Class #2: EXTERNAL ENVIRONMENTAL ANALYSIS - LOBLAW
1. Please give a summary of the case / problem statement • Threat of new entry in industry, company thinks they may need to take some action to either prevent this or stay competitive
2. What environmental components are relevant for Loblaw’s external analysis? Why? • Industry: Grocery Retail
• Technological- new technologies (RFID, ECCNet)
o Process management, integration of store management • Demographic – population size isn’t great, population distribution, urban area vs rural, low income vs high income areas • Socio-cultural – customers in Canada are repeat customers(creatures of habit) o Loblaw has a very strong private label, which increases customer loyalty – private brands have a stronger growth rate than regular brands • Political-legal – there is no real political or legal regulations that affect the supermarkets • Economic – need to watch for the possible changes and trends in economy that may affect buying habits, such as recession, etc. • Global – just because Wal-Mart is a global company
3. What is your assessment of general environment?
• See question 2
4. What is your assessment of industry environment (Porter’s 5 forces)? • Threat of New Entrants – Low/Moderate
Is associated with existing entry barriers (see below) & with saturation of grocery retail industry (many players, low profit margin, low growth rate) Barriers to Entry (here I give you examples of barriers using Loblaw and Wal-Mart; we mentioned most of them in class): o Economies of scale: Loblaw has it in sourcing and distribution, but Wal-Mart will have it, too if decides to entry Canada o Capital requirements: capital is needed to buy physical space, and set up store operations, but not a barrier for a large player such as WM o Product Differentiation: (Loblaw’s control label products present significant entry barriers; solidifying it across food, non-food, services) o Switching costs: not a significant barrier, even though Loblaw’s loyalty program incl. services may be a factor retaining its current customers if WM enters Canada o Access to distribution: creates a temporary disadvantage for a large player like Wal-Mart, but can be significant barrier to any smaller/inexperienced new entrant ( Loblaw’s ownership of real estate assets => have taken good locations =>can act as a barrier for WM) o Cost disadvantages independent to scale: short-lasting for Wal-Mart because of its prior history in retail and high economic effectiveness, but may be significant for other new entrants o Expected retaliation: can be significant as the market is saturated, and there are few strong incumbents (for instance, Wal-Mart can expect severe retaliation from Loblaw) o Just FYI - Entry deterring price: (This one is not from Chaprter2, but rather from Porter’s (1980) article – see reference below) Entry deterring price is not a barrier for Wal-Mart. Rewards of entering grocery market in Canada are lower than in the USA as Canada is a highly competitive market; food prices are lower =>margins are smaller; Loblaw is a difficult competitor as it is successful in terms of both costs and differentiation) • Power of Buyers – Moderate/High
Even though individuals have limited power, we may expect that some groups of buyers are more active/organized. There are many choices (grocery stores and variety of products), and if the price goes too high on products buyers go to another store (low switching costs). • Power of Suppliers – Moderate
National product suppliers have power, but there is a number of suppliers available; for a new entrant it will take time to build relationships. The...
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