Supermarkets Department of Agriculture and industry sales

Supermarkets
industry sell a broad range of products to consumers and businesses including
food, apparel, hardware, household goods, and office supplies, between others.

Main players in USA are Kroger, Costco, and Walmart. International companies are
Carrefour, ALDI, Schwarz and Tesco (Hoovers, 2018). I am concentrating in Kroger
and Publix.

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Conventional
supermarket companies compete in the industry market share with several
domestic and international competitors, wholesalers and discounters like Costco
and 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 their
particular needs and the shifting trends in new product availability and the mechanism
of delivery, new technologies, and other factors.

 

Global
food retail sales surpass $4 trillion annually, according to the US Department
of Agriculture and industry sales are projected to increase 6.1% annually
through 2020, pushed by population growth and the rising acquisitive power in
countries like India and China (Hoovers, 2018).

 

Porter’s five forces of competition
framework (Figure 1) assess the industry profitability determined by five
sources of competitive pressure (Grant, 2016). The rivalry between brands is
“a major determinant of the overall state of competition and general level
of profitability” (Grant, 2016). I perceived this force to be very high because
direct competitors are challenging each other on products, price, and
promotions constantly. In times of slow market growth, this rivalry is even
more intense due to low demand, threatening the leadership position that each
brand has in the marketplace.

 

Bargaining power of buyers, which
is “the ability of buyers to drive down the prices they pay, depends upon
two factors: their price sensitivity and their bargaining power relative to the
firms within the industry” (Grant, 2016). I observe it is very high in the
supermarket industry. Products with low differentiation and higher standardization
creates an opportunity for buyers to switch from brands due to lower cost,
specially knowing the customer desirability for low prices, and now with the
availability of online retail shopping, prices of products are very easy to compare,
and choices become more rewarding for customers knowing they are getting a
great value for their chosen products. Amazon play a key role in driving some
of the supermarket products prices down, offering even free shipping, in some
cases delivering same day, which creates a switching of costumers from
traditional stores. I am a current Amazon Prime customer and found it is very viable
to order most of dry foods and cleaning online, either from home or office, getting
most of them in 2 days or less. It is very handy as I can skip driving to the
store, even enjoying free shipping (embedded into the annual membership).

 

Threat of substitutes in supermarkets
industry is low for food items, with substitutes like small convenience stores and
organic shops that are not seen as a jeopardy by established supermarkets; for nonfood
related items, like clothing, the threat is considerably high; but medium for
others nonfood related items.

 

Bargaining power of suppliers is very
low. Suppliers trend to be very competitive with large supermarket chains into price
negotiations, maintaining or even lowering prices to compete, creating a
favorable environment for this industry. Threat of new entrants in supermarkets
is very low as well. It involves large capital investments to compete as establishing
a new branding footprint. New competitors need to create products at exceptionally
low prices and with great quality to consolidate in the new market playground. Also,
to obtain authorization from local government in order to plan the business
requires 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 like
offering more to customers and satisfying their needs, it results on higher
expenses due to large SKU counts, which generate higher costs due to expensive
expansions for distribution centers, higher levels of inventory, higher volume
of suppliers to administer, and considerable effort to keep stocking.

 

The largest controllable expense
in Supermarkets (and retails in general) is labor, and the second key success
factor in the industry, which is investing heavily in labor planning technologies
to increase accuracy on more efficient schedule to ensure the right staffing in
synch with sales operations. Overheads and other indirect costs (including
utilities, rent and rates) is the third factor, in some cases treated as uncontrollable
expense, but they are in the long term controllable, even though treated as fixed
and indirect cost, it provides room for improvement and profitability when
considering cost cutting measures on favorable cost benefit analysis.

 

Another key success factor is the
supply chain management, a strategic supermarket controlling function, which main
task is to provide the appropriate number of products on shelves within the
most cost-effective way. Very successful supermarkets outsource their logistics
for secondary distributions centers to third party providers of logistics.

 

The fifth key success factor is related
to capital expenditures, related to the acquisition and maintenance of the
stores and warehouses, either new or existing, and the efficiency on the right
investment is a key component in this industry, especially in a highly
competitive environment. The CAPEX analysis for new and existing stores has to
be considered independently to produce an efficient assessment, but it is
sometimes challenging to make deductions in this element in view of the diverse
outlines, maintenance requirements, sectors and demographic profiles.

 

An additional key success factor is
related to online platforms investments that attract more customers and even maintain
existing customers. Large bricks and mortar retailers had already invested
heavily setting up online channels, gaining competitive advantage by keeping the
new channel independent from core operations, which might have been a decision taken
by the initial times of online retailing, to keep managers focused on their
core business (Neil-Boss & Etal, 2013). I have a personal experience with
Publix, which is using a third-party provider to deliver groceries within 2
hours to my residence, ordering in the convenience of home using an online platform,
which allow to strengthen the relationship with customers, offering additional
alternatives 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.