The Swedish Organic Food Market : A Competitor and Industry Analysis

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The Swedish Organic Food


- A Competitor and Industry Analysis -

Bachelor’s  thesis  within  Business  Administration   Author:     Jonas  Deichmann  

    Sarah  Fitz-­‐Koch  

    Samuel  Gauger  

Tutor:     Hamid  Jafari   Jönköping       May  2012




We   would   like   to   take   the   opportunity   to   thank   everyone   that   contributed   to   the   completion  of  our  thesis.    

First  of  all,  we  would  like  to  thank  our  supervisor,  Hamid  Jafari,  who  always  gave  us   constructive  feedback  and  guided  the  whole  thesis-­writing  process  in  a  very  good  and   helpful  manner.    

Second,   we   are   very   thankful   for   all   the   companies   and   their   respective   spokes-­ persons  that  we  interviewed  and  to  which  we  sent  our  questionnaire.  Without  their   help,  the  content  and  validity  of  this  thesis  would  have  been  poorer.    

Last  but  not  least,  we  are  grateful  for  all  the  feedback  we  got  from  our  fellow  stu-­ dents.    


Jonas  Deichmann       Sarah  Fitz-­Koch              Samuel  Gauger   Jönköping  International  Business  School,  May  2012  


Bachelor’s  Thesis  in  Business  Administration  

Title:   The  Swedish  Organic  Food  Market  

Author:   Deichmann  Jonas,  Fitz-­‐Koch  Sarah,  Gauger  Samuel  

Tutor:   Hamid  Jafari  

Date:     2012-­‐05-­‐10  

Subject  terms:   Competition,  Swedish  Organic  Food  Market,  Strategy,  Strengths  

  and  Weaknesses,    Positioning  



The   organic   food   market   in   Sweden   has   grown   continuously   in   the   last   decades.   This  led  many  retailers  and  small  stores  to  start  selling  organic  food  as  well  as  ex-­‐ tending   their   organic   food   assortment   and   variety   extensively.   In   this   thesis   our   purpose  was  to  analyse  the  Swedish  organic  food  market  in  terms  of  competition   and   business   level   strategy.   The   two   main   players   in   the   market   (ICA   and   Coop)   were  chosen  to  be  analysed  in  more  detail  as  well  as  a  local  store  (Bikupan).  The   results   of   the   local   store   were   generalized   for   other   small   and   local   stores   in   Sweden.   This   was   done   to   get   a   better   picture   of   the   market   and   about   how   the   companies  in  the  Swedish  organic  food  market  compete  with  each  other.    

Our  data  was  collected  by  doing  three  semi-­‐structured  interviews,  two  with  Coop   and  one  with  Bikupan.  Furthermore,  we  sent  out  one  questionnaire  to  ICA.  In  the   case   of   Coop,   we   interviewed   the   manager   for   sustainable   development   and   one   specific   Coop   store   due   its   interesting   concept   “Green   Room”   where   almost   only   organic  food  is  sold.  The  answers  were  then  linked  with  our  general  findings  about   the  market  as  well  as  our  theoretical  framework  and  the  following  findings  were   made:  

o ICA  and  Coop  are  the  main  competitors  followed  by  Axfood   o there  are  not  many  differences  between  ICA  and  Coop   o competition  is  to  some  extent  based  on  price  

o increasing  pressure  on  small,  local  stores  due  to  the  main  players’  ever  in-­‐

creasing  market  coverage  

o ICA  is  closest  to  be  the  cost-­‐leader,  whereas  Coop  is  somewhat  more  focus-­‐

ing  on  differentiation.  Small,  local  stores  are  truly  differentiated  compared   to  Coop  and  ICA.    



