The competitive environment:

Porter’s five forces:

Michael Porter provides a framework that models an industry as being influenced by five forces.
The Five Forces can help us in understanding the competitive environment and the retail industry in
Denmark as well as how should Tesco act in this market. The different economic forces are
described and analyzed in the following:

Rivalry in the industry:

The Danish retail market is highly concentrated, with food retail accounts for an estimated €16.8
billion.

There are two market leaders: Dansk Supermarket (which operates the Bilka chain of hypermarkets,
Føtex, Netto, as well as Tøj and Sko, A-Z department stores and Døgn Netto) and Coop Danmark
( which operates Kvickly, Kvickly Extra, Super Brugsen, Dagli Brugsen, Local Brugsen, Coop
Brugsen, Irma and Fakta).

Each of the key retail players have their own pricing strategy, however the difference in pricing in
the Danish retail industry it isn’t that significant. For Tesco the main competitor would be Føtex,
because Føtex is the one, who has the more market share.1

There are 78 Føtex stores, where there are selling a wide range of products, beginning from food to
non-food products. Every week there is a promotion, a price reduction for some products, so Tesco
should implement a good pricing strategy as well if they want to gain market share from the
competitors.

First they should set up a Tesco Superstore, which is a standard large supermarket, stocking
groceries and a smaller range of non-food goods and are the biggest between all Tesco stores. This
would help them too in the rivalry, because people enjoy to do their shopping in big centers, where

1 http://www.bordbia.ie/eventsnews/ConferencePresentations/FoodDrinksIndustryDayCountryO
verviews/Denmark%20Market%20Overview.pdf
they can buy everything in the same place. If with time they will have success, they can set up other
kind of Tesco stores, like Tesco Metro, Tesco Express and One Stop shops.

Entry barriers:

One of the entry barriers is the VAT, which is 25 % on food, 25 % on alcohol 2 in Denmark. This
could be a problem for Tesco, because in the other countries where Tesco is operating the value
added tax is much more lower. Denmark is one of the countries with the highest VAT, alongside
Norway and Sweden and that´s why most of the Danes are going to Germany, to make their big
shopping.

Another problem for Tesco would be the wages in Denmark, because the minimum wage is high, so
this could be a disadvantage for the company.

Buyers:

Denmark has a population of 5,45 million people, the unemployment rate is 4,1´% 3, which is good,
because that means that people have the money to satisfy their basic needs of food and clothing.

Danish people are buying quality products, another important thing for them is the trust in the
product, so Tesco should be careful at this point. Competitors like Bilka, Føtex, Netto etc. are
sending out every week brochures with promotion of their products, so Tesco should adapt this
strategy too or come up with a better idea to gain the competitor’s customers.

Suppliers:

Tesco should look for suppliers in Denmark for the fresh product category, like vegetables, meat,
eggs, fruits, milk etc, because it is almost impossible to transport them from UK or from another
country. The non-fresh products they can transport from the UK suppliers or from countries where
is cheaper than UK.

In Denmark the business is based on long term relationships, where the parties are having trust on
each other, but adapting this behavior won’t be a problem for Tesco, since we know that the

2 http://www.bordbia.ie/eventsnews/ConferencePresentations/FoodDrinksIndustryDayCountryO
verviews/Denmark%20Market%20Overview.pdf

3 http://www.tradingeconomics.com/Economics/Unemployment-rate.aspx?symbol=DKK
company is supporting their suppliers to achieve to grow with them and to be a profitable business
for both of them.

Substitutes:

If Tesco would have prices like the competitor Føtex, than the substitutes would be shops like
Netto, Lidl, Rema 1000. Anyway we can’t conclude this clearly, because of the weekly promotions
of the shops. There are a lot of products which are for ex cheaper in Føtex in one week and
expensive in Netto and than in the next week exactly the inverse.

Conclusion:

If Tesco will enter to the Danish market they will have to face two market leaders: Dansk
Supermarket and Coop Danmark. From them first of all Tesco will have to compete with Føtex,
because Føtex has the more market share.

Tesco should set up a Tesco Superstore where customers can find anything from food to non-food
products. They can attract customers by sending out brochures with promotion of products, like the
other competitors do.

In Denmark the VAT is 25 %, which is high compared to other countries, perhaps that’s why most
of the Danes are doing their bigger shops in Germany. The wages are high too in Denmark, which
from one side is a disadvantage for Tesco, because it has to pay a lot of money for the employees,
but on the other hand it is a benefit, because that means that people have money to satisfy their
basic needs to buy food and clothes, taking in consideration the unemployment rate too.

Tesco will have to find suppliers for their fresh products, like meat, eggs, fruits, vegetables etc.,
they have to find local suppliers and have relationships built on trust, because that’s how business is
working in Denmark.

The non-food products Tesco can deliver from the U.K or from an Eastern-European company
where Tesco is also doing business.