Porter's 5 forces are threat of new entrants, bargaining power of buyers, bargaining power of suppliers, substitution threats and rivalry determinants. In my opinion, as a small food retailer, you can count disadvantages vs. major food retailers in all these categories.
As such, first of all, entry barriers refer to such things as economies of scale, brand identity or access to necessary input information. As a small food retailer, you are not able to realize the economies of scale that larger food retailers successfully provide basically because a larger food retailer has several activities and is able to successfully transfer costs from one to the other. On the other hand, as a larger retailer, you are able to spend and invest in your brand, to the point that a small retailer will be practically inexistent as opposed to a strong brand, a brand which has received consistent investments. In terms of access to information, a larger retailer can afford research and marketing campaigns that will provide the necessary information on the existing competition, on customer taste and preferences etc.
In terms of supplier power, a small food retailer will never be able to afford the costs implied by a switch to a different supplier and, as such, will never be able to absorb such costs.
In terms of buyer power, a large food retailer is bound to count on an increased volume of consumers, a volume which will be able to have a price advantage over a smaller company, a smaller food retailer which would never afford to practice low practice, due to its inability to achieve economies of scale (see previously).
As for rivalry determinants, we are dealing again with economies of scale and the capacity to promote one's brand. The exit barrier are also partially prohibitive for a small food retailer....
In terms of substitution threats, a small food retailer would be most vulnerable, as its lower budget would never permit it to reach significant investments in research and development, investments which would eventually lead to new products it could launch on the market.
b) First of all, as previously pointed out, cost advantages against larger competitors is difficult in this case, due to the inability to have large budgets and economies of scale. On the other hand, a smaller company has advantages it can use to provide for a better coordination and an improved ability to manage its business efficiently in order to obtain lower costs.
This could, in time provide a product alternative, an alternative where a certain category of consumers, with lower revenues, could be approached and transformed into a successful clientele.
A significant indoor and outdoor advertising campaign should be launched, aimed at presenting the advantages of the smaller company's substitute products. The cost advantage could also be the result of a better possibility to reposition on the market.
c) If successful in achieving a cost advantage vs. larger retailers, my attention would be on my own competitors, competitors which are of the same size. I would be concerned about the companies that have adopted the same measures as I have done and thus, my interest would be on the substitute products as this form of retaliation is the most vulnerable. It is always a possibility that these products themselves be substituted, too at lower costs and by that having better prices. This is the case when the small food retailer loses its cost advantage and a continue competition on this ground may result not only in decreasing the price, but also in decreasing too much the quality. As an effect of this,…
