ShopRite Porter Five Forces Analysis

Published in Companies category by MBA Skool Team

ShopRite Porter’s Five Forces analysis covers the company’s competitive landscape as well as the factors affecting its sector. The analysis focuses on measuring the company’s position based on forces like threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and competitive rivalry. Let us start the ShopRite Porter Five Forces Analysis:

Threat of New Entrants:

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

ShopRite is a popular retail chain based out of USA, which started in 1946. In this supermarket industry, the barriers to entry are quite low as there is not much investment required to set up shop. However, capturing market share is a different matter altogether as there are already established players in the market who have made a name for themselves. There are already established players in the various niche propositions in this industry. Hence, it will be difficult for a new player to establish itself in this industry and to gain market share.

However, if a new entrant were to start operations similar to ShopRite in just one location and grow organically through good customer service and low prices, it could organically grow into a popular chain. However, this is extremely challenging and there are a lot of things that could go wrong with this strategy. Hence, the threat of new entrants is moderately low, and this force is not a major concern as it is quite weak.

Image: Wikimedia

Threat of Substitutes:

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

Substitutes for a supermarket store like ShopRite are quite hard to come by. There can be a local mom-and-pop store that can fulfil the basic needs of a customer, but it is difficult to find some of the novelty items that is otherwise found only at supermarkets.

The convenience of a supermarket is quite hard to beat as there are so many different items for sale under one roof and hence the customer need not have to visit a wide variety of stores to meet their needs. Also, the supermarket can offer better prices, more variety, more SKUs, and even bulk purchasing options. The only likely substitute could be online shopping apps such as Amazon that allows one the option of not leaving their homes to get groceries. This is a major worry and ShopRite will have to offer services or products that cannot be replicated online. Overall, there is a moderately high threat, and this force is quite strong.

Bargaining Power of Customers:

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

At ShopRite, the customer has a decent amount of bargaining power over prices as only the people living in the neighborhood will be the regular customers. Hence, they will have to be given either a good experience, or low prices for them to return to shop in these stores instead of looking for alternatives. The stores will also have to stock the kind of products that are in demand and hence the bargaining power of the customer is high in this case. If the population that the store serves is large, then the bargaining power of the individual customer becomes quite low as the demands of a single customer may not be met because the loss of one customer will not matter to the company. However, the company has to make sure that most of its customer base is satisfied, and hence must take steps towards the same.

This means this bargaining power of the customers is moderate and thus this is a moderate force.

Bargaining Power of Suppliers:

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

There are plenty of suppliers supplying their products to ShopRite’s stores. This means that the competition between each of these is quite high and they will actually be paying ShopRite for selling their products in the form of distributor’s margin. This means that the bargaining power is entirely in the hands of ShopRite as the company can afford to lose some suppliers as there are plenty of competitors in the market that can supply the same kind of product. Hence, the company can bargain for great prices and bulk quantities. There are no switching costs involved when it comes to changing suppliers and hence this shifts the balance in favor of ShopRite. Thus, we can say that the bargaining power of suppliers is minimal and therefore this is a very weak force.

Competitive Rivalry:

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

The industry in which ShopRite works in is intensely competitive as there are many supermarket chains, and the product differentiation is minimal. There are several players that each offer their benefits whether it is high quality of imported products, exclusive organic produce, huge bulk quantities which result in bulk discounts, or great customer experience. Each brand in this business has established its identity in its own niche even though the products sold are not differentiated. Hence, every company in this industry has to form its own niche and then has to keep in mind its core customer base throughout. This is extremely challenging. A company like ShopRite may also have to resort to discounts and coupons to attract more market share and this can lead to hemorrhaging of capital.

This means that the competitive rivalry in the supermarket chain industry is extremely fierce which means that this is a very strong force that the company should be wary of.

To conclude, the above ShopRite 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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