Establishing a Supermarket - Essay Example

Establishing a Supermarket Introduction Supermarkets are now the center stage of retail outlets that help the owners to do business regarding multi product supply to the consumers. As a supermarket helps the customer to get a wide range of products under a single roof, the outlet is finding a good customer base and is being profitable for the owners in all places of the world including Australia. The name of the store should be always catchy and should remind the customers that it is big and a wide range of products is available. The novelty in offering the products like home delivery and packing the items will help in attracting the customer base. As supermarkets buy the products on large scale, they will be able to sell the products at a much lower price than their smaller counter parts by passing the savings they incur by purchasing on a large scale. However, it is important to select a high profit location. The high profit in a supermarket depends on the turnover as the supermarket concentrates on buying and selling the products in large quantities. As per the afore-mentioned aspect, either Melbourne or Sydney is suitable for establishing a supermarket or chain of supermarket stores. The study on the market opportunities in the above two cities will make an entrepreneur to decide on the location. Types of Stores in Melbourne In Melbourne, various stores and services are available in different communities. Clothing stores, baby essentials, luggage world, animals and pets, automotive and mechanical, building and construction, computers and electrical, beauty and fashion, food, liquor, and big shopping sites that offer majority of above-mentioned articles are available community wise. It is necessary to attract the customers from different communities to the new supermarket or the establishment of supermarkets in different communities is necessary. In the first type of supermarket, the new entrant has to compete with large supermarkets like Coles, Westgrath and Woolworths. There are small supermarkets like Aldi in Melbourne that compete with pertinence, though having lesser number of products than Coles, Westgrath and Woolworths. If one wants to open a big supermarket, they have to display about 1, 00,000 products on a single store and it should be spacious and needs to attract customers who spend more and do not bother about the expense of the goods. However, if the entrepreneur wants to attract large number of customers who are economical in nature, chains of business stores like Aldi are necessary. In the afore-mentioned aspect, it is necessary to open chain of stores in various communities. If the entrepreneur is interested in attracting large number of customers who are cost sensitive, it is suggestible to establish chain of small stores having around 10,000 products rather than establishing a big store containing around 1,00,000 products. Establishment of chain of stores needs outlets in different communities of Melbourne. As a result, instead of a single location the entrepreneur has to search about few locations to set up the outlets of the supermarket business. As there are more than 31 communities in Greater Melbourne, it is better to select the communities to identify the locations. In the first step, it is suggestible to select Banyule, Frankston, Glen, Greater Dandenong, Hume, Kingston, Manningham, Monash, Port Philip, Melbourne and Yarra communities to set up the outlets of the supermarket. As the above locations cover almost all the area of Melbourne, it is easier in future to increase the number of outlets and transportation between them. As the stores are small, they can attract middle class and lower middle class people who are cost aware while shopping. 1 Porter's Five Forces Porter's model helps in analyzing threats and opportunities in the business environment faced by the industry. As different industries sustain different levels of profitability, structure of industry explains the difference and maximizing the profitability. 2 The following is the diagram representing the Porter's five forces that explain the industry structure. SUPPLIER POWER BARRIERS TO ENTRY THREAT OF SUBSTITUTES - BUYER POWER DEGREE OF RIVALRY The above diagram is adopted from http://www.quickmba.com/strategy/porter.shtml 1. The first force that affects the profitability is rivalry in business that results in competition. The competitive advantage that a firm acquires depends on industry concentration. The new entrant should measure concentration ration (CR) and should have an idea on market share of competitors. As the competing supermarkets in Melbourne have a considerable market share, it is necessary to attract customers of the competitors and make them spend on newer products and services. 2. The next force is threat of substitutes. The new entrant should consider the products available in other supermarkets as they affect the demand for the products available with the firm. The firm should fix the less price for the products to which the customers find alternatives. However, one can fix profitable price for the products to which, the customers find lesser alternatives. For example, the firm can substitute aluminum beverage cans that are available at cheaper prices when compared to glass bottles, steel cans and plastic containers. In the afore-mentioned, the firm should use the substitutes as an opportunity, instead of seeing them as threats. 3. The next force is Buyer Power. The buyer power dominates the industry and decides the price when the buyers are few and the number of suppliers is comparatively larger than any other industry. In case of defense purchases, the buyers are less in number and they decide the price. However, in case of supermarket price, though buyer has a strong presence, they are not united and a firm can attract them with different schemes and services on the products sold in the outlet. 4. The fourth force is the supplier power. However, the supplier power affects the producing industry, as the suppliers of raw materials will be few in number. The afore-mentioned aspect cannot affect the supermarket business as the firm purchases the products it sells in large scale and have a command over deciding the price. If the big supplier is not in the line with the price of the firm, the management can gather the smaller suppliers and can assure them by buying from them regularly. Thus, the supplier power is the force that can least affect the supermarket entrepreneur. 5. The last threat is about barriers to enter into the market. The barriers for a new entrant arise from the characteristics of the industry that protect the profit levels of firms. These barriers inhibit the additional rivals in the industry. The afore-mentioned affect can least affect the supermarket business as there is enough market base and it is ever increasing as the supermarkets offer thousands of products. As a result, the firm can recover the profit lost in one product in a product that has more demand. 3 Macro Environment for Supermarket Business The social and demographic factors comprise the macro environment, the supermarket faces. The political, technological, demographic and socio culture are the macro environmental factors that affect the growth, maturity and decline of the market. As a result, the supermarket location should be standalone or be a part of shopping centers. To neutralize the social forces, the lifestyle of the people around the store is a concern for the management of supermarket, as that concern makes them to display the products useful for the lifestyle of the people. As the supermarket industry is in a mature stage in Melbourne, the customer base is limited to replacement demand and growth is negligible. It is necessary for the new entrant to set up a breakeven period and in that, prescribed time the firm should be competitive enough to attract the customers of competitors. The next aspect is to display the products according to the taste of the customers to attract them. As the growth of the market is limited, the firm should sell the experience as well as the products to them. In another aspect, the firm should manage to have as much number of outlets it can have in Melbourne to reach as many number of customers it can reach. Industry Life Cycle The life cycle of supermarket industry is at a matured stage and it has fewer options for growth. It is necessary for any new entrant to attract the customers with competitive prices that result in lower profits in initial stage. Moreover, the present state of competitiveness in the industry demands the establishment of chain of stores instead of a big store. Strategic Recommendations There are 4recommendations to make the new entrant competitive in the market. They are as follows. 1. It is suggestible for the management to establish chain of stores in various communities in Melbourne instead of establishing a large store in a place. 2. As the market is in matured stage and recording little growth, it is suggestible to set up a breakeven period to attract the customers with competitive prices. In that period, the firm should work with less profit or concentrate on attracting the customers with innovative schemes. 3. As part of the strategy, it is necessary for the firm to attract the customers with extra service for the products sold. For example, the firm can offer home delivery at no extra cost within the permissible limits of the presence of the store. 4. In order to attract the customers, the store should sell experience along with product and this even offers the opportunity for the store to charge extra from the customer. For example, the food and liquor available in the store can be offered with and excellent services for the customers that make them, feel special. Works Cited Communityguide.com, 2005, Banyule Community Guide and Banyule Business Directory, banyule.communityguide.com.au, Accessed on 26th June 2008 from http://www.banyule.communityguide.com.au/community.cfm/banyule/cat/clothingfashion/ Porter, Michael E., Competitive Strategy: Techniques for Analyzing Industries and Competitors Quick MBA, 2007, Porter's Five Forces, Strategic Management, quickmba.com, Accessed on 26th June 2008 from Read More