Sustainable Competitive Advantage of Trader Joe - Case Study Example

Table of Contents 1.0 Introduction 2 2.0 Porter’s Five Force Model 3 3.0 Sustainable Competitive Advantage 5 4.0 Conclusion 6 5.0 References 7 1.0 Introduction This report focuses on the competitive analysis of Trader Joe where the report makes an in-depth analysis of Porter’s Five Force Model to identify the industry trends and competiveness of the same. The report than makes an analysis of competitive advantage offered and “Sustainable Competitive Advantage” in terms of Trader Joe by making by relating it to Barney (2001) and Porter (2006) to provide readers with both practical and theoretical knowledge of the topic 2.0 Porter’s Five Force Model To analyze the intensity of competition which Trader Joe faces in the current scenario let us look upon the Porter’s Five Force model of industry competitiveness. Threat of New Entrants Trader Joe has an added advantage of Economies of scale which reduces its average long run cost and enables it to offer superior quality goods at lower price than its rivals. The threat of entry of new entrants is medium as entry to the existing market of Trader Joe is either supermarkets being rebranded or health store transforming into super markets. Further there exists a possibility that competition may become more intense in the form of grocery stores like Whole Foods or Market Baskets. Further specialty stores and Target super store could intensify competition. One of the major reasons of concluding the threat of new entrants as medium is because Trader Joe is characterized of offering unique products which its existing rivals fail to do so thus ensuring a competitive advantage to the company. Further the customers of Trader Joe are very loyal to the company and there seems very little probability of the customers being swayed away by existing or potential entrants in terms of luring them with lower price or using discounted schemes. Bargaining Power of Buyers Bargaining power of Buyers can be characterized differently in terms of its different buyers. Power of buyers in large volume is high as the variety of goods and services offered by its competitors within the same industry like Whole Foods and Grocery stores are immense. There are typically more than one food store located in most of the areas which give consumers a choice to make their preferred buying decision. However in terms of individual buying power of the buyer it is on the lower side as these stores are characterized by serving many individual customers where the individual power is almost non-existent. Further the price elasticity of demand of the consumer product are low as the buyers have options of immense alternative products which could be purchased in other grocery stores, local markets and super markets. Bargaining Power of Supplier’s Supplier’s bargaining power is low as Trader Joe is into contracts with multiple suppliers operating on a worldwide basis which decreases the leverage of a particular individual supplier. Further the degree of control on the suppliers by Trader Joe is high as they operate in smaller size than rest of the super market giants with strict control over the number of SKU’s in their stock. Further Trader Joe has been able to create its own brand recognition and customer loyalty towards its own labeled products which enables Trader Joe to easily switch over the suppliers without letting its customers know of the difference of in its products. The company also indulges in signing secrecy forms with his suppliers ensuring that neither its customers nor his suppliers know who the actual producers are. Threat of Substitute Products Threat of substitute products range from medium to low as there is large number of grocery stores in every corner of the targeted market of Trader Joe. However, Trader Joe in addition to staple foods is characterized with exclusive products imported from the best regions of the world which makes it unique. Restaurants do not poses a threat as there are many organic restaurants and specialty restaurants. Further shopping experience deliver by Trader Joe gives it an added advantage to attract more loyal customers where most of its rivals fail to make a serious impact like cozy atmosphere, great deals, refunds with no questions asked etc. Rivalry among Competitors Rivalry among competitors is high as there are many big chain grocery stores existing in the market who offer more organic products. The company also faces intense competition from Whole Foods and Wild Oats Market. Whole Foods has certainly become the world’s fastest and largest natural food retailer. Kroger, Safeway and Super Value are among the Whole foods competitors who occupy a large market share. Trader Joe on the other hand has strong strength of offering low prices for quality products and creating maximum customer satisfaction to its consumers. However their biggest weakness is that they are limited in store, size and their locations whereas Whole Food stores occupy a larger market area and bigger stores attracting more customers due to higher SKU’s. Further it is to be noted there are many specialty stores concentrating on organic foods and environment friendly products where Trader Joe outperforms them due to low prices of its products and customer loyalty towards the labeled products offered by Trader Joe. 3.0 Sustainable Competitive Advantage Barney (2001) describes Competitive advantage position for an organization when the company has been able to implement a value creation strategy which is unique and is not simultaneously implemented by current and potential competitors. However, Sustainable Competitive Advantage is different from competitive advantage as it exists only when other firms in the similar industry are incapable of duplicating the benefits of competitive advantage. Hence, a sustainable competitive advantage is reached when competitors have no available option to match with the competitive advantage of a specific firm in the industry (Porter, 1996). A Sustainable Competitive Advantage is characterized with resources adding positive value to firm, resources are imperfectly imitable, unique and rare resources among the current and potential rivals and no substitute to resources (Barney, 2001). Let us have a look at Trader Joe’s competitive advantage and if the company has any aspect of achieving Sustainable Competitive Advantage. To become successful in any industry an organization must realize the importance of customers and their perceptions to generate more customer loyalty. This is one of the key elements that make Trader Joe successful in the grocery industry. The company sets strategies keeping customers as the prominent catalyst which can be further enhanced by embracing and interaction with customers to attain sustainable competitive advantage. Strategies implemented by Trader Joe shows that the company has been in the process of achieving sustainable competitive advantage as it offers high quality products at lower price with money back guarantee which is not the case with its rivals. Further its unique branding strategy differentiates itself from its competitors and other grocery chain stores. The company has exceeded their perception and created a niche market for themselves from being just a mom-and-pop store to include a business portfolio. The company has been able to keep their supplier’s a secret which enables it to provide products in its own labeled marks with superior quality than offered by its rivals who fails to keep their suppliers secret and thus increasing the supplier power of bargaining. The company follows a strategy of larger turnover with lower SKU’s to gain advantage of economies of scale and lower their products price attracting more loyal customers. To add to the list its sustainable competitive advantage also rests on their neighborhood ambience, motivated employees, reasonable prices and attractive and appealing product mix. The most important of these above mentioned factors appears to be its unique product mix, which the company has been able to achieve as a result of intensive globe-trotting and anticipating the consumer tastes and wants and producing or delivering the right products as per specific needs and wants. As mentioned by Barney (20011) and Porter (2006) that sustainable competitive advantage can only be achieved when the existing and potential rivals completely fail to duplicate the services and strategies of a specific firm. Trader Joe has been able to create a market like this as it currently enjoys a niche market but however sustaining its competitive advantage rest upon its future ability to fend off its rivals in all sizes to grow at a faster pace without losing its quirky appeal. The unique branding strategy, secrecy forms with suppliers, superior products at lower prices and differentiation strategy implemented by Trader Joe can certainly produce incredible future results. It is to be further noted that Trader Joe can achieve sustainable competitive advantage in relation of some of its products or for the company as a whole however the same largely depends on the corporate strategy implemented by the company and competitors move to the same. Thus in a nutshell in can be concluded that Trader Joe currently experiences a competitive advantage over its existing and potential rivals and has great prospect to sustain its competitive advantage in the near future. 4.0 Conclusion This report provide readers with both theoretical and practical knowledge of the competitiveness of Trader Joe by making an in-depth analysis of the industry using a Porter five force model where the company seems to enjoy a niche market and has competitive advantage over its rivals however sustaining its competitive advantage is still uncertain though the company shows promising signs of achieving the same in near future. 5.0 References Barney, J. 2001. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17, 99-120. Porter, M. E. 2006.What is strategy? Harvard Business Review, 77(November–December), 61–78. Read More