Table  of  Contents  


Introduction... 1  

1.1   Background... 1   1.2   Problem  Discussion ... 2   1.3   Purpose ... 3   1.4   Research  Questions... 3   1.5   Perspective ... 3   1.6   Definitions... 3   1.6.1   Organic  food... 3   1.6.2   KRAV... 4   1.7   Methodolgy... 4  


Frame  of  References ... 5  

2.1   Retail  channels... 5  

2.2   Porter’s  Five  Forces ... 6  

2.2.1   Threat  of  New  Entrants... 8  

2.2.2   Rivalry  among  existing  competitors... 9  

2.2.3   Bargaining  Power  of  Buyers ...10  

2.2.4   Bargaining  Power  of  Suppliers ...10  

2.2.5   Threat  of  Substitute  Products ...10  

2.3   The  Components  of  a  Competitor  Analysis ...11  

2.4   SWOT...13  

2.5   Porter’s  Generic  Strategies ...14  

2.5.1   Cost  leadership  strategy ...15  

2.5.2   Differentiation  strategy...16  

2.5.3   Focus  Strategies...17  

2.5.4   The  pursuit  of  more  than  one  generic  strategy ...18  

2.6   Summary  of  Frame  of  References...19  


Method ...20  

3.1   Choice  of  method...20  

3.1.1   Literature  review...20   3.1.2   Case  study ...21   3.2   Interviews ...21   3.2.1   Interview  selection...23   3.2.2   Observations...24   3.2.3   Data  collection...24  

3.3   Method  for  analysis...25  

3.4   Evaluation  of  method ...27  

3.4.1   Practical  Problems ...27  

3.4.2   Validity  &  Reliability  of  the  Methods...27  


Empirical  Findings...29  

4.1   Background...29  

4.1.1   Case  1:  ICA ...29  

4.1.2   Case  2:  Coop ...30  

4.1.3   Case  3:  Bikupan ...30  

4.2   Competition  in  the  Swedish  organic  food  market ...31  


4.2.2   Coop’s  competitive  situation ...32  

4.2.3   Bikupan’s  competitive  situation...32  

4.3   Strategic  positioning...32  

4.3.1   ICA’s  strategic  positioning ...33  

4.3.2   Coop’s  strategic  positioning...33  

4.3.3   Bikupan’s  strategic  positioning ...34  


Analysis ...36  

5.1   Competition  in  the  Swedish  organic  food  market ...36  

5.2   SWOT  analysis...39  

5.2.1   Opportunities  and  threats  in  the  external   environment...39  

5.2.2   ICA’s  strengths  and  weaknesses ...40  

5.2.3   Coop’s  strengths  and  weaknesses ...41  

5.2.4   Bikupan’s  strengths  and  weaknesses ...41  

5.3   Strategic  positioning...44  

5.3.1   ICA ...44  

5.3.2   Coop...45  

5.3.3   Bikupan ...45  


Discussion ...48  

6.1   Suggestions  for  further  research...48  

6.2   Limitations...48  

6.3   Recommendations...49  

6.4   Conclusion...50  



Figure  2-­‐1   Porter’s  Five  Forces  (Porter,  2008)... 7  

Figure  2-­‐2   The  Four  Elements  of  a  Competitor  Analysis  (Porter,  1980)... 12  

Figure  2-­‐4   Porter’s  Generic  Strategies  (Porter,  1998) ... 15  

Figure  5-­‐1   Cross  Case  Analysis:  SWOT... 43  

Figure  5-­‐2   Strategic  Positioning  of  the  analysed  companies... 44  



Chart  3-­‐1   Overview  of  interviews ... 22  

Chart  3-­‐2      Reasons  for  choosing  the  specific  cases... 23  

Chart  3-­‐3   Seven  steps  process  (Marshall  &  Rossman,  2006)  for  analysing   research  methods... 25  

Chart  4-­‐1   Overview  of  organic  food  at  selected  retailers/stores  (based  on   KRAV’s  marknadsrapport  2012  and  interviews  (Appendix))... 31  

Chart  5-­‐1   Overview  of  Porter’s  Five  Forces  applied  in  the  Analysis... 39  

Chart  5-­‐2   Cross  Case  Analysis:  Generic  Strategies ... 47  



Appendix  1:  The  Swedish  organic  food  market  (2004  –  2020)... 57  

Appendix  2:  Price  comparision  between  ICA  Maxi  and  Coop  Forum  in                      Jönköping... 58  

