This essay will evaluate Porter’s
Five Forces in comparison to competition within an industry. A case study will
be used in relation to this theory to analyse the effectiveness of using this
theory to evaluate aims and objectives within an organisation. The case study
will be based on Sainsbury’s. For Sainsbury’s a competitive analysis using
Porter’s 5 forces model as support is best on the grounds that the organization
is completely fit to compete with contenders such as Tesco and Asda. The market
rivalry in the retails industry particularly in the budgetary business area has
increased due to various reasons. Therefore using Porter’s framework will
evaluate the causes of this and will help test how reliable Porter concept of
analysing an organisation progress in relation to competition.
Porter’s 5 Forces
Porter’s Five Forces is a model
that recognizes and dissects five competitive forces that shape each industry
and decides an industry’s strengths and weaknesses. As well as it distinguishes
an industry’s structure to determine corporate methodology (INVESTOPEDIA 2017).
According to Porter (1980), “a firm
develops its business strategies in order to obtain a competitive advantage
over its competitors.” This is
obtained by using Porters five forces, which are: the threat of new entrants,
competitive rivalry, the threat of substitutes and the power of buyers and
Break Down of Porters 5 Forces
Competition in the industry is related
to how many competitors there are in an industry. The more contenders, and also
the quantities of goods and services they give, the lesser the power an
organization has. Whereas when there is less competition in a certain market
the company has more power to have higher sales and profits as they are able to
set higher prices as they are a sole seller in the market.
The power of a company can be
influenced by business entering and leaving the market. An industry with a high
barrier to entry benefits organisation, as there will be less contenders the
market. This is attractive to companies as they keep a higher market share due
to the minimum amount of competition.
Power of suppliers is related to
how easily suppliers can increase the prices of goods and services provided.
Its influenced by the quantity of providers of certain features of a good or
service, how differentiated these features are and the amount it would cost an
organisation to change providers. The less the quantity of providers, and the
more an organization relies on a provider, the more power a provider holds.
Power of customers refers to the
capability consumers have to drive costs of products to decrease. It’s influenced by how many purchasers there
are in the industry and the amount it would cost a consumer to buy the product
or service from another business. The smaller and more powerful a client bases
the more powers it holds.
The threat of substitutes is the
threat other competitors substitutes product can be used instead of a company’s
product. This implies customers that find the same goods or services at a lower
cost in another industry are more likely to switch buyers leading to a
company’s power being a weakness.
Porter 5 forces are a solid device
for directing analyses of the competitive structure of an industry. Also, the
structure of the framework is valuable in key arranging and can enable an
organization to decide if to enter an industry or market by assessing the
potential for benefits. Nevertheless, the model belittles the impact of an
organization’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 forces
definition is hard to apply to substantial multinational companies with
cooperative energies and interdependencies accomplished from an arrangement of
Introduction to Case Study-Sainsbury
John James and Mary Ann Sainsbury
founded Sainsbury in 1869 leading to Sainsbury’s becoming Britain’s
third-largest food retailer with a chain of over 455 supermarkets and 301
convenience stores. As well as this it employs 153,000 people and serves over
16 million customers each week (The Guardian 2007). Statistics have shown a 17%
increase in-group sales worth up to £16.3 billion (Mintel 2017) within
Sainsbury Vision and Strategies
Sainsbury’s vision consists of them
being the most trusted retailer where consumers enjoy to shop and employees
enjoy to work. They aim to achieve this by putting their customer at the core
of all they do and continuously invest in their stores, workers and channels to
offer an ideal shopping experience (Sainsbury 2017).
Differentiating Products Further- Sainsbury’s is due to further
invest 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 will
touch 60 % of food sales in 2017. An example of Sainsbury’s differentiating is
that they have started to sell gluten-free bread. The reasons Sainsbury’s is
creating a unique brand is due to the fact that is will offer consumers a
unique reason to shop in their stores over competitors.
Developing Online- Online has never been more critical for
Sainsbury’s strategy. Progress within their industry is due to the improvements
to online shopping promoting a ‘doorstep experience’, item quality and gaining
customers loyalty. Click & collect
is currently accessible in more than 200 grocery stores and more than 30 stores
now offer same day delivery guaranteeing Sainsbury’s survival against other
competitors. As well as this Sainsbury’s new app allows for suppliers to engage
with shoppers increase satisfaction on customers.
Sainsbury’s Porters 5 Force Analysis
The retail market is highly
competitive and a concentrated market. So Sainsbury has considered starting
selling 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 share
of 22.4% in 2016 (MINTEL 2017). This implies Sainsbury’s have to exploit their
competitive advantage in more innovative ways to try out-competing Tesco.
Potential of new entrants into the industry
The supermarket industry has high
barriers to entry because of various components. This is due to the fact this
industry requires a large about of investment and constant brand improvement
which is why is take a long time for a business to develop within this
industry. Nevertheless, new entrants Lidl and Aldi have been affecting
Sainsbury’s sales. According to Morrison (2017), Lidl sales grew by 15% and
Aldi sales increased to 14.3% due to the incredibly low prices in comparison to
other supermarkets. Whereas, Sainsbury’s has struggled to compete with the
price wars reflecting on a fall of sales by 0.7%. This has lead to a decline in
profits and market share within Sainsbury’s.
Power of suppliers
All most every organization in the
retail business purchases their raw material from various providers. Dominant
suppliers can diminish the edges Sainsbury can acquire in the market. Effective
suppliers in consumer services sector utilize their negotiating power to
separate higher costs from their competitors. The general effect of higher
provider dealing power is that it brings down the general profits gains in the
industry. To outcome, this Sainsbury has built supply chains with a variety of
suppliers. As well as this Sainsbury’s has explored different ways of using
different materials so if prices of raw materials increase they will have a
cheaper alternative source to use.
Power of consumers
Power of customers in the
supermarket industry is high due to the concentrated amount of competitors
selling the same products. The only differences between the companies are the
price of goods and consumer loyalty, which is influenced by loyalty schemes.
For example, Sainsbury is partnered with the Nectar Card loyalty scheme, which
might attract consumers as give the opportunities to collect point to use for
rewards in the future. The gain of customer loyalty is extremely important for
Sainsbury’s as it increase spending of the customer in their branch.
Threat of Substitute
The threat of substitute in the
food industry is low due to the products being provided are necessities to
consumers. As well as this market is constantly innovating to increase
consumer-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’s
losing a large amount of customers.