Costco Case Mission: To continually provide our members with quality goods and services at the lowest possible prices. Vision: The company’s business model was to generate high sales volumes and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and select private label products in a wide range of merchandise categories. Porter’s 5 forces: Threat of new entrants: Costco has 53% of the warehouse sales; therefore we feel the threat entrants are low as they provide goods cheaper than their competitors. Product differentiation: Offering over 4000 items in a central location for one stops shopping. Their prices are significantly lower due to the bulk which they purchase items in. * Capital requirements: Capital requirements are very high as there is a high turnover in products so they pay their suppliers off within the discount period. * Switching costs: there is a membership fee of $50 for businesses annually and a gold star plan for consumers at $50 with a spouse card. Their membership’s prices are higher than the others, although Costco is offering more value priced products. Access to distribution channels: Costco has a great relationship with many distributors which would be a barrier for someone opening up a new competitive store. * Cost disadvantages independent of scale: Kirkland food has a great reputation which is Costco’s own brand. * Government policy: Licences and permits of Costco to sell products to business and consumers at wholesale costs, which could be hard to get for new entrants. * Expected retaliation: We feel Costco is a large chain and will not be threatened by any small entry competitors.
Bargaining power of suppliers: We feel they have low bargaining power because Costco is a huge company and most suppliers are willing to supply products to them for cheap prices. If any supplier does not want to supply to them, than Costco has other alternative suppliers who are willing to supply. Bargaining power of buyers: We feel buyers have high power, as they can always go to a different competitor if they choose to. Consumers are the ones who are spending their money, there is lots of competition and they can decide which stores they would rather purchase from.