Appendix  3:  Interview  guide... 59  

Appendix  4:  Interview  with  Bikupan... 60  

Appendix  5:  Interview  with  Coop  Forum  Sisjön  (Green  Room) ... 64  

Appendix  6:  Interview  with  ICA ... 67  

Appendix  7:  Interview  with  Coop... 70    




In   this   Introduction   chapter,   we   will   present   the   background   and   problem   on   which  the  purpose  and  research  questions  of  our  thesis  are  built.  A  short  section   about  delimitations  in  this  paper  and  a  definition  finish  the  chapter.    



The  sales  of  organic  food  in  Sweden  are  setting  new  records.  In  2010,  sales  of  or-­‐ ganic  food  and  non-­‐alcoholic  beverages  rose  by  six  per  cent  compared  to  the  fig-­‐ ures  from  2009  (Statistics  Sweden,  2011).  This  figure  was  almost  doubled  in  2011,   when  the  sales  of  organic  food  rose  by  eleven  per  cent  to  a  total  of  9.2  billion  SEK   (Ekoweb,   2012).   That   implies   that   the   organic   food   segment   takes   an   ever-­‐ increasing  share  of  the  food  sales  in  Sweden.  According  to  Ekoweb  (2012),  today’s   turnover  of  9.2  billion  SEK  will  be  almost  doubled  in  just  eight  years,  with  the  food   retailing  industry  being  the  one  with  the  highest  potential.  The  increasing  business   with  organic  food  is  illustrated  in  Appendix  1.    

One   of   the   main   factors   behind   this   trend   is   that   consumers   have   become   more   concerned   about   environmental,   fair   trade   and   health   issues   (Magnusson   et   al.,   2001;   Hughner   et   al.,   2007).   KRAV   (see   definitions,   1.6.2)   found   that   consumers’   willingness  to  buy  organic  food  has  been  increasing  steadily  (KRAV,  2012).  One  of   the   obstacles   for   buying   organic   food   is   high   prices.   The   prices   for   organic   food   have   decreased   considerably   during   the   last   years   (Magnusson   et   al.,   2001;   ICA   2011).  This  is  due  to  the  fact  that  Swedish  retailers  keep  on  introducing  new  or-­‐ ganic  food  articles  to  the  market,  both  national  and  private  brands,  and  at  the  same   lowering  the  prices  of  some  of  the  products    (see  Table  1-­‐2;  ICA,  2012;  KF,  2011).  A   private  brand  is  a  retailer’s  own  brand  that  helps  it  to  differentiate  itself  from  its   competitors  (Levy  &  Weitz,  2009).  

In  order  to  win  more  customers  for  the  organic  food  segment,  several  Swedish  re-­‐ tailers  introduced  new  private  brands  such  as  ICA’s  “I  love  eco”  or  Coop’s  “Ängla-­‐ mark”(ICA,  2011;  KF,  2011).    The  advantage  with  these  private  brands  is  that  the   retailers  can  offer  organically  produced  food  at  a  lower  price  and  at  the  same  time   having  more  control  over  the  market  and  products.  Furthermore,  it  enables  them   to   more   easily   reach   the   consumer,   by   having   no   entry   barriers   (Hultman   et   al.,   2008;  ICA,  2011).    


One  of  the  main  advantages  by  having  private  brands  is  the  potential  to  gain  higher   margins  in  contrast  to  the  sales  of  national  brands.  Private  brands  also  help  retail-­‐ ers   to   differentiate   from   others   (Gullstrand   &   Jörgensen,   2011).   Hultman   et   al.   (2008)  predict  that  there  still  is  a  lot  of  potential  for  private  brands  in  the  Swedish   market  and  thus  underlined  their  importance  for  competition  among  the  players  in   the  Swedish  organic  food  market.  


