Threats of New Entrants are Low in the Grocery Store Industry
There are significant barriers to entry in the grocery store industry that prevent new entrants from taking market shares from preexisting giants, such as Kroger and Whole Foods. Economics of scale are prevalent in this industry, forcing any potential competitors to overcome large upfront costs to be able to compete in terms of pricing. In addition, there are strong exit barriers. Companies have large investments in property, inventory and distribution channels that they are not willing to lose in order to leave the industry. Finally, local farmers are not likely to gain a large force in the industry, as many are not willing or able to invest in obtaining certifications from the government.
Industry Rivals Compete on Many Fronts for Differentiation
Competitors in the grocery store industry must compete on many facets, including price and inventory, to obtain a competitive advantage. Many stores are following suite with Whole Foods and moving into the organic food markets. Whole Foods and Trader Joe’s are in the forefront of this market, but stores like Kroger, Walmart, and HarrisTeeter are adding organic aisles and increasing their natural product supply. Companies are also competing over variety of food. Many companies are attempting to amass a variety of products from a multitude of cultures and climates to enhance the consumer experience. Lastly, grocers compete on brand strength. Consumers often show allegiance to one particular store, so companies must generate a large base of loyal customers.
Trend Toward Healthier, More Natural Products
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Grocers are obtaining organic certificates from the USDA so that they can penetrat...
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...tive Summary Whole Foods Has Experienced Impressive Revenue Growth
For the past 25 years, Whole Foods has experienced doubledigit growth in its revenue. The company accomplishes this consistent growth in revenue through its stable growth in stores. This rate hovers around 14% growth each year, allowing Whole Foods to keep rent expenses under control while expanding revenue opportunities.
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Rent Expenses and Profit Margins May Have Adverse Effects on Revenue
Whole Foods is currently experiencing shrinking profit margins year over year due to increasing rent expenses and heightened industry competition. Rent expenses have increased anywhere between 4% and 7% each year for the past four years. In addition, profit margins have decreased by 3% over the past four years due to negative pressures on price in the competitive industry.
They anticipate competition between supermarket chains will be fierce this year as food prices continue to stay low. The Canadian grocers have been grappling with declining food prices, especially for meat, and Loblaw’s said “The notion of a shift into a steady inflationary environment is going to be offset by what we see as a continued level of competitive intensity”
The food market business is usually a difficult one, but online retailer Amazon's proceeding to purchase high-end chain Whole Foods changed the landscape. The new corporation is currently reducing prices, as well as Amazon is managing to reduce costs by taking its online expertise
My organization, Trader Joe’s, is not an international business. Their stores are all located in the United States; therefore, I chose Whole Foods, who is a main competitor of Trader Joe’s for this assignment.
The threat of rivalry is high because there are several firms in the industry such as Safeway, Sobeys, Atlantic and Pacific, Metro, convenience stores, and online grocery shopping. Moreover, with the addition of Wal-Mart in the mix this increases the threat among the rivalry which will cause an intense price rivalry. This is also caused by firms unable to different their products in the industry, in this case they are forced to compete on the basis of price which will result in price competition.
The retail grocery industry consists of the following strategic groups: grocery chains, small and large discount grocery (e.g. Dollar Stores and Walmart), wholesalers, and fresh-focused and specialty markets. Trader Joe’s could be categorized as a specialty fresh-focused store and it is often compared to Whole Foods, another organic store, defining it as its key competitor. Yet, it still competes with the large grocery retailers and now, Amazon grocery services.
This is due to the symbiotic relationship Walmart has to its consumers, they are able to offer lower prices in more locations and consumers desire affordability and proximity. Despite the obvious domination of the economy by Walmart, less conventional producers and consumers are present and on the rise. Local rather than global and small rather than large, the increase of these less conventional manners of production can be seen in the increase abundance of farmers’ markets, Community Supported Agriculture (CSA), and community gardens. Farmers’ markets are common areas where farmers meet on a regular basis and sell various fresh produce directly to the consumers. The number of farmer’s markets between 1994 and 2014 has increased from around 2,000 to 8,000 (ers.usda,gov). Farmer’s offer an aesthetic that Walmart cannot provide—the opportunity to be personable. The consumer is able to see who grew the food, ask how it was grown, and will not be dazzled by fancy packaging or
Store Development and Growth Strategy: Prior to 2002, Whole Foods’ strategy for expansion meant the acquisition of smaller, similar chains. The obstacle here was that acquisitions proved to be very limiting in square footage as well as location. Since 2002, Whole Foods has sought to develop and build individual stores to avoid these limitations, allowing the company to operate stores as large as 50,000 square feet.
