1. The Five Forces Model is a tool developed by Michael Porter of Harvard Business School in 1979 that
is often used by businesses during the strategic planning process, along with the SWOT (strengths,
weaknesses, opportunities and threats) analysis to identify both internal and external forces that
currently, or have the potential to, impact the business in both positive and negative ways. The model
is designed to provide a step-by-step approach for a business to consider the things in the
environment that may impact it in both positive and negative ways - competition, related products,
suppliers, customers and how easy it may be for others to enter the business.
Step 1
Identify the competition. Every business has competitors. Consider all of the alternative choices your
customers have besides you. If you operate a dry cleaning service, what other dry cleaning services
are in your market area? What are their strengths and weaknesses? What do you know about their
business strategies and target audiences? How do you compare to them in terms of services offered
to your desired customers?
Step 2
Identify substitutes for your product or service. A dry cleaning service, for instance, would consider
washing clothes at home as a substitute. A substitute product or service represents anything that a
customer might choose over what you have to offer, including services or products that currently, or
might in the future, take its place. As an example, consider how the videotape movie rental industry
has changed over the past several years through the advent of DVDs and online services.
Step 3
Consider the power of buyers. Buyers have power, with some buyers holding more power than
others. A small consulting firm, for instance, with just a few large customers is in a position of risk. If
even one of those customers decided to go elsewhere, the consultancy might not be able to survive.
Looking at your customer mix in terms of how long they have been with you, how much they buy and
what level of impact each represents to your company can help you focus your activities more
specifically on attracting and retaining the right mix of customers.
Step 4
Consider the power of suppliers. A business' suppliers can wield a significant amount of power
over them if the cost or availability of the supply suddenly changes. Are there supplies that are
required for the production or delivery of your products or services that would represent a significant
risk to you if the supply suddenly changed? What would you do if that happened? What might you do
now to minimize the potential for that risk?
Step 5
Consider barriers to entry. Every business is at risk of gaining new competitors, but some businesses
are more immune to those risks than others. A business that produces a proprietary product based on
a unique patent that is difficult to replicate will enjoy significantly higher barriers to entry than a
hamburger stand, for instance. Considering what you have to offer, how difficult would it be for a
competitor to emerge?
Example of five forces thru retail

3. Porter’s
Five
Forces
Analysis
An analysis of the structure of the industry should be undertaken in order to find effective sources of competitive
advantage (Porter, 1985). Therefore, in order to analyse the competitive environment of Tesco, Porter’s five
forces analysis has been used by the researcher as follows:
Threat of substitute products and services
The threat of substitutes in the grocery retail market is considerably low for food items and medium to
high for non-food items.
In the food retail market, the substitutes of major food retailers are small chains of convenience
stores, off licences and organic shops which are not seen as a threat to supermarkets like Tesco that
offer high quality products at considerably lower prices (Financial Times, 2009). Moreover, Tesco is
further getting hold of these shops by opening Express stores in local towns and city centres creating
a hurdle for these substitutes to enter the market.
However, the threat of substitutes for non-food items , for instance clothing, is fairly high. It should be
noted that so long as the economic recession prevails , customers will be inclined towards discounted
prices hence Tesco is a threat to the speciality shops.

4. 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.
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 rettailer is further

5. strengthened and negotiations are positive in order to get the lowest possible price from the
suppliers.