In  the  following  section  we  will  take  a  closer  look  at  the  Swedish  food  retail  mar-­‐ ket,   before   we   introduce   the   organic   food   segment   of   the   market   in   more   detail.   The   Swedish   food   retail   market   is   highly   concentrated,   meaning   that   only   a   few   firms   account   for   a   large   share   of   the   market.   Swedish   food   retailing   chain   ICA   makes  up  49  per  cent  of  the  Swedish  market  alone.  Together  with  the  other  two  


big  players,  Coop  (20%)  and  Axfood  (16%),  86  per  cent  of  the  Swedish  market  is   covered.  By  including  the  small  chains  (Bergendahls,  Netto,  Lidl),  almost  the  entire   market,  98  per  cent,  is  covered  (Gullstrand  &  Jörgensen,  2011).  

The  trend  in  Sweden  is  towards  larger  but  fewer  grocery  stores.  Larger  stores  tend   to  have  lower  prices  than  smaller  ones  which  is  one  of  the  reasons  for  this  trend   (Gullstrand   &   Jörgensen,   2011).   Thus,   small   stores   often   need   to   differentiate   themselves   well   in   order   to   survive.   However,   Gullstrand   and   Jörgensen   (2011)   found  that  competition  among  Swedish  food  stores  is  local,  implying  that  consum-­‐ ers’  primary  grocery  store  is  closely  located  to  their  homes.  Therefore,  competition   differs  from  region  to  region,  and  city  to  city  in  Sweden.  A  good  example  is  Coop   Forum  Sisjön’s  concept  “Green  Room”,  which  is  an  organic  store  in  the  main  gro-­‐ cery  store,  that  would  not  be  successful  in  other  regions  in  Sweden,  due  to  a  lack  of   demand  and  less  affluent  consumers.  We  will  introduce  the  concept  in  more  detail   in  our  case  study  about  Coop.      

When  it  comes  to  the  sales  of  organic  food,  the  market  looks  somewhat  different.   ICA’s,  Coop’s  and  Axfood’s  market  share  of  the  Swedish  organic  food  market  is  not   as  high  as  in  the  Swedish  food  retail  market.  Together  they  stand  for  around  50  per   cent  (KRAV,  2012;  Ekoweb,  2012).  

Besides  the  traditional  organic  food  retailers  and  stores,  an  increasing  number  of   online  stores  open  that  sell  organic  food  on  the  Swedish  market.    

However,  in  this  thesis  we  will  focus  on  the  two  biggest  players  in  the  Swedish  or-­‐ ganic  food  market:  Coop  and  ICA,  and  will  not  go  into  more  detail  concerning  or-­‐ ganic  online  stores.  Even  though  Axfood  sells  a  higher  number  of  organic  food  pro-­‐ ducts  than  ICA  (Chart  1-­‐1),  we  decided  to  focus  on  ICA  instead,  since  they  are  the   market  leader  in  organic  food  sales  (turnover)  and  total  food  sales.  Furthermore,   we   will   have   a   closer   look   at   how   a   small   and   local   organic   store,   Bikupan   in   Jönköping,  competes  on  the  market.  This  is  linked  to  Gullstrand’s  and  Jörgensen’s   (2011)  finding  that  Swedish  food  retailers  compete  on  a  local  level  rather  than  on  a   national  one.  


Problem Discussion

The  Swedish  organic  food  market  is  expected  to  grow  in  a  similar  pace  in  the  com-­‐ ing  years  as  it  used  to  in  previous  ones  (Appendix  1).    This  attracts  competitors,   and  makes  existing  ones  to  invest  more  resources  in  the  field.    

One  of  the  indicators  for  an  increasing  competition  within  organic  food  is  the  fact   that   ICA   decreased   prices   for   its   private   brand   last   year   to   reach   an   even   bigger   customer   group   (ICA,   2011).   Additionally,   the   increasing   number   of   Coop’s   and   ICA’s   assortment   and   variety   (defined   under   2.1.5)   of   their   private   organic   food   brands   could   be   an   indicator   that   competition   is   shifting   towards   price.   This   is   partly   based   on   Zanoli’s   and   Naspetti’s   (2002)   findings   that   many   Swedish   con-­‐ sumers   perceive   organic  food   products  to  be  too  expensive  and  thus  price  is  the   main  barrier  for  many  consumers  to  buy  organic  food.   At  the  same  time,  Coop  is   aiming  to  increase  the  share  of  organic  food  of  total  food  sales  to  ten  per  cent  in   2012   (KF,   2012)   and   might   thus   strengthen   its   position   as   the   retailer   with   the   largest  assortment  and  variety  (defined  under  2.1.5).  


