This research analyses the explanatory and descriptive limitations of strategic groups research, a theory that addresses a number of important issues for strategy research. That is, it considers rivalry among firms in a similar competitive environment, the relation between strategy and performance and similarities and differences among competing firms. An historical study of the origins and development of strategic groups research shows that the concept of strategic groups was independently developed in strategic management and industrial organisation in the mid-1970s. Much research has been conducted since its inception. However, this research has been mainly empirical in nature. Empirical research has not brought unambiguous findings with regard to some of the fundamental hypotheses of the theory of strategic groups. This has led researchers to raise fundamental questions about the usefulness of the concept of strategic groups. A number of approaches emerged in the 1980s that question some of the fundamental hypotheses of strategic groups theory. Our analysis shows that each approach has its limitations and that strategic groups theory is still the most comprehensive approach, addressing a number of issues of interest for strategy researchers. Given the problems identified at both theoretical and methodological levels, an exploratory approach is used in this research. An historical analysis of the dynamics of firms’ strategies and competitive structure in the UK grocery retailing industry between 1980 and 1995 is used to gather information. This forms the basis of the analysis of (a) the importance of similarities and difference in the strategies of comparable firms and (b) for understanding the mechanisms underlying industrial and business dynamics. The empirical research shows the severe limitations that characterise strategic groups at analytical, descriptive and theoretical levels. The information gathered in the empirical research is an important basis to start thinking about developing a better approach to analyse and explain the dynamics of firms’ strategies and competitive structures.