The Retail Landscapes Of Canada
This report will provide an industry analysis for the retail industry, discussing the activeness of the industry regarding the sustainable profitability. We will first give background in the industry and then will use Porter’s forces, that will help us to develop the activeness of industry. Industry BackgroundIndustry name: The industry that we chose is the retail store industry, and we are focusing on operations based in Canada. We chose to focus on a larger scope because some of the top competitors of company control about 90% of the market.
Industry Players: We are focusing on the big three companies which are Walmart, Canadian Tire and Loblaws. These three companies control about 70% of the market. Walmart is a very big retail chain of household goods, grocery, toys and many other commodities whereas Canadian Tire is a home to tools and machinery along with cloths and necessary items. Loblaws owns the name for medicines, daily care products and many products available on the stores mentioned before. We are doing this on a point of comparison between the big three and other players in the market.
Industry Classification: The NAICS code is 454300, which is direct retail.
Output Description: The actual output of this industry is household goods, clothing and all necessary daily items.
Geographic Market: The Supermarkets and Grocery Stores industry in Canada exhibits a low level of capital intensity. In 2018, IBISWorld estimates that for every $1. 00 spent on labor, industry operators will spend $0. 09 on capital investments, remaining unchanged from 2013. Capital expenditure for the industry includes the purchase of store assets such as cash registers and shelving. During this period, stagnant levels of consumer confidence and limited growth in per capita disposable income encouraged many consumers to purchase groceries from more affordable retailers, such as supercenters and discount stores. Other consumers looked for cost savings at grocery stores, stocking up on promotional items or trading down to private label brands.
Supply Chain: The big three industries namely Walmart, Canadian Tire and Loblaw’s accept imports from their privately-owned sites and manufacturing units. They convert their raw material into finished products at their sites. Following is the supply chain of Walmart.
SCM processes go beyond technology. Wal-Mart’s sprawling 120 million square foot network has 160 distribution centers located within 130 miles of their designated stores according to International supply chain and logistics consultants. Around 81% of Wal-Mart® merchandise was processed via the centers in 2013 and their implementation of cross-docking whereby arriving truck inventory is shifted directly to departing trucks which skips lengthy transits, warehouse storage times and lowers inventory storage and transportation costsHere is the supply chain chart of Canadian Tire
Loblaws logistics team uses and manages many modes of transportation for shipping & delivery: land, sea, and rail, to get their product into the distribution network of over 1000 stores across the country. Distribution operates 18 corporate and six 3rd party operated distribution centers (DCs) across Canada. These DCs ship over 737 million cubic feet of product annually. The 3rd party logistics providers are used at 11 distribution centers, but Loblaws is NOT dependent on any one.
The purchasing process for Loblaws varies by product. The replenishment team works with purchasing agents to ensure that enough quantity and variety of products are purchased from suppliers. Regardless of product, the steps in purchasing cycle are still the same.
- Identify the demand
- Select suppliers
- Placing an Order.
The next step is towards the Porter’s Force Analysis
Force 1 Intensity of Rivalry
Rivalry is the extent to which companies compete with one another for customers. Rivalry can be price based or non-price based. Rivalry is measured by the concentration level of the industry, the more concentrated the industry is, the less is the rivalry. Other factors that increase rivalry are large capital asset requirements and high switching costs.
Price based rivalry: Rivalry among the existing players is high in the retail industry. However, if Walmart has the upper hand then it is because of its pricing strategy. In this way, when it comes to competition in the retail industry, Walmart is the King. The strength of competitive rivalry in the industry is medium. Canadian Tire Retail faces both domestic and international competitors such as Rona, Lowe’s, Home Depot and Wal-Mart. There is high level of competition amongst the local retailers with Loblaw’s. Some have differentiated in terms of quality while others give discounts on bulk purchases. This has helped in achieving economies of scale for the existing retailers, which the new entrants can’t beat.
Non-price-based rivalry: The retail industry also deals with the primary competition with non-price-based rivalry. There are various product innovations throughout retail industries such as Walmart, Loblaw’s and Canadian tire.
