Kroger Porter Five Forces Analysis

Published in Companies category by MBA Skool Team

Here is the Porter’s Five Forces analysis of Kroger that covers threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.

Threat of New Entrants:

The threat of new entrants in the Kroger Porter Five Forces Analysis can be explained as follows:

Kroger is a multi-department supermarket chain operating only in the United States. They sell a wide variety of merchandise. The departments in Kroger range from consumer electronics, groceries & food to beauty, health, wellness and many more. It is the world’s second-largest hypermarket chain, but it has not expanded beyond the borders of the United States yet. The switching costs for the customer are minimal, given the availability.

For a new entrant to establish themselves, they will have to cross the barriers of entry which are capital costs to set up physical stores, logistics and supply chain well set up to compete for the low prices the competitors are offering, high brand equity and ability to drive economies of scale to drive profits, bargaining power against suppliers to bring down the cost of purchase of goods for retail sale to match prices with competitors, etc. A new entrant can either start as a small retail store or go with a large supermarket chain, and the latter will require high initial capital costs, and the former does not necessarily require that. Keeping in mind the regulations, the barriers of entry can be said to be considerably low for a small scale but for the supermarket chain, and it is considerably high. Overall, we can say the threat of new entrants is moderately high.

Image: Wikimedia

Threat of Substitutes:

Below are the threats of substitute products of Porter’s Five Forces analysis of Kroger:

A viable substitute is any product or service that can potentially replace Kroger's products and services. Department stores, direct to consumer sales, e-commerce, local brick and mortar stores, departmental chain stores, and other kinds of retail outlets exist.

Products sold at Kroger are likewise sold at the above-mentioned retail outlets. These alternatives are easily available and do not incur any additional switching costs. The price and delivery time are the only elements that can influence customers to choose a retail chain. Although the price may be comparable to that of e-commerce, the product can be delivered to your home with a delay. Kroger also has the option of home delivery for groceries available now. Overall, the differentiability factors are less and hence, the threat of substitutes is high.

Bargaining Power of Customers:

In the Kroger Porter Five Forces Analysis the bargaining power of the customers can be explained as:

In the case of the retail supermarket industry, the customers are mostly individualistic purchasers. The factors that affect the bargaining power of buyers are the existing competition in the industry, switching costs, availability of substitutes, number of competitors, cohesive behavior of customers, the quantity of purchase, etc. For Kroger, there is also competition from the supermarket players, local brick and mortar sales which have localized customer loyalty, e-commerce firms such as Amazon entering into the grocery and retail industry with record delivery times, etc. So, the competition can be considered high, and there are a wide variety of sellers for customers to choose from. There is no cohesive behavior of customers as they are mostly individualistic customers, and hence the purchased quantity is also not high. But owing to the sheer amount of competition, Kroger has to continuously keep up with the price competition and variety to retain the customers. There is no scope for backward integration.

Due to all these factors, we can say that the bargaining power of customers is high.

Bargaining Power of Suppliers:

Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Kroger:

Given Kroger's size, it's understandable that the company buys in large quantities from vendors. There are also several providers in the market, far outnumbering the number of large-scale supermarket chains. The scope of forwarding integration exists, but because of brand equity, supply chain availability, and cost rivalry, the amount of sales they can create is nothing near that of Kroger. If the O.E.M. is Kroger's supplier, the O.E.M. may sell directly to consumers through the D2C channel, but this does not guarantee the number of sales that the company may generate. Post considering the above-mentioned factors; we can conclude that the bargaining power of Kroger's suppliers can be considered very low.

Competitive Rivalry:

The impact of key competitors in the Kroger Porter Five Forces Analysis is as follows:

The retail market is extremely saturated and extremely competitive, and the customers are also very price sensitive. Given the fact that the switching costs are minimal, it makes it even harder for retail customers. There are numerous players operating in this domain, and customers have the option to choose between different players and go for the best value for money option. So, the players get aggressive to capture the market share, and supermarkets provide discounted offers to woo customers and drive profits by economies of scale. Adding to it, the e-commerce industry has made the competition even more aggressive. The current players competing with Kroger in the multi-department retail industry are Amazon, Target, Costco, Walmart, etc. Some are operating online-only, and some are operating both online and offline. All these players have price rivalry and continuously coming up with competitive offers.

Due to all these factors, we can conclude that the competitive rivalry is high.

To conclude, the above Kroger Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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