Prepare an analysis of the grocery industry using Porter's Five Forces framework. For each component force provide support for your conclusion. In addition, at the completion of your analysis provide a conclusion, along with support, of whether you expect the grocery industry to report high or low profitability in the near future

Answer 1

Suggested solution:

You may want to have students think about grocery chains different strategies. For example, Wal-Mart and Kroger's seem to be attempting to be the low cost providers (fewer brand choices, less service, less attractive stores), while Whole Foods and Harris Teeter are attempting to be full service providers (many brands, nicer looking stores, more services).

Here is a suggested solution for the Wal-mart/Kroger grocery segment:

Buyer Power--HIGH--It appears that consumers are sensitive to price as many grocery chains have similar offerings in each grocery chain. There is a high level of discounting so consumers do not appear to be brand loyal. However, many grocery chains offer additional discounts to frequent buyers or members which increase brand loyalty.

Supplier Power--MEDIUM to LOW--Given that there are fewer grocery chains, due to consolidation and bankruptcies it is likely that these companies exert more and more influence over suppliers, leading to low supplier power.

Rivalry among existing firms--HIGH--There is intense rivalry among grocery chains, which is evidenced by heavy advertising and discounting/coupons. In addition, the market is mature so additional market share must come from other competitors leading to intense competition.

Threat of new entrants--MEDIUM--There have been very few new U.S. grocery chains started, however there does appear to be more non-U.S. companies entering the U.S. market. Ahold, Tesco and Aldi are foreign companies that have recently started competing in the U.S. market.

Threat of substitutes--MEDIUM/LOW--With the rise of the Whole Foods segment many consumers are going upscale to obtain better services in exchange for higher prices. The general state of the economy plays an important role in how substitutes are viewed when examining the Wal-Mart/ Kroger segment of the grocery industry.