Increasing  competition  among  the  market  leaders  as  well  as  the  trend  towards  lar-­‐ ger  but  fewer  grocery  stores  (Gullstrand  &  Jörgensen,  2011)  puts  also  pressure  on   small  and  local  organic  food  stores  such  as  Bikupan.  Therefore,  new  ways  to  differ-­‐ entiate   or   to   exploit   a   niche   have   to   be   found   in   order   to   be   successful.   Further-­‐ more,  a  competitor’s  current  positioning  strategy  is  crucial  to  know  for  a  company   in  order  to  plan  competitive  actions.  Consequently,  a  company  needs  to  be  aware   of  its  capabilities,  as  well  as  opportunities  and  threats  in  the  Swedish  organic  food   market.   This   implies   that   a   company   needs   to   know   who   their   competitors   are,   how  they  compete,  as  well  as  how  it  should  act  in  response  to  their  actions  and  the   company’s  own  goals.    



The  purpose  of  this  paper  is  to  analyse  the  Swedish  organic  food  market  in  terms   of  competition  and  business-­‐level  strategy.      


Research Questions

1. How  does  competition  look  like  in  the  Swedish  organic  food  market?    

2. What  are  the  capabilities  of  Coop,  ICA  and  Bikupan  and  how  can  they  ben-­‐ efit  from  external  market  developments?  


3. What  kind  of  generic  strategy  is  being  pursued  by  ICA,  Coop  and  Bikupan  in   order  to  compete  successfully  in  the  market?    



This  thesis  is  written  in  the  firm’s  point  of  view  and  thus  helps  managers  to  better   know  about  competition  and  firm  strategy  in  the  Swedish  organic  food  market.    



1.6.1 Organic food

In  this  thesis  we  focus  on  organic  food  retailers  and  stores.  We  are  aware  of  the   fact  that  there  are  other  organic  products  sold  in  grocery  stores,  such  as  organic   detergents   or   soaps.   We   refer   to   these   other   organic   categories   several   times.   Nevertheless,   we   found   that   it   is   less   confusing   when   we   only   focus   on   organic   food.  The  reason  for  that  is  that  the  research  is  divided  in  organic  food  and  organic   products.  We  decided  to  focus  on  organic  food  because  it  has  the  largest  share  of   the  assortment  and  variety  of  organic  food  products  in  ICA,  Coop  and  Bikupan.     Organic  food  is  produced  according  to  certain  criteria  that  support  sustainability   and  to  keep  the  ecological  system  in  balance.  For  example,  pesticides,  antibiotics,     growth  hormones  or  the  use  of  genetically  modified  food  is  not  allowed  (Honkanen   et  al.,  2006).  


1.6.2 KRAV

KRAV  is  a  Swedish  organisation  that  develops  organic  standards.  The  organic  food   products   that   comply   with   these   standards   are   allowed   to   carry   the   KRAV   label   (KRAV,  2012).  



With  regard  to  epistemology  which  deals  with  the  creation  and  construct  of  know-­‐ ledge  (Mathison,  2011),  we  believe  that  the  reality  is  a  social  and  subjective  con-­‐ struction  and  not  a  construct  that  can  be  objectively  created.  This  means  that  any   type   of   knowledge   is   rested   upon   personal   experiences   which   are   influenced   by   our  social  attitudes.  With  this  perception  in  mind,  we  take  our  readers  through  an   interpretative  and  qualitative  approach.  