Product Differentiation: Within the industry, there is a lot of product differentiation. The term being used to differentiate and categorize to find any commodity in the store is the departments being separated and segmented into different sections. Each product is differentiated and available by different brands, color, flavor, strength, ingredients, production recipe and history.
Capital Asset Requirement: The retail industry requires a lot of specific assets. It approximately takes 10-12 days to deliver the goods from the manufacturing units to the stores. So, the retailers make every product available before it can easily last for 10-15 days. Therefore, many retail industries stick it out through market downturns which makes overall industry profits fall.
Demand Influences: There are many variables that affect demand. The retail industry consistently has increasing demands. Because of the growing industry and increasing demands among the customers, the retail industry is growing. Apart from this, due to the new innovations in the market there is a high demand pf innovative product.
Switching Costs: Within the retail industry there are no switching costs. The consumer can purchase any kind of the brand name similar commodity whichever he/she favors. However, consumers are very brand loyal. Retail industries spend millions of dollars annually on advertising. The commercials are not necessarily created to increase the demand, however to create the brand awareness.
Force 2: Availability of substitutes
The substitutes of goods impact industry profits because consumers may choose substitute goods. There are several other retail brands too. However, the number of retailers offering prices as low as Walmart are not many. The online retailers pose some challenge but still they are not able to offer prices comparable to Walmart on all the products. Online shopping does offer the convenience where customers do not have to pick the product from the stores. The products they shop for are home delivered. So, while customers would like to shop online for convenience, the low prices of Walmart are still matchless. These factors keep the threat from substitute products to the minimum. The products offered by CTC are very similar to those offered by competitors. Thus, consumers are always picking the products that offer the best price and quality. Furthermore, consumers are also free to switch between retailers, so they are always open to a better shopping experience. As there are many products of almost same brands with every retailer; therefore, it is evident that threat of substitutes is high in this industry. The local retailers hold both branded and unbranded products, which are substitutes for each other. However, the threat in the Loblaw’s is reduced by product diversification or bundling strategies. Share of the retail markets according to their percentage in the Canadian Market.
Force 3: Bargaining power of the suppliers
Suppliers have a little bargaining power in the industry, which can be proven both profitable and loss for the industry. The Bargaining power of Walmart’s suppliers is low for several reasons. First, it is a big retailer. As such it has a lot to offer to its suppliers. It buys in bulk which means major business for its suppliers. Walmart being the largest retailer holds a significantly large market share. Now, since it makes large purchases, it gives Walmart significant buying power. The switching costs for Walmart are low and it can switch from one supplier to another without have incurred any major costs. Moreover, it is easier for Walmart to try backward integration than for its suppliers to integrate forward. A few of its suppliers are large companies which gives them some bargaining power. So, overall the bargaining power of the Walmart suppliers is low to moderate. In case of the Canadian tire, there are many suppliers around world that offer similar products. Also, due to the scale of CTC’s operation, it is easy for the company to secure favorable contracts with suppliers. Coming on to the bargaining power of suppliers for Loblaw’s, the already existing retailers hold strong supplier relationships. Suppliers that are already in a relationship with the existing retailers can bargain on the prices, which can drive margins top the lower end of the spectrum. Nevertheless, suppliers can integrate forward threatening the retailers or the retailers can backward integrate producing goods of their own e. g. in this case start producing their very own organic foods. However, both ends are strong and therefore the supplier power is medium.
Force 4: Bargaining Power of Buyers
Walmart faces the weak intensity of the bargaining power of buyers in the retail industry environment. Walmart is subject to the following external factors concerning the weak bargaining power of buyers or customers:
- Large population of consumers (weak force)
- High diversity of consumers (weak force)
- Small size of individual purchases (weak force).
In the case of the other competitors, Canadian Tire, Due to the high number of competitors within the retail industry, the power of buyers is also high. Since the cost of switching for consumers is none, consumers will tend to migrate towards brands which meet their evolving needs. However, due to the product range offered by, there’s no specific consumer target for CTC.
