Analysis Of The Supermarket Industry

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Industry Analysis: 1. Understand the sensitivity of the industry to key macroeconomic factors 2. Understand how the industry operates and the key performance metrics for evaluating these operations 3. Understand the competitive structure of the industry

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Group assignment for March 17

Application of Economic, Industry, and Strategy analysis to WFM Would you describe the overall performance of the economy over the fiscal years 2012,
2013, and 2014 as strong or weak? What does this imply about profitability for the supermarket industry over this time? The economy has been slowly recovering from the recession of 2007 to 2009; however, it is expected to grow at a steady pace for the foreseeable future. As a result, the economy from
2012 to 2014 has been gaining strength. The U.S. has seen growth in real GDP, which implies a healthier economy as citizens hold more purchasing power. In terms of the supermarket industry, food­at­home (grocery store or supermarket) purchases have remained stable with overall historically average food price inflation of 2.6%. The growing economy will increase consumers’ confidence and purchasing power, which is a good sign for strong performance and profitability in the supermarket industry. How will the economy likely evolve over the next 5 to 10 years, and what does this mean for firms in the industry? Annual real GDP is expected to grow at an average rate of 3.1% through the next 5 years, while more long­term trends from 2017 to 2024 indicate that economic growth will decline to a much lower rate. With a positive economic outlook through 2017, the growth in real GDP will give consumers confidence to spend more of their disposable income rather saving it. As more money is being circulated back into the economy, the supermarket industry can hope to benefit from this with increased food­at­home purchases. What are the main characteristics shaping competition (and profitability) in the industry? The U.S. supermarket industry is highly competitive as grocers feel the need to differentiate themselves. Many tend to lean toward competitive pricing and value­based environments.
Major demographic and consumer lifestyle changes play a significant role in how consumers

shop and where they choose to purchase goods. As a result, supermarkets must adjust to consumer demand in order to remain profitable. Porter’s Five Forces
Rivalry among firms:

Rivalry among firms is high due to many competitors in the market, along with differing cost structures and strategic advantages. Whole
Foods’ biggest competitors consist of Wal­Mart and Kroger, as well as more specialized stores with comparable organic goods such as
Trader Joe’s.

Threat of new entrants: The costs of barriers to entry are fairly high as the industry has a large amount of well­established supermarkets. However, it is not as hard for current competitors to invest or re­brand into organic providers as society grows more health conscious.
Threat of Substitutes:

The threat of substitutes is fairly high as competitors are adapting to consumer demand regarding healthier lifestyles. Since Whole Foods offers organic options that are more expensive than normally priced goods, competitors are looking to provide similar products at lower prices. Supplier Power:

With a growing demand for organic products, the supplier power is medium to high. Whole Foods is committed to purchasing goods from local suppliers, even though they have to meet the company’s strict quality standards. The supplier power poses more of a risk if demand begins to exceed current capacity, as Whole Foods will need to find alternatives to maintain inventory.

Buyer Power:

The buyer power is a medium level threat as Whole Foods has gained loyal