We  have  applied  an  interpretative  approach,  since  we  believe  it  is  the  most  suit-­‐ able  approach  for  our  study,  for  three  reasons:  


Firstly,  interpretation  has  a  crucial  role  for  this  thesis,  since  it  emphasizes  the  per-­‐ sonal  involvement  in  the  data  gathering  process.    


Secondly,  interpretation  does  not  want  to  delineate  clear  relations  between  statis-­‐ tical   analysis   and   objective   facts.   It   rather   attempts   to   understand   the   reality   through  a  more  sensitive  process  (Carson  et  al.,  2001).    


Thirdly,  interpretation  often  takes  a  qualitative  approach  (May,  2002).  The  qualita-­‐ tive  approach  can  be  comprised  of  different  methods,  such  as  for  example  in-­‐depth   interviews  or  focused  groups  (Carson  et  al.,  2001).  We  will  explain  the  qualitative   approach   that   we   are   going   to   apply   in   our   thesis   in   more   detail   in   our   method   chapter.    



Frame of References

In  the  frame  of  references  we  will  present  theories  and  research  which  has  been   done  previously  and  which  will  be  applied  during  our  analysis.  We  will  mention  re-­‐ tailing  theory  but  our  main  focus  will  be  on  competition  and  strategy  theory  since   this  is  of  most  usefulness,  considering  our  purpose.    Of  special  importance  for  our   paper  is  the  work  done  by  Michael  Porter  who  is  according  to  Bailey  (2007,  p.  48)   “a   world   authority   on   strategy   and   competitive   advantage”.   In   order   to   analyse   competition  we  will  use  his  Five  Forces  Model.  Furthermore,  Porter’s  three  generic   strategies   will   be   applied   with   regard   to   Coop’s,   ICA’s   and   Bikupan’s   positioning   strategies  in  the  Swedish  organic  food  market.  In  addition  to  Porter’s  theories  we   will   also   use   a   SWOT   analysis   to   determine   the   strengths   and   weaknesses   of   the   chosen  companies  and  analyse  their  fit  with  the  external  environment.  We  will  not   make  use  of  a  PESTEL  because  of  the  limited  scope  of  this  thesis.    


Retail channels

There  are  several  different  channels  retailers  can  use  to  sell  their  merchandise  or   service  to  customers.  The  most  common  one  is  the  store  channel,  which  does  ac-­‐ cording  to  Brynjolfsson  et  al.  (2009)  still  vastly  outsell  other  channels  in  most  pro-­‐ duct  categories.  The  store  channel  offers  a  variety  of  benefits,  that  other  channels   do  not  offer.  Many  shoppers  do  not  know  the  exact  item  they  want  but  rather  have   a  general  idea  about  their  wants.  In  a  store  they  can  browse  the  store  and  see  what   is  available  before  they  decide  what  to  buy.  Furthermore,  it  is  possible  to  touch  and   feel  products,  get  personal  service  by  sales  associates  and  decide  whether  to  pay  in   cash  or  by  credit.  The  physical  presence  of  a  store  also  limits  the  perceived  risk  for   customers  since  they  are  less  worried  about  the  possibilities  of  returning  an  article   (Levy  &  Weitz,  2009).  


Today,  the  internet  has  become  an  important  channel  over  which  companies  sell   their   goods   and   services   to   consumers.   In   Sweden   53   per   cent   of   the   population   bought  something  over  the  internet  during  the  last  3  months  prior  to  a  survey  by   the  European  Commission  (Eurostat,  2012)  and  the  tendency  is  that  this  will  grow   even  further.  Buying  over  the  Internet  offers  the  convenience  that  it  can  be  done   from  home.  Furthermore,  Internet  channels  often  offer  a  wide  variety  and  informa-­‐ tion  that  can  help  consumers  during  the  buying  process  and  retailers  are  able  to   personalize   their   offers   for   the   customer   (Levy   &   Weitz,   2009).   Nonetheless,   ac-­‐ cording  to  Brynjolfsson  et  al.  (2009),  the  internet  channel  is  mostly  used  for  selling   specialized   and   niche   products   but   struggles   to   compete   with   brick-­‐and-­‐mortar   companies  when  selling  mainstream  products.  