Oliver’s market competes with rivals by its pricing strategy. They set their everyday prices on traditional grocery items eight to ten percent below Safeway’s prices. They also price its natural foods just below Whole Foods. Beside that they use promotion and advertising as another weapon to compete in the market. They have a Direct to You program that offers a ten percent discount to seniors on Wednesdays before 4:00 p.m. They also have a staples program which compares prices to Safeway for everyday items.
The framework that will compare Publix Super Markets and its competitors is the Five Forces Model of Competition. The five aspects that will be discussed are the threat of new entrants into the market, the bargaining power of suppliers and buyers, threat of substitute products and rivalry among competing firms. Striving for the optimal position in each of these categories has given Publix Super Markets the reputation it has pride towards earning. It is important to every compa...
First and foremost, competitive rivalry describes the intensity of competition between existing firms in an industry. In the fresh food industry, the intensity of rivalry is influenced by different characteristics. Price constitutes an important point. Firms in this industry can raise on lower prices to gain a temporary advantage. Prices are heterogeneous because they depend on sales volume. Big companies can reduce their prices by this way. An other factor is experience: buyers are reassured when a firm is involved in the business for many years. Brand identification tends to reduce rivalry. However, there are high levels of product differentiation which is associated with low levels of rivalry. Indeed, fresh food industry is characterized by a lot of diversity. We can find many recipes available in different sizes and volumes, for every taste and budget, and Fresh Connections is in this case. There are also specialized products, for example low-fat meals and nutritional health products. Quality plays an important role in this industry too. People who appreciate a product will buy it again easily.
Kraft Food Group has some areas in which it can grow. The company needs to fix its debt-to-assets and debt-to-equity ratios. The profit margin has been sporadic for the last five years. This is not a good trend for the company. This industry has some very external factors that can devastate the profit margin such as drought and other Asian market trends that can hurt the bottom line for this industry and company. Weather cannot be controlled. This company has a lot of different products which can be good by not putting all of your eggs in one basket approach. This can also lead the company to be stretched and pulled into many directions. The food industry can be a very up and down market because of external forces. Kraft Food Group has some problems with putting chemicals in some of their products that are now prohibited by the government. Kraft Food Group has food scientists, engineers and chemists to combat these chemicals and to develop new products and provide consistent quality of products so they can grow through sales and profits. Kraft Food Group has a high standard of quality and respect from its customers. Kraft Food Group could lose financially by food contamination. This company will continue to grow in the future if they continue to make improvements, make investments, and produce quality
Challenges in Today's U.S. Supermarket Industry. 2014. Challenges in Today's U.S. Supermarket Industry. [ONLINE] Available at:http://msdn.microsoft.com/en-us/library/aa479076.aspx. [Accessed 31 March 2014].
The food and staples retailing is an increasingly competitive industry. The market giants (competitors) are Coles (owned by Wesfarmers) which has 741 stores across Australia and plans to add 70 m...
...nal supermarket retailers will reinvent themselves over a period of time, in order to attract and maintain a loyal customer base. New concepts, neighborhood marketing, and innovation will be the key to success over the next decade.” (Imlay, 2006) What is propose is that a smart mix of products, perhaps catering to demographic tastes and needs, may tempt the shopper not drive out to the big box store, but instead loyal to their local market.
7-Eleven has emerged as a clear market leader in terms of competition with similar convenience stores because of its highly customer focused orientation and implementation of various information systems adding to its differentiation strategy. Rivalry is further reduced because of the switching costs buyers' face with the presence of customized goods. The organization does not possess high fixed costs and this discourages competitors from manufacturing with price cuts. However, there are still a few competitor that gives an impact to the market. Such as the strong convenience store in US, Wall Mart. In Malaysia, the regular competitor is KkMart Store. In fact, nowadays there are many independent retailer who are trying to compete in the market of convenience store.