Question

Assume you have a half million dollars to invest to start a business. Perform a Porter’s Five Forces analysis for the grocery retail industry in the US. List each of the five forces as low threat, medium threat or high threat. You should write a paragraph for EACH force explaining your analysis and give supporting arguments for why you came to that conclusion for each of the forces. At the end, use this Porter’s Five Forces analysis to determine if grocery retail would be a worthwhile investment for your money.

Answer 1

Company: Walmart

Competition : Costco, Amazon, Kroger, Aldi

Bargaining power of Suppliers - Many suppliers in this segments offer low cost services which means bargaining power is less for suppliers.

Bargaining power of buyers- Since Walmart operates either in perfectly competitive market or Oligopolistic market across globe, buyers have higher choices and hence higher power.

Threat of New Entrants- Since new entries from lowcost providers can eat up Walmart share due to ease of taxation and licensing, threat is higher substantially.

Threat of rivalry between existing firms- This is comparatively very high as margins are wafer thin and innovation is constantly evolving making it difficult for the industry as whole. Firms have higher capex availability and credit availability leading higher competition.

Barriers to entry- Large initial investment, high marketing and distribution spends, constant innovation are biggest barriers. Changing tax laws, FDI regulations, consumer appetite dwindling, subdued to economic performance are all barriers for new players.

All in all it is difficult and low margin high differentiation industry making sustainable growth a big challenge and hence retail industry is not recommended considering future potential being gloomy.