Porter Five force model provides an analysis of the structure of retail industry in the UK in order to examine the competitive environment of Tesco in the UK retail market. Porter five force models can be described as follows:
Threat of substitute product and services: The threat of substitute products and services is considerably lower in the retail market. The substitutes of major food retailers are small chains of stores that do not prove to be major threat to large retailers (Asker & McLoughlin, 2009). Tesco provides high quality products to the consumers at reduced process and thus the threat of substitutes is comparatively lower.
Threat of entry of new competitors: Threat of entry of new competitors is also low in the food retail industry. There exists a barrier of huge capital investment to establish a brand name in the retail market of UK (Asker & McLoughlin, 2009). The new entrants have to produce something unique to establish their market value at low prices. This proves to be a major barrier for new entrants entering in the food retail market. Thus, the threat of new entrant for large supermarkets chain is significantly lower due to requirement of huge capital investment.
Intensity of competitive rivalry: The intensity of competitive rivalry in the food retail industry is comparatively higher. Tesco faces stiff competition from competitors such as Asda, Sainsbury, and Morrison that compete with each other on the basis of price and quality (Asker & McLoughlin, 2009). Tesco is facing high competition from other large retailers that is threatening Tesco market leadership position.