Industry and Company Analysis - Strategy of Management - Assignment Example

Strategy Analysis Industry Sub-Sector Analysis To carry out this analysis, the Porter Five Forces will be used, as these are a good source of a reliable industry analysis framework (Porter, 1998). The first force in the Porter Five Forces analysis is the threat of new competition. In the convenience store sector, the entrance barriers are low: there are no specific patents involved with creating a convenience store and it is very simple to set up an independent effort. However, the market is dominated by a few successful chains (such as 7-Eleven) which dominate the market and have the financial power to drop prices to rid the market of competition. The capital requirements are again, low, which means that new competition is likely to appear but does not pose a challenge to established retail chains in the sector. Customer loyalty is not really an issue in this sector as convenience stores will sell the same or similar produces across the board, leaving no buyer switching cost (IBIS World Market Research, 2011b). The second force is the threat of substitute services. The biggest threat to the convenience store sector is supermarkets, which have reported an annual growth of 3.4% in the last 5 years (compared to the -0.4% of convenience store sector). This is because of a general move towards supermarket sales in general, plus many of the supermarket chains entered into the convenience store sector. There is little to no cost to the consumer to change to a substitute service, increasing the threat. The bargaining power of the customer is dependent on many factors, including the location of the convenience store and surrounding options. However, in many cases (particularly in urban areas) customers will have a price sensitivity that may cause them to move to another rival chain. The buyer volume is much lower than for supermarkets, which means that the convenience store sector can be more sensitive to changes in customer power. The bargaining power of suppliers in this sector is interesting, because many of the companies within the convenience store sector will be using the same suppliers. This is because many stock brand name goods. This means there are strong distribution channels and almost no supplier competition. The impact of inputs on cost is high, but will affect all areas of the sector, plus the competing supermarkets (IBIS World Market Research, 2011b). The intensity of competitive rivalry is interesting in this sector. Whilst there are advertising campaigns for 7-Eleven and the other major convenience store chains, the main choice for a customer is the location and ease of access to the store. This means that much of the competitive rivalry in the sector is accumulating property in convenient locations to as many customers as possible, an advantage over the supermarket sector as convenience stores require much less space. However, as the supermarket industry does move into the convenience store sector, the competitive rivalry is increasing as the turnover and spending power for these large supermarket chains can mean that small convenience stores are affected severely by competitive rivalry. Company Situation Analysis As previously mentioned, 7-Eleven is one of the leading names in the convenience store sector. The first Australian 7-Eleven opened in 1977 and since then has increased operations into an ownership of 565 stores (Anon, 2011). The stores themselves are operated as franchises, although they do all answer to the same central administration. The 7-Eleven brand can also be seen in petrol stations in many areas, offering both services. The company originated in Texas, United States as an ice manufacturing company selling goods such as eggs and milk. From here, the store began experimenting with 24-hour schedules and international markets, eventually having a majority shareholder in Japan. Within Australia, the company is in the top 200 of companies for revenue, with total revenue of over $2 billion in 2011. The 7-Eleven name operates predominantly under the convenience store sector (Anon, 2011), but as some stores are retailers of petroleum products 7-Eleven also has holdings of a share in this market. The purpose of the 7-Eleven is to retail newspapers, simple groceries and convenient pre-prepared foods such as sandwiches. This is all true to the convenience store sector. One of the main selling points of the 7-Eleven is the Slurpee, a partially frozen ice drink which can only be purchased in the 7-Eleven stores. The chain often uses marketing strategies involving free or heavily discounted Slurpee to entice customers into the stores. One of the most important parts of the business strategy of the company is the Business Conversion Program, in which 7-Eleven looks for existing stores in the convenience store sector that wish to convert to the branding and become official franchises of the operation (IBIS World Market Research, 2011a). This has been successful, converting over 180 stores in Australia to the brand and simultaneously eliminating some of the competition. At the corporate level, 7-Eleven experiences many of the difficulties associated with managing a set of franchises and therefore has implemented a sophisticated ICT program (Anon, 2011) that allows all stores to be monitored for success through a central mainframe. 7-Eleven franchises also have access to a successful and well-established supply chain which can help to eliminate competition who do not have this access. Strengths – Well-known brand name, large Australian presence, international company less sensitive to local markets, convenient products, additional market share in petroleum product retailing, only retailer to sell Slurpee and many other products (Anon, 2011). Weaknesses – small store size ensures each branch can only sell a limited number of products. Opportunities – continue to invest in converting struggling existing convenience stores, purchase more petrol stations to enhance market share, monopolize other strong existing brands to push others out of the market, more stores in convenient locations to rival the larger supermarkets (Jones, 2009). Threats – supermarket chains pose the biggest threat, as they have a much larger turnover and more spending power to push competitors out of the market. They also have larger stores and, thus, can sell more products. Many supermarkets have begun to trade on a 24-hour basis and, thus, are more accessible than they have been in the past, rivalling the 7-Eleven’s main unique selling point (Hill & Westbrook, 2011). References Anon, 2011. 7-Eleven: Managing a Franchise-Based Business. Financial Review Case Studies. Hill, T. & R. Westbrook, 1997. SWOT Analysis: It’s Time for a Product Recall. Long Range Planning, 30(1), pp.46–52. IBIS World Market Research, 2011a. 7-Eleven Stores Pty Ltd - Premium Company Report Australia. IBIS World. IBIS World Market Research, 2011b. Convenience Stores in Australia: Market Research Report. IBIS World. Jones, S.C. et al., 2009. Australian consumers’ discernment of different sources of [] healthy eating’ messages. Australasian Marketing Journal (AMJ), 17(4), pp.238–246. Porter, M.E., 1998. Competitive advantage: creating and sustaining superior performance : with a new introduction, Simon and Schuster. Read More