Five Forces Analysis of Wal-Mart Industry
Threat of Competitors:
The biggest threat in the US Grocery/Discount Retailer industry is competition. In
particular, the main players are Wal-Mart, Kmart and Target. These firms also face
competition from wholesalers such as BJs and Costco. Wal-Mart, as the industry leader,
has adopted a cost leadership generic strategy. In the past, most firms have not been able to
match Wal-Marts everyday low prices. The problem is that Wal-Marts barrier to entry
(economies of scale) and strength (supply-chain management) can be easily replicated with
sufficient resources. By definition, discount retailers are competing to see who can offer
the lowest prices. This places a heavy burden on all firms to maintain a profit margin as
they do so.
Threat of New Entrants:
The Grocery/Discount Retailer industrys threat of new entrants is very low. New firms
would be faced with the task of beating the prices of wholesale giants immediate upon
entry. Given the economies of scale, brand recognition, service, and variety of product
offerings that Wal-Mart, Target, and others continue to improve on each day, this seems
very unlikely. In addition, existing firms could afford to temporarily drop prices even
lower in order to force a new competitor out of the market.
Suppliers Power:
The suppliers to Wal-Mart and other discounters have almost no power. Wal-Mart is
notorious for pressuring suppliers to cut their margins lower and lower, and often receives
criticism for this practice. Unfortunately, there is no way around this given the consumer
