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Using Porters' Five Forces theory, analyse the competitive environment of a business of your choice - Sainsbury's Plc

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Introduction

Using Porters' Five Forces theory, analyse the competitive environment of a business of your choice. Sainsbury's Plc Sainsbury's was founded in 1889. The owners of Sainsbury's opened their first dairy shop in London. The dairy farm was a success as a business because of its low prices, the popularity of this shop lead to several other shops being opened in different locations around London. Between the period 1890 to 1900 the number of Sainsbury branches increased from 16 to 48. Sainsbury is one of the lead trading stores in Britain. The corporation employs 153,000 people 68% of these are part time and 32% are full time. 30,000 products are sold, 50% of these are Sainsbury's own brand. Sainsbury's serves over 14 million customers a week and at the end of the Financial year 26 March 2005 had 727 stores throughout the UK. Nearly 60% of their stores are in centre or edge-of-centre locations, many of these built on previously redundant sites. The food retail market is very competitve. The firms which dominate the market are the large firms which trade nationally. There are few firms which trade nationally the ones that do trade nationally are Tesco, Sainsbury, Asda and Safeway. These companies have tremondus purchase power and due to this they reign sumpreme on the market. The UK grocery market was valued at an estimated £103.4bn in 2001.

Middle

(in operating an efficient distribution system) which might act as a barrier to any potential new entrants. www.bized.ac.uk/economics) At company level factors to consider would include: * Buying in large quantities and improved supply chain efficiently. * Using more efficient distribution and Spreading fixed costs over a large sales volume. (Anderton . (2002). Economies of scale for supermarkets . Available: www.bized.ac.uk/economics. Last accessed 21 Nov 2005. ) The cost of providing retail services will differ across regions and countries due to differences in property costs, staffing and transport costs, variations in the degree to which economies of scale are achievable, and differences in pricing strategies. (Anderton (2000). Economics . 3rd ed. Lancs: Legoprint. 112-113.) Huge amounts of capital are needed to enter the supermarket industry. The industry in which supermarkets compete is hugely competitive. However the abnormal profits associated with the industry has encourage firms from abroad to merge with UK firms. Wal mart was the first American food chain to merge with Asda having vast experience of the food industry. Following the deal Asda/Wal-Mart had approximately 16.1% market share compared to Sainsbury's 16..9%. In all, this means that four companies will control 80% of the UK grocery market. GOVERNMENT INTERVENTION AND LEGISLATION The supermarket and superstore sector has been subject to many pieces of legislation, regarding the safety of food and distribution.

Conclusion

Taken these factors into account suggest that labour has a low power in the industry. Buyers, or Consumers The power of the buyer is likely to be greater when: * There are few buyers and many sellers * There are close substitutes * Switching costs are low . There are two different types of buyers in this industry. The first one would be the individual consumer. The second group would be consumer on masse. Growing awareness of obesity and Genetically modified food have cause changes in the supermarket world. Sainsbury's have introduced the taste the difference range and other health food products so that they don't lose buyers. Buyers in a group have a powerful bargaining position. (Lynch 1997) Threat of Substitutes There are no direct substitutes for the industry. Food needs to be consumed by human beings so that they can survive. However takeaway foods seemed to be the closet substitutes to supermarket food. However time is a factor and over time there may be closer substitutes. In conclusion we have looked at the interface between the organisation and its immediate environment and examined the impact the supermarket industry has on the nature of competition. Porter's model identifies five competitive forces. The essay has identify the barriers that exist for new entrants and each one of Porters factor has been discussed clearly. (Curtis (1998). Buisness functions an active learning approach . Massachusetts : Blackwell . 173-181.

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