Besides  those  channels,  there  are  other  channels  retailers  can  use  to  sell  their  pro-­‐ ducts   such   as   personal   selling,   vending   machine,   catalogues   or   kiosks   (Levy   &   Weitz,  2009).  


Today,  many  companies  do  no  longer  only  use  one  retail  channel  but  use  instead   multichannel   retailing   which   is   a   combination   of   two   or   more   channels   (Levy   &   Weitz,  2009).  According  to  Schramm-­‐Klein  &  Morschett  (2006),  different  channels   can  offer  different  advantages  to  customers  and  therefore,  the  total  benefit  for  cus-­‐


tomers  can  be  larger,  especially,  when  the  different  channels  are  well  integrated  in   the  multi-­‐channel  system.  


There   are   several   types   of   retailers   operating   through   store   channels.   Most   con-­‐ sumers   buy   their   food   in   conventional   supermarkets   even   though   other   types   of   retailers  are  becoming  more  common.  Conventional  supermarkets  are  self-­‐service   food  stores  which  offer  all  different  kinds  of  groceries  and  some  limited  non-­‐food   items   such   as   beauty   products   and   general   merchandise.   Hypermarkets   are   an-­‐ other  type  of  retail  store  which  are  characterised  by  being  very  large  and  offering  a   broader   variety   than   conventional   supermarkets.   Their   product   assortment   con-­‐ sists   usually   of   60-­‐70   per   cent   of   food   but   also   of   general   merchandise   such   as   hardware,  appliances,  electronics  and  furniture  (Levy  &  Weitz,  2009).  


Finally,  there  are  speciality  stores,  selling  organic  products  to  customers.  Speciality   stores  are  relatively  small  and  serve  only  a  specific  market  segment  by  offering  a   limited  number  of  merchandise  categories  and  usually  offering  a  high  level  of  ser-­‐ vice  (Levy  &  Weitz,  2009).  


Porter’s Five Forces

According   to   Porter   (1980),   five   competitive   forces   shape   competition   within   an   industry.  These  forces  are:  Bargaining  Power  of  Buyers,  Bargaining  Power  of  Sup-­‐ pliers,  Intensity  of  Rivalry,  Threat  of  New  Entrants  and  Threat  of  Substitute  Pro-­‐ ducts  (Fig.  2-­‐1).  Porter’s  five  forces  have  an  impact  on  costs,  prices,  as  well  as  re-­‐ quired   investments   of   the   firms   in   an   industry,   and   therefore   condition   industry   profitability.  


However,  Miller  (1992),  found  some  additional  fields  of  “uncertainty”  that  charac-­‐ terize  an  industry.  Especially  one  field  is  stressed  out  by  Miller  to  be  of  importance   when  analysing  an  industry.  This  is  the  one  of  “unexpected  changes  in  the  demand   for  the  goods  or  services”  that  a  firm  is  producing.  Such  an  unexpected  change  can   reshape  an  industry.  “Technological  uncertainty”  is  a  further  important  field  to  be   aware   of   when   analysing   an   industry,   since   a   firm   is   uncertain   about   when   its   competitors   will   introduce   an   innovation   to   the   market.   One   should   be   aware   of   that  an  innovation  can  lead  to  a  change  in  the  competitive  landscape.  This  “uncer-­‐ tainty”   is   closely   linked   to   Porter’s   force   “Rivalry   among   existing   firms”   (Miller,   1992).    


The  German  discount  supermarket  chains  ALDI  and  LIDL  found  many  innovative   ways  to  save  money  which  had  a  noticeable  impact  on  the  food  retailing  industry   and   created   uncertainties   among   their   competitors.   One   of   this   innovations   is   to   leave  many  of  the  articles  they  sell  in  cartoons  rather  than  placing  them  on  a  shelf   with  the  latter  taking  more  time  and  being  more  costly.  Furthermore,  they  have  a   limited  assortment  which  helps  them  to  save  space  and  service  costs.    


