Convenience Store Industry (Corporate Strategy)

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CS                                                              Convenience Retailing Industry

Management Development Institute of Singapore

Convenience Store Industry

(Corporate Strategy)

UNIVERSITY OF WALES

MASTER OF BUSINESS ASMINISTRATION

MBWD5 0306A

SONG YANG

G0262693X

12/Aug/04

TABLE OF CONTENTS

                                                    Page

Introduction --------------------------------------------------------------------3

Background---------------------------------------------------------------------4

Porter’s five forces------------------------------------------------------------5

PESTEL Analysis----------------------------------------------------------------------7

Industry Life Cycle--------------------------------------------------------------------10

Structural Drivers of Change----------------------------------------------12

Scenarios from Configurations of Factors-------------------------------13

Conclusion-------------------------------------------------------------------16

Bibliography ----------------------------------------------------------------17

Introduction

Strategy is the direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a changing environment and to fulfil stakeholder expectations (G. Johnson & K.Scholes 2002).

According to a recent poll released by Yankelovich Partners Inc., the availability of 24-hour convenience stores was one of the highest-ranked items that Americans want to see continue into the new millennium. By providing immediate access to food products, beverages, cash, petroleum, and any necessary item, convenience stores have become the gas station, quick service restaurant, bank, and water-cooler of a mobile, time-hungry society.

This assignment will use Porter’s ‘5 Forces’, PESTEL analysis, Structural drivers and Life cycle model to map and analyze the strategies of convenience retailing industry. Then scenarios analysis will be given in order to identify the long term futures of industry.

Background  

A convenience store is a retail business with primary emphasis placed on providing the public a convenient location to quickly purchase from a wide variety of consumable products (predominantly food or food and gasoline) and services (NACS of US).

The Southland Ice Company is credited with the birth of the convenience store in 1927 in Dallas, selling items such as milk, bread, and eggs at one of its neighborhood stores 16 hours a day-long after the local grocery stores were closed for the day. The first 24-hour convenience store was opened in 1964. Since then, the number of convenience stores has increased dramatically. Today, convenience stores provide immediate access to household staples and emergency items, ATMs, foodservice, and even office services-24 hours a day.

Porter’s five forces

Using Michael Porter’s analytical model of industrial structure based on the theory of industrial organization, we will clarify and comment on the structure of the convenience industry. (Appendix 1)

  1. Threat from new entrants

The economies of scale of the convenience industry clearly affect all purchases of materials, production, distribution, and sales. The information system with its central core function of POS plays an important role in the management of products and the collection of customer’s information. The building up of a large-scale distribution system together with vendors can obviously not be realized in a day. From the viewpoint of the accumulation of experience, existing chains are in an advantageous position compared to newcomers. Therefore, it could be concluded that convenience industry is not exposed to a big threat from new entrants.

  1. Hostile relationship with the existing rival chains is growing stronger

The convenience industry had been cultivating the market with its offer of ‘convenience’ rather than being forced to use price competition in 1980s. However, in the 1990s, the population per store became less and the time of ruthless competition begun. Affected by a long-term recession, the hostile relationships between rivals are becoming even stronger and this is symbolized by the competition of price reduction in the industry.

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  1. Threat from substitute merchandise

After the collapse of the bubble economy, the inclinations of consumers seemed to be split into two. Convenience chains face intensified competition with department stores in the domain of ‘value-added’ products and with discount shop on ‘low-priced’ merchandise. In addition, large-scale retail stores have extended their business hours. As a result of this, the advantages which the convenience industry one possessed over the other retail sectors have started to be eroded. Therefore, the pressure from substitute products is becoming much more prevalent.

  1. Bargaining power of shoppers

For the convenience industry which handles mainly products ...

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