Porter’s Five Forces
Threat of Entry
Economies of scale. The grocery industry possesses the qualities of economies of scale achieved through large volumes of production resulting in costs that are relatively low thus making it very difficult for competitors to enter the industry (Barney & Hesterly, 2010). However, Whole Foods Market gained entry into this mass market in 1980 by appealing to customers through organic foods, herbal remedies, and natural skin care products (Whole Foods Market, 2010).
Product differentiation. From the lowest prices at stores like Wal-Mart, to the premium, hard-to-find (and low-cost) products found at Trader Joe’s or specialty items at Whole Foods, this industry makes it easy for new entrants to gain profits through product differentiation. Wal-Mart’s Supercenter, for example, caters to consumers by providing variety and convenience through “groceries and general merchandise under one roof” (Holz-Clause & Geisler, 2010).
Cost advantages independent of scale. Since its establishment in 1936, Giant Food stores have acquired years of valuable information (Giant Foods, 2010). Managerial-know-how, a critical component of a business's day-to-day operations, aids Giant Foods when pursuing favorable access to raw materials (Barney & Hesterly, 2010). This managerial-know-how increases competition, thus increasing the barrier to entry (Barney & Hesterly, 2010).
Government policy. The Food and Drug Administration’s (FDAs) regulations to post calories on menu and self-service items, such as made-to-order sandwiches and potato salads, are to be implemented in grocery stores across the nation by March 23, 2011 (Lord-Stewart, 2010). This new regulation, which applies to grocery/food stores containing 20 or more locations, increases the barrier to entry by increasing costs, such as the man-hours needed to calculate calories per serving (Thorn, 2010).
According to Porter, when the industry barriers are high, the threat of entry is low (Barney &...