Porter’s Five Forces Model On Retail Industry

Porter’s Five Forces Model

On Retail Industry

1.Introduction.2.Diagram of model.3.Model brief.4.Food retail industry.5.Market segmentation.6.Ranking on model.7.Analysis8.Conclusion.

Precis

• Michael Porter described a concept that has become known as the "five forces model". Using this model, business leaders can develop a strategic edge over rival firms by better understanding. Porter’s approach takes an industry vista helping you to assess, at a corporate strategy level, the attractiveness of the industry to potential entrants at a given time.

Preamble

Intensity of

rivalry

Porter’s model

• Threat of new entrants: Power is also affected by the ability of people to enter your market. Entry of potential competitors to an industry is a threat of the profitability established players.

• Suppliers:The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. The bargaining power of suppliers is also described as the market of inputs.

Forces Model

Cont……

• Substitutes:Substitutes are those products, which satisfy similar needs though appear to be different.This is affected by the ability of your customers to find a different way of doing what you do.

• Buyers:Buyers are viewed as a threat when they force the companies to charge low prices or demand higher quality and better service with their bargaining power. The bargaining power of customers is also described as the market of outputs

Cont………

Cont…….

• Intensity of rivalry:The number and capability of your competitors is very important. For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

Cont……

Food Retail Industry

• Market Definition :The food retail industry consists of the total revenues generated through food sales from supermarkets, hypermarkets, cooperatives, discounters, convenience stores, independent grocers, bakers, butchers, fishmongers and all other retailers of food and drink for off the premises consumption.

Food Retail Industry

Research Highlight

• The Indian food retail industry generated total revenues of $168 billion.

• It represents annual growth rate (CAGR) of 5.7%

• The food specialists were the industry's most lucrative segment in 2006.

Others-65.1%Food Specialists-28.8%Discounters-4.1%Supermarkets-1.4%Hypermarkets-0.7%

Market Segmentation

Potential Entrants

• The threat of new entrants is strong.• Market entry is easier for domestic players

than foreign companies.• It is a threat of the profitability of established

players. • New entrants bring in new capacity,

substantial resources and aggressiveness to gain market share.

1) Level of Government Regulation

3

2) Capital Requirment

3

3) Access To Suppliers

2

4) Existing Brand Strength.

2

5) Rate of Market Growth.

2

Potential Entrants

STRONG

3 HIGH

2 MEDIUM

1 LOW

Suppliers Power

• The bargaining power of suppliers is considered a threat to new entrants.

• Suppliers enjoy bargaining power by raising the price or reduce the quality of purchased goods and services.

• Suppliers can threaten with forward integration and compete directly with the existing firms.

1)Number of Suppliers

2

2) Importance of Industry to Supplier Revenues.

1

3) Availability of Substitute Raw Materials.

3

4) Level of Raw Material Differentiation.

2

5) Switching Costs. 1

Suppliers Power

MODERATE

3 HIGH

2 MEDIUM

1 LOW

Buyers power

• Buyers often wants high quality at lower price.

• Buyers can be viewed as weak, if they give the company the opportunity to raise prices and make more profits.

• The bargaining power of customers is also described as the market of outputs.

1)Number of buyers 1

2)Level of product 3

3)Cost of product 3

4)Number of buyer profitability

2

5)Importance of product

1

Buyers power

MODERATE

3 HIGH

2 MEDIUM

1 LOW

Rivalry

• The number and capability of your competitors is very important.

• Rivalry occurs because one or more competitors either feels the pressure or sees the opportunity to improve position.

1) Number of Competitors.

3

2) Level of Product/Service Differentiation.

2

3) Exit Barriers. 2

4) Importance of Industry to its players.

3

5) Cost of Capacity Increases.

1

Rivalry

STRONG

3 HIGH

2 MEIDUM

1 LOW

Substitutes

• The major substitutes to food retail are food service and subsistence farming.

• The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives.

1) Switching Costs. 1

2) Price of Substitutes.

1

3) Benefits of Substitutes.

2

Substitutes

WEAK

3 HIGH

2 MEDIUM

1 LOW

Analysis

1) Potential Entrants STRONG

2) Suppliers Power MODERATE

3) Buyers power MODERATE

4) Rivalry STRONG

5) Substitutes WEAK

• According to the analysis of the Porter’s five forces model ,An existing food industries may or may not face risk in their future life of business from becoming entrants. Similarly, there is very great opportunity for new industries to show their skills, but……can be chances of loosing a business due to strong competitors.

Conclusion

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