IntroductionThis essay will evaluate Porter’sFive Forces in comparison to competition within an industry. A case study willbe used in relation to this theory to analyse the effectiveness of using thistheory to evaluate aims and objectives within an organisation. The case studywill be based on Sainsbury’s. For Sainsbury’s a competitive analysis usingPorter’s 5 forces model as support is best on the grounds that the organizationis completely fit to compete with contenders such as Tesco and Asda. The marketrivalry in the retails industry particularly in the budgetary business area hasincreased due to various reasons.
Therefore using Porter’s framework willevaluate the causes of this and will help test how reliable Porter concept ofanalysing an organisation progress in relation to competition. Porter’s 5 ForcesPorter’s Five Forces is a modelthat recognizes and dissects five competitive forces that shape each industryand decides an industry’s strengths and weaknesses. As well as it distinguishesan industry’s structure to determine corporate methodology (INVESTOPEDIA 2017).According to Porter (1980), “a firmdevelops its business strategies in order to obtain a competitive advantageover its competitors.
” This isobtained by using Porters five forces, which are: the threat of new entrants,competitive rivalry, the threat of substitutes and the power of buyers andsellers. Break Down of Porters 5 ForcesCompetition in the industry is relatedto how many competitors there are in an industry. The more contenders, and alsothe quantities of goods and services they give, the lesser the power anorganization has.
Whereas when there is less competition in a certain marketthe company has more power to have higher sales and profits as they are able toset higher prices as they are a sole seller in the market. The power of a company can beinfluenced by business entering and leaving the market. An industry with a highbarrier to entry benefits organisation, as there will be less contenders themarket. This is attractive to companies as they keep a higher market share dueto the minimum amount of competition. Power of suppliers is related tohow easily suppliers can increase the prices of goods and services provided.
Its influenced by the quantity of providers of certain features of a good orservice, how differentiated these features are and the amount it would cost anorganisation to change providers. The less the quantity of providers, and themore an organization relies on a provider, the more power a provider holds. Power of customers refers to thecapability consumers have to drive costs of products to decrease. It’s influenced by how many purchasers thereare in the industry and the amount it would cost a consumer to buy the productor service from another business. The smaller and more powerful a client basesthe more powers it holds. The threat of substitutes is thethreat other competitors substitutes product can be used instead of a company’sproduct. This implies customers that find the same goods or services at a lowercost in another industry are more likely to switch buyers leading to acompany’s power being a weakness.
Porter 5 forces are a solid devicefor directing analyses of the competitive structure of an industry. Also, thestructure of the framework is valuable in key arranging and can enable anorganization to decide if to enter an industry or market by assessing thepotential for benefits. Nevertheless, the model belittles the impact of anorganization’s centre capabilities on its capacity to gain profits. It, rather,expects the business structure is the sole deciding variable. At that point, Porter’s 5 forcesdefinition is hard to apply to substantial multinational companies withcooperative energies and interdependencies accomplished from an arrangement oforganizations. Introduction to Case Study-Sainsbury John James and Mary Ann Sainsburyfounded Sainsbury in 1869 leading to Sainsbury’s becoming Britain’sthird-largest food retailer with a chain of over 455 supermarkets and 301convenience stores. As well as this it employs 153,000 people and serves over16 million customers each week (The Guardian 2007).
Statistics have shown a 17%increase in-group sales worth up to £16.3 billion (Mintel 2017) withinSainsbury’s. Sainsbury Vision and StrategiesSainsbury’s vision consists of thembeing the most trusted retailer where consumers enjoy to shop and employeesenjoy to work. They aim to achieve this by putting their customer at the coreof all they do and continuously invest in their stores, workers and channels tooffer an ideal shopping experience (Sainsbury 2017).
Differentiating Products Further- Sainsbury’s is due to furtherinvest in its industry to make it products stand out in comparison to its competitors.Sainsbury is currently setting out on 125 significant range surveys that willtouch 60 % of food sales in 2017. An example of Sainsbury’s differentiating isthat they have started to sell gluten-free bread. The reasons Sainsbury’s iscreating a unique brand is due to the fact that is will offer consumers aunique reason to shop in their stores over competitors. Developing Online- Online has never been more critical forSainsbury’s strategy. Progress within their industry is due to the improvementsto online shopping promoting a ‘doorstep experience’, item quality and gainingcustomers loyalty. Click & collectis currently accessible in more than 200 grocery stores and more than 30 storesnow offer same day delivery guaranteeing Sainsbury’s survival against othercompetitors. As well as this Sainsbury’s new app allows for suppliers to engagewith shoppers increase satisfaction on customers.
Sainsbury’s Porters 5 Force Analysis Competitive Rivalry The retail market is highlycompetitive and a concentrated market. So Sainsbury has considered startingselling non-food product due to a fall in grocery sales (Ruddick 2015).Sainsbury currently has a market share of 16.2% according to Kantar Worldpanel(2017).
Despite this Tesco continues to dominate the market with a market shareof 22.4% in 2016 (MINTEL 2017). This implies Sainsbury’s have to exploit theircompetitive advantage in more innovative ways to try out-competing Tesco. Potential of new entrants into the industry The supermarket industry has highbarriers to entry because of various components. This is due to the fact thisindustry requires a large about of investment and constant brand improvementwhich is why is take a long time for a business to develop within thisindustry. Nevertheless, new entrants Lidl and Aldi have been affectingSainsbury’s sales.
According to Morrison (2017), Lidl sales grew by 15% andAldi sales increased to 14.3% due to the incredibly low prices in comparison toother supermarkets. Whereas, Sainsbury’s has struggled to compete with theprice wars reflecting on a fall of sales by 0.7%. This has lead to a decline inprofits and market share within Sainsbury’s. Power of suppliers All most every organization in theretail business purchases their raw material from various providers. Dominantsuppliers can diminish the edges Sainsbury can acquire in the market. Effectivesuppliers in consumer services sector utilize their negotiating power toseparate higher costs from their competitors.
The general effect of higherprovider dealing power is that it brings down the general profits gains in theindustry. To outcome, this Sainsbury has built supply chains with a variety ofsuppliers. As well as this Sainsbury’s has explored different ways of usingdifferent materials so if prices of raw materials increase they will have acheaper alternative source to use. Power of consumersPower of customers in thesupermarket industry is high due to the concentrated amount of competitorsselling the same products.
The only differences between the companies are theprice of goods and consumer loyalty, which is influenced by loyalty schemes.For example, Sainsbury is partnered with the Nectar Card loyalty scheme, whichmight attract consumers as give the opportunities to collect point to use forrewards in the future. The gain of customer loyalty is extremely important forSainsbury’s as it increase spending of the customer in their branch.
Threat of Substitute The threat of substitute in thefood industry is low due to the products being provided are necessities toconsumers. As well as this market is constantly innovating to increaseconsumer-shopping experience. For example, Sainsbury has been working an app,which will allow customers to upload shopping lists online to making the shopping experience easier (Steiner 2015). This reduces threat on Sainsbury’slosing a large amount of customers.