1. Is the U.S. grocery industry an attractive one?
There are two sides of this industry.
Firstly, U.S. grocery industry is not very attractive for following reasons.
1) Buyer’s bargaining power is strong. Customer does have negotiating leverage since the kinds of product in grocery stores are pretty standard, including food, drugs etc. So the switch cost for customer is very low. Also, because the grocery cost is one of the biggest spending buckets, the customer group is very price sensitive.
2) The threat of new entrance is high to existing players. Even though small players would find it is hard to get into this industry due to first move advantage including location, customer perception etc., the big players from other industries, with access to capital, access to customers and economies of scale, can easily come to grocery industry.
3) Rivalry among existing competitors is intensive. The number of competitors is high and many of them are close in size of power, such as Wal-Mart, Target and Costco. The competition is in both price and service. Also since the grocery industry is pretty stable with limited space to expand, players are fighting to get shares rather than find a new market.
Meanwhile, there are two other reasons to make this industry still an option, especially for companies with access to capital, access to customer and an established logistics network.
1) Supplier’s bargaining power is weak. Lots of suppliers need to pay slotting fee to get into grocery store.
2) The threat of substitute is low. Grocery shopping, including food, drugs, is non-substitutable. The only switch which may potentially have big impact is the need for natural and organic foods. But the majority of the grocery need would ...