Upon applying the five forces model to the US supermarket industry, several important findings should be mentioned. The degree of rivalry within the market is high as companies continuously compete with one another to offer the best deals and capture as many customers as possible. Because of the severe competition, the threat of substitutes is high, with different stores offering similar options and make customers choose their products.
The threat of new entrants is moderate because the industry has already established itself and there is a number of large players that customers choose over niche ones. The bargaining power of buyers is high because supermarkets depend heavily on a regular inflow of customers while the bargaining power of suppliers is moderate due to the significant availability of different supply sources both locally and overseas.
The profit margins of the grocery business are expected to stay on a stable level and even grow because supermarkets offer essential products and services without which the population cannot function properly. For stores that align the principles of quality and reasonable prices, such as Trader Joe’s, there are many opportunities to expand nationally and capture more locations across the country to meet the demand of customers, as suggested in Ager and Roberto’s case study. Besides, considering the high level of competition in the market, supermarkets are continuously challenged by the need to provide appealing deals to capture clients.
The adaptability of supermarkets to local circumstances allows experimenting with different store formats to fit consumers’ expectations. In addition, the COVID-19 pandemic increased the demand for online grocery shopping and convenient delivery and pick-up options, which represent another opportunity for expansion in the industry.