Loblaw’s company consumers of the retail industry have high bargaining power due to intense spending habits. There are two types of customers in the market place; one type of customer is a quality shopper and the other are a price sensitive shopper. As there are a lot of choices for buyers and there are numerous buyers; hence, buyer power is high, moreover, national brands have more competitive pricing and quality that fits with consumers’ demands.
Regulation of the industry: These three corporations were founded in early 20th century and has been serving Canadians for more than 90 years with more than 400-500 stores across Canada. The companies continue to strengthen the store brand and are committed to be “brand-led” organization as part of their overall strategy. They continue to build on their reputation by growing their customer-loyalty programs, creating private labels and investing in Olympic and other sports partnerships. These industries together are also one of top 10 trusted brands in 2016.
Force 5: Threat of Entry
New entry of retail firms is easily achieved even in the presence of giants like Walmart. Small retailers can enter the market and compete based on convenience, location, specialty, and other factors. It is costly to develop a new entrant’s brand. Nonetheless, some large new entrants have the financial resources to build a strong brand. This condition exerts a moderate force on Walmart Inc. The cost of establishing a new retail firm and the cost of running it are low to moderate. In the case of Canadian Tire, the retail market is mature and requires a high capital outlay. As such, market entry is challenging. CTC has been building its brand for over 90 years which is testament to the fact that brand reputation, loyalty and recognition is not achieved overnight. Coming on to the Loblaw’s, the industry is highly concentrated with high capital costs. In addition, the Canadian grocery market is already saturated; hence, it is not easy to enter the market and beat the local retailers. Quality is the prime focus and not every entrant can be trusted for the quality of the local retailers, which they are already delivering to their customers. In addition to this, a strong distribution channel will further lead to prevent competition.
Economies of scale: Economies of scale are defined by Porter as declines in the unit costs of the product as the absolute volume per period increase. Therefore, the greater quantity of a product that is produced the lower the cost of each will be to the producer. This creates an advantage for the high-volume producer like those seen in the retail industry. In the retail industry, the producer needs high quantity of the bulk products, they are produced in bulk and therefore per unit cost is decreased.
Product Differentiation: In Porter’s book, he has also mentioned some of the barriers to entry that exist in the retail industry. Porter states that in the retail industry, product differentiation us coupled with economies of scale in production. In the retail industry, there is attempts being made at creating a brand and building brand loyalty. This attempt to create product differentiation can be seen through the amount of money spend by them on the advertising. According to the reports for the year 2018 in Canada, retail industry has already spent US $11. 52 bn on media advertising whereas on TV advertising the value is CAD $3. 3 bn.
Capital Requirements: Capital requirements needed to enter the retail industry are an advantage to the firms currently in the industry. It is estimated that the cost of production for a plant capable under a roof is estimated to be around $100 million for a year.
Government Regulations: Advertising laws and regulations exist at both the federal and state levels. In the retail industry, advertising rules dictate the messages companies may convey when attempting to sway consumers to purchase products and services. Violations of these regulations can lead to stiff financial penalties that far exceed any actual monetary damages consumers may suffer. Each state across the country has consumer protection laws in place, with the goal of preventing businesses from using misleading marketing campaigns to drive sales numbers. While it’s illegal for businesses to refuse to honor advertised pricing discounts, it’s also illegal for companies to deceive consumers into thinking a discount exists where it doesn’t. It’s a violation of federal and state law for any company, including retail businesses, to make false or deceptive claims with advertising regarding products and services.
The Federal Trade Commission enforces false advertising laws at the federal level, and similar agencies have jurisdiction at state level. Considering these regulations, business marketing departments devise advertising campaigns to emphasize only truthful features or benefits of company products. Strategies: These retail businesses need a boost to increase foot traffic and sales, there are several strategies they implement to persuade consumers to spend their money with you. The use of promotions, advertising, smart merchandising and honesty are effective methods that make their business a desirable place to shop.
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