Porters: Tesco and Bargaining Power Essay

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The bargaining power of suppliers Analysis
The UK supermarket industry would not be capable of running without suppliers to stock their shelves. This means that the bargaining power of suppliers is an extremely important force to look at in depth, as, if the bargaining power of suppliers is high it makes the industry less attractive as the suppliers will be able to push prices up and take control of the supermarkets power. There are many different elements that are looked into to analyse to the full extent of the bargaining power of the suppliers which are looked at below:
Porter states that suppliers are more powerful "if there are only a few suppliers" (Lynch, 2009: 97). With the supermarket industry they have to deal with a large number of suppliers of goods and products that they will stock in their shops. This means they are in constant communications with different suppliers. This means that the UK supermarket industry are in a very strong position, as there are thousands of different products and ranges this means the supermarkets can pick and choose their suppliers depending on price, quality and service, meaning the bargaining power of suppliers in this sense is not high as they need to get there products into the supermarkets and therefore need to have contracts with huge Supermarkets like Tesco and Asda. However, Tescos and many other supermarkets have started to create relationships and good working ethics between themselves and suppliers. For example Tesco have created a 'supplier partnering approach' which is "by forging long-term partnerships with our suppliers and identifying new innovative suppliers" (Tesco, 2009) which " as a result, our supply base is distinguished by its long-term constructive relationships" (Tesco, 2009. Tescos has over 1,5000 suppliers who have been working with them for over five years, this shows that Tescos has learnt that working in co-operation with the suppliers causes better relationships as has Simsbury's who have recently launched there 'supporting fairtrade' campaign.
"If there are no substitutes for the suppliers they offer" (Lynch, 2009: 97) it is said that the suppliers are more powerful as they will exert there power if they know they do not have anyone to compete with, therefore setting higher prices and in the case of supermarkets holding power over them. In the supermarket industry this can be looked at from two different views as most Supermarkets offer a range of different brands to substitute each other along the same line, for example Supermarkets stock both Nestle and Kellogg's cereal, so in that respect they do have different substitutes within product lines but in this case the supermarkets and branded products both need each other. The brands need to get shelf space to gain market share and the supermarkets need to offer the products being marketed to the consumer to attract customers into the shops. Due to the huge market shares of the main supermarkets the suppliers have little bargaining power at all.
Porter also believes that "if suppliers prices form a large part of the total costs of the organisation" (Lynch, 2009: 98) then the bargaining power of the supplier is high. This means that if suppliers prices were to be raised then the supermarkets in this case would also have to raise their prices and they would be adversely affected. In the case of the UK supermarket industry, the top supermarkets are not affected by the suppliers prices changing as the suppliers have such large dependency on the supermarkets for contracts and repeat business meaning they are in some ways controlled by the prices the supermarkets are willing to pay as the power they have means they can just find another cheaper supplier. However, with the smaller supermarkets they do not have as much control as the supplier's price will affect them and they may not have the higher market share meaning they cannot exert any power over the suppliers as they can choose to supply the bigger
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