Supermarketsindustry sell a broad range of products to consumers and businesses includingfood, apparel, hardware, household goods, and office supplies, between others.Main players in USA are Kroger, Costco, and Walmart. International companies areCarrefour, ALDI, Schwarz and Tesco (Hoovers, 2018). I am concentrating in Krogerand Publix.
Conventionalsupermarket companies compete in the industry market share with severaldomestic and international competitors, wholesalers and discounters like Costcoand Walmart, internet retailers like Amazon, and meal kit delivery companies(like Chef’d). Disruptors include online competitors (like Amazon),discounters, and the change of consumer tastes and judgments of value for theirparticular needs and the shifting trends in new product availability and the mechanismof delivery, new technologies, and other factors. Globalfood retail sales surpass $4 trillion annually, according to the US Departmentof Agriculture and industry sales are projected to increase 6.
1% annuallythrough 2020, pushed by population growth and the rising acquisitive power incountries like India and China (Hoovers, 2018). Porter’s five forces of competitionframework (Figure 1) assess the industry profitability determined by fivesources of competitive pressure (Grant, 2016). The rivalry between brands is”a major determinant of the overall state of competition and general levelof profitability” (Grant, 2016). I perceived this force to be very high becausedirect competitors are challenging each other on products, price, andpromotions constantly. In times of slow market growth, this rivalry is evenmore intense due to low demand, threatening the leadership position that eachbrand has in the marketplace. Bargaining power of buyers, whichis “the ability of buyers to drive down the prices they pay, depends upontwo factors: their price sensitivity and their bargaining power relative to thefirms within the industry” (Grant, 2016). I observe it is very high in thesupermarket industry. Products with low differentiation and higher standardizationcreates an opportunity for buyers to switch from brands due to lower cost,specially knowing the customer desirability for low prices, and now with theavailability of online retail shopping, prices of products are very easy to compare,and choices become more rewarding for customers knowing they are getting agreat value for their chosen products.
Amazon play a key role in driving someof the supermarket products prices down, offering even free shipping, in somecases delivering same day, which creates a switching of costumers fromtraditional stores. I am a current Amazon Prime customer and found it is very viableto order most of dry foods and cleaning online, either from home or office, gettingmost of them in 2 days or less. It is very handy as I can skip driving to thestore, even enjoying free shipping (embedded into the annual membership). Threat of substitutes in supermarketsindustry is low for food items, with substitutes like small convenience stores andorganic shops that are not seen as a jeopardy by established supermarkets; for nonfoodrelated items, like clothing, the threat is considerably high; but medium forothers nonfood related items.
Bargaining power of suppliers is verylow. Suppliers trend to be very competitive with large supermarket chains into pricenegotiations, maintaining or even lowering prices to compete, creating afavorable environment for this industry. Threat of new entrants in supermarketsis very low as well. It involves large capital investments to compete as establishinga new branding footprint. New competitors need to create products at exceptionallylow prices and with great quality to consolidate in the new market playground. Also,to obtain authorization from local government in order to plan the businessrequires a sizeable amount of time and assets to establish new supermarkets,creating an immense barrier to new entrants. One of the Key Success Factors(KSF) in the supermarket industry is the number of unique Stock Keeping Units(SKUs). While presenting large volumes and diversity on SKU can be seen likeoffering more to customers and satisfying their needs, it results on higherexpenses due to large SKU counts, which generate higher costs due to expensiveexpansions for distribution centers, higher levels of inventory, higher volumeof suppliers to administer, and considerable effort to keep stocking.
The largest controllable expensein Supermarkets (and retails in general) is labor, and the second key successfactor in the industry, which is investing heavily in labor planning technologiesto increase accuracy on more efficient schedule to ensure the right staffing insynch with sales operations. Overheads and other indirect costs (includingutilities, rent and rates) is the third factor, in some cases treated as uncontrollableexpense, but they are in the long term controllable, even though treated as fixedand indirect cost, it provides room for improvement and profitability whenconsidering cost cutting measures on favorable cost benefit analysis. Another key success factor is thesupply chain management, a strategic supermarket controlling function, which maintask is to provide the appropriate number of products on shelves within themost cost-effective way. Very successful supermarkets outsource their logisticsfor secondary distributions centers to third party providers of logistics. The fifth key success factor is relatedto capital expenditures, related to the acquisition and maintenance of thestores and warehouses, either new or existing, and the efficiency on the rightinvestment is a key component in this industry, especially in a highlycompetitive environment. The CAPEX analysis for new and existing stores has tobe considered independently to produce an efficient assessment, but it issometimes challenging to make deductions in this element in view of the diverseoutlines, maintenance requirements, sectors and demographic profiles. An additional key success factor isrelated to online platforms investments that attract more customers and even maintainexisting customers.
Large bricks and mortar retailers had already investedheavily setting up online channels, gaining competitive advantage by keeping thenew channel independent from core operations, which might have been a decision takenby the initial times of online retailing, to keep managers focused on theircore business (Neil-Boss & Etal, 2013). I have a personal experience withPublix, which is using a third-party provider to deliver groceries within 2hours to my residence, ordering in the convenience of home using an online platform,which allow to strengthen the relationship with customers, offering additionalalternatives to keep up with the boom of online shopping, enhanced by Amazon,between others. References Dun & Bradstreet Database. (2013). Retrieved from https://logon-onesource-com.proxy.library.
ohio.edu/homepageRedirection.asp Grant, R. (2016). Contemporary Strategy Analysis, 9th Edition. Wiley.
United Kingdom. Hoovers Database, 2018. Retrieved from http://subscriber.hoovers.com.
proxy.library.ohio.edu/H/search/industrySearchResults.html Neil-Boss, N., Duffy, J.
, & Watson, I., (2013). Six Success Factors for a Tough Market. Ernst & Young.
Retrieved from http://www.ey.com/Publication/vwLUAssets/Retail_Operations_-_Six_success_factors_for_a_tough_market/$FILE/EY_Retail_Operations_-_Six_success_factors_for_a_tough_market.pdf Figures Figure 1: Porter five forces of competition include: 3 horizontal competition sources: substitutes, new entrants, and established rivals, and 2 vertical competition sources: suppliers power and buyers power. Source: Grant, 2016.