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Porter Analysis Grocery Industry Badalamenti

The grocery industry generates over $650 billion and employs 4.8 million people, with a market growth of +0.3% in 2021. A Porter Analysis reveals challenges such as the threat of new entrants, customer power due to undifferentiated products, and intense rivalry among competitors, while also highlighting the importance of location and customer loyalty. Key takeaways emphasize the need for businesses to consider both positive and negative factors in their strategic planning.

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0% found this document useful (0 votes)
11 views12 pages

Porter Analysis Grocery Industry Badalamenti

The grocery industry generates over $650 billion and employs 4.8 million people, with a market growth of +0.3% in 2021. A Porter Analysis reveals challenges such as the threat of new entrants, customer power due to undifferentiated products, and intense rivalry among competitors, while also highlighting the importance of location and customer loyalty. Key takeaways emphasize the need for businesses to consider both positive and negative factors in their strategic planning.

Uploaded by

Duc Nguyen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Grocery Industry

Porter Analysis
MBAD-635A Business
Policy
Elizabeth Badalamenti
Presentation
Overview
• Industry Overview
• Porter Analysis
• Threat of New Entrants
• Customers
• Suppliers
• Threat of Substitutes
• Rivalry Among Competitors
• Porter 5 Forces Graph
• Key Takeaways
• Questions
Annual Grocery Sales (billions)

Industry
Overview
• Generates over $650 billion
• Consists of over 38,000
businesses
• Employs 4.8 million people
• +0.3% market growth in 2021
• Ranked 13th largest U.S.
industry
Highest Overall Customer Preference
Threat of New Entrants (+)
• Anyone Can Open a Store (-)
• After purchasing a retail space and making connections with suppliers,
it’s possible for anyone to open their own grocery or convenience store.
• Many Barriers to Entry (+)
• While it’s possible to open a store, it’s not easy. Opening a store
requires a good amount of capital and access to distribution channels.
• A new grocer also needs to create something special that sets them
apart from trusted big-name establishments, which isn’t easy to do.
• Challenging to Compete (+)
• Established stores have a stronger customer base as well as access to
more capital, allowing them to make large wholesale purchases to
reduce the price of the product.
• Reputation & Loyalty (+)
• Once people find a store they like, it’s not likely they’ll frequent a new
store.
• Shopping at a new store requires the customer to familiarize
themselves with a new store layout, budget for different prices, and try
new product brands.
Customers (-)
Average Annual Household
Consistent Customer Base (+)
Grocery Expenditures
• People will always need groceries, regardless of economic
conditions.
• As seen on the graph to the left, annual spending is also trending
upwards.
Undifferentiated Products (-)

• Specialty and private label foods aside, most grocery stores carry
the same products. This gives customers a good deal of buying
power, as there are plenty of buying options.
• There isn’t an incredible difference in price for these products
which makes for low switching costs.

Easy Access to Information (-)

• Thanks to online shopping, it’s easy for customers to compare


prices.
• The internet provides a wealth of information on a company’s
products. If a customer were to read a poor review on a store’s
product, they likely won’t shop there
Suppliers (+)
• “Big name” Brand Influence (-)
• Brand-loyal customers will not shop at a store that
doesn’t carry favored products by Tide, Kleenex, Kraft,
etc.
• This forces grocery stores to cater more to the
demands of these suppliers.
• Control of Product Prices (+)
• Big-names aside, suppliers are competing for shelf
space and are willing to cater to the grocers’ price
demands in order to have it.
• Without shelf space, they suppliers won’t make a profit.
• Numerous Suppliers (+)
• Excepting big-name brands, there are many brands for
grocers to choose as their supplier.
• Low Labor Expenses (+)
• While it’s important to pay corporate employees well to
assure the company is led in a positive direction, store
associates can be hired at lower wages.
• While the turnover rate is high at 64.9% for non-
management, part-time employees, rehiring is not
challenging as their positions generally require minimal
skills and education.
Threat of Substitutes (+)
• Increased Desire for Fast Food and Restaurant Dining (-)
• As people become vaccinated and restaurants reopen,
there will be a decrease in grocery spending as more
people eat out.
• People want a break from the meal-prepping and
cooking they’ve done for the past year.
• Repeated Dining Out is Unhealthy and Expensive (+)
• Trends show that people are becoming more aware of
the food they put in their bodies. Fresh, at-home
cooking provides a healthy alternative to fast food.
• After cooking more in quarantine, people have
developed the necessary skills to cook more advanced
dishes.
• Decreasing Unemployment Rates (+)
• With promises of a vaccine bringing people back to
work, fewer people are utilizing food pantries and
homeless shelters and are able to pay for their own
groceries.
• Customer Loyalty (+)
• Once people find a store that provides the products they
need at a price they can afford, they usually return
week after week.
• Location, Location, Location (-)
• Given the average American visits the grocery store 1.6
times a week, they don’t want to travel far to get there.

Rivalry Competitors who are located closer to customers will


receive their business.

Among
• While there is generally less competition in rural areas,
in suburban and city landscapes there are countless
grocery options.

Competitors • Advertising Expenses (-)


• Large grocery chains spend millions of dollars on

(-) advertising every year to uphold their image, which


heavily impacts their bottom line. Comparatively,
discount grocers have very small advertising budgets.
• Product Costs (-)
• Large companies are able to obtain products for a much
lower cost than smaller grocers, making it challenging
for them to compete.
• Customers perceive price as one of the most important
factors when shopping, so it is imperative to keep them
low… no one wants to spend their entire paycheck on
household essentials!
Threat of
New
Entrants
+

Porter 5
Forces
Competiti Customer
Suppliers
ve Rivalry s
+
- -

Graph Threat of
Substitut
es
+
Key Takeaways

Variations Within the Industry Outweighing Pros and Cons Future Planning

A factor that may be negative for a large While a category may have several positive Seeing how competitors function and how
corporation may be positive for a small aspects, a few significant negative factors easily future competition can enter the
business in the same industry. For example, can outweigh them. It’s important not to market helps a business prepare and plan
a large grocer must spend a lot in disregard these when analyzing a business. for the unexpected.
advertising while a discount grocer does
not. This said, it’s important not to
perceive an industry analysis as applicable
to every business within it.
Questions?
• http://panmore.com/whole-foods-market-five-forces-analysis-porters-model
• https://marketrealist.com/2015/10/porters-five-forces-analysis-for-the-us-
grocery-industry/
• https://www.statista.com/statistics/237211/average-food-expenditures-of-
united-states-households/
• https://www.statista.com/statistics/251728/weekly-number-of-us-grocery-
shopping-trips-per-household/#:~:text=Grocery%20shopping%3A%20U.S.
%20consumers'%20weekly%20trips%20per%20household
%202006%2D2019&text=The%20primary%20grocery%20shopper
%20in,trips%20per%20week%20in%202019.


https://www.porteranalysis.com/porters-five-forces-model-of-aldi/
https://howandwhat.net/porters-five-forces-analysis-uk-supermarket-
industry/
Sources
• http://fernfortuniversity.com/term-papers/porter5/analysis/2922-the-kroger-
co-.php
• https://smallbusiness.chron.com/employee-turnover-grocery-15810.html
• https://www.grocerydive.com/news/8-trends-that-will-shape-the-grocery-
industry-in-2021/592574/
• https://www.washingtonpost.com/road-to-recovery/grocery-supermarket-
trends-food-2021/2020/12/23/6bd06636-43d8-11eb-b0e4-
0f182923a025_story.html

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