Woolworths Porter Five Forces Analysis
Five Forces analysis of Woolworths covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
Woolworths is an Australian chain of supermarkets and grocery stores that provides shopping for homeware, fashion, food and beauty. Woolworths is operating in a sector where the point of entry of companies matters for making a mark. The time and cost involved in entering the market are very high for new firms since they are fighting against already established firms like Woolworths. The new companies have to invent newer ways of doing things if they are to make their presence felt. Since the products which are sold are those having high differentiation, new entrants have to bring a unique value proposition to the table. But the capital requirements will also be very high for establishing its operations. Another issue the new entrants will be facing will be access to the logistics and supply chain networks. A low pricing strategy will be an ideal method to make a breakthrough for them. But again, the new firms would not be able to take advantage of the economies of scale like bigger firms.
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This concludes the threat of new entrants in the Woolworths Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Woolworths:
A substitute is a product that helps in meeting your needs in an efficient manner. This can be an unprecedented product or a new use for an existing product.
Meeting the customer needs in different ways will result in the substitution effect. Since most of the products of Woolworths are those catering to the basic needs of the customers, the scope for substitutes is very low. If any of the players could come up with a value proposition different from what is being offered in the industry then, the customers will start preferring the most efficient and economical product. Besides, the products like groceries have very low switching costs. Hence, it is easier for the customers to shift from one product to another. If some substitutes are produced, or new uses are identified which solve a problem, people will lock on to them. Thus, the threat of substitutes is a moderate force when it comes to the operations of Woolworths.
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Bargaining Power of Customers:
In the Woolworths Porter Five Forces Analysis the bargaining power of the customers can be explained as:
Customers have less control over the prices of the products of Woolworths. This makes the bargaining power of the customers a weak force when it comes to the operations of the company. The company sells highly differentiated products which are very much different from what is available from other brands. Thus, the switching cost for the customers to move on to the new products will be very high since the value proposition of the company is very different from its competitors. Thus, the customers will not have the upper hand in the negotiations with the sellers. Besides, the customers who usually buy products from Woolworths are generally price sensitive. If the company decides to raise the price for its products, the customers will start refraining from buying from them. Thus, the customers have a bit of bargaining power over the sellers in terms of prices.
Thus overall, the bargaining power of customers is a moderate force when it comes to Woolworths.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Woolworths:
There are a lot of suppliers serving Woolworths in its operation. The suppliers are such that they compete against each other in offering the best quote for the company. Woolworths being an established brand has goodwill attached to it, and thus the suppliers look forward to establishing an association with the company. The products are highly differentiated too. This makes the bargaining power of customers a slightly stronger external force affecting the operations of the company. Besides, the switching costs regarding the suppliers is comparatively less for the company because there are numerous suppliers available. Thus, the negotiation power to strike a deal still vests with the company and not with the suppliers. The supplies used to manufacture the products are also not differentiated. Hence changing the suppliers is not a costly affair when it comes to the company. Overall, the bargaining power of the suppliers is a weak force affecting the operations of the company.
Competitive Rivalry:
The impact of key competitors in the Woolworths Porter Five Forces Analysis is as follows:
Woolworths specializes in groceries, health and beauty products, stationery, pet and baby supplies etc. The industry in which the company operates is very intense in competition. Basically, the industry is of competitive food and staples industry. There are a lot of players feeding the market like Carrefour, Tesco, LIDL, Walmart, Amazon etc. A company can produce a plethora of products catering to the same need, and so can any other players in the market. Thus, the rivalry between the players is pretty high. Thus, the key differentiating factor will be the optimization techniques and marketing efforts taken by the companies. A good marketing campaign can help a company stand out from the crowd with its unique value proposition. But the rivalry can take a toll on the long-term profitability of the organization. Since the companies are fighting for the same market space, it becomes all the more important for any of the players to focus on their marketing and advertising efforts.
Thus overall, the competitive rivalry is a strong external force affecting the operations of Woolworths.
To conclude, the above Woolworths 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.
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