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Trader Joe's Case Analysis

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UGBA 115:
Competitive Strategy Trader Joe’s Midterm Case Analysis


Jean Carlo Hoyos

The Industry
The grocery industry in the United States is currently an attractive industry (a.k.a. profitable). This attractiveness derives from the relative low threat of new entrants, low supplier and buyer powers, and low threat of substitutes. The main factors driving these results are the low concentration of suppliers and buyers, the significant barriers to entry due to high up-front investment costs (for infrastructure and distribution channels) and scale economies, low availability of substitutes, and the threat of retaliation from incumbents (by lowering price, for example). However, it is important to note that there is a heated rivalry among incumbents due to low seller concentration, high price sensitivity from consumers, dynamic price changes and strong exit barriers. Refer to Exhibit 1 for a detailed observation of the forces influencing the industry’s attractiveness.
The industry offers opportunities and poses threats in several areas. In the economic environment, the rising oil prices increases costs in the supply chain and/or distribution channels. In contrast, the several free-trade agreements with different countries open the doors for a variety of products from abroad at potentially lower prices or higher quality. Also, the proliferation of high end and low end niches (in detriment of traditional supermarkets) is paving the way for small-footprint stores that cater to specific customers.
Technology is playing a major role in the grocery industry with the consolidation of social media (Facebook, Instagram, YouTube, Vimeo, etc.) that allow instant communication between firms and customers (and among customers, too) and also enables customers to...

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