative impact
o o o o o o Inhibits growth Cannot go for market expansion Differential effect: dominant & small retailers. lock-in period of 5 years to react to competition. Market share, growth rate will decline. All future growth in terms of new, acquired/ large extensions will not happen for Tesco.
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 Reason for the interest on Tesco

o Tighter planning rules to limit dominant market players. Tesco was the market leader
o Out of Big 4 retailers, 2 were already in mergers, CC new rules will have to focus remaining of which Tesco was the one o There were 25% small players and if Tesco go in for acquisitions with strong fist, can easily reach 50% market share o To preserve the present fragmented nature of the market

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Thank You!!
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