Miller’s   (1992)   findings   are   closely   connected   to   Achrol   and   Stern’s   (1988),   who   stress  the  point  that  interdependence  among  competitors  in  an  industry  raises  the   level  of  decision  uncertainty.  This  interdependence  can  be  in  the  form  of  a  shared  


customer   group,   such   as   consumers   who   buy   organic   food   but   who   do   not   care   much  about  the  retail  store  where  they  buy  it.    


Figure  2-­‐1   Porter’s  Five  Forces  (Porter,  2008)  

Depending  on  the  industry  and  its  structure,  the  strength  of  the  five  forces  can  be   stronger  or  weaker.  In  most  of  the  industries,  only  a  few  of  these  forces  are  of  im-­‐ portance   when   analysing   the   industry   competition.   Stonehouse   and   Snowdon   (2007)  criticise  the  fact  that  Porter  implies  that  the  five  forces  fit  equally  well  to  all   the  firms  within  an  industry.  The  strength  of  a  specific  force  depends  much  more   on  each  individual  firm  within  an  industry,  rather  than  the  industry  overall.  This   difference   might   be,   among   other   things,   due   to   differences   in   firm   size   (Stone-­‐ house  &  Snowdon,  2007).  


Overall,  the  Five  Forces  Model  helps  firms  to  figure  out  the  most  crucial  features  of   the  industry  structure  in  order  to  be  profitable  in  the  long-­‐run  (Porter,  1998).  On   the  contrary,  Rumelt  (1991)  points  out  that  an  industry  has  less  impact  on  a  firm’s   profitability  than  firm-­‐specific  factors  do.    


2.2.1 Threat of New Entrants

The  threat  of  new  entrants  relies  upon  the  existing  entry  barriers  in  an  industry,  as   well  as  the  reactions  which  are  expected  from  existing  companies  in  that  industry   in  case  of  a  newcomer.  Besides  high  barriers  of  entry,  strong  expected  retaliation   leads  to  a  low  threat  of  entry.  The  following  barriers  to  entry  are  the  main  ones  ac-­‐ cording   to   Porter.   However,   one   should   keep   in   mind   that   entry   barriers   can   change  (Porter,  1980).    


-­‐ Economies  of  Scale     -­‐ Product  Differentiation     -­‐ Capital  Requirements   -­‐ Switching  Costs  

-­‐ Access  to  Distribution  Channels  

-­‐ Cost  Disadvantages  Independent  of  Scale  (brand  identification,  competitors’   experience  and  networks  in  the  industry  etc.)  


Porter  points  out  several  ways  to  overcome  entry  barriers  cheaper  than  competi-­‐ tors   do.   When   a   firm   comes   up   with   an   innovative   and   differentiated   product   or   service,  it  can  direct  attention  to  itself  and  thus  overcome  differentiation  barriers   (Porter,   1980).     Low-­‐cost   airline   Ryanair   was   able   to   offer   lower-­‐priced   tickets   than   its   competitors   and   thus   overcame   entry   barriers   to   the   highly   competitive   airline   industry.   This   was   achieved   by,   among   other   things,   flying   to   smaller   air-­‐ ports  located  further  away  from  major  destinations  than  the  big  airports.    Ryanair   found  a  niche  in  the  market  which  is  another  way  to  overcome  entry  barriers.      

By  developing  a  new  way  to  market  the  firm’s  product  or  service,  such  like  having   offensive  marketing  campaigns  that  make  people  talk  about  your  brand,  is  a  fur-­‐ ther  suggestion  for  how  to  overcome  entry  barriers  (Porter,  1980).  


The  importance  of  finding  ways  to  overcome  entry  barriers  is  mirrored  in  Lippman   and  Rumelt’s  (1982)  findings,  who  state  that  it  is  difficult  for  a  firm  to  copy  a  com-­‐ petitor’s  successful  strategy.  This  holds  even  true  for  a  firm  that  has  total  transpar-­‐ ency  of  a  competitor’s  strategy.    


In  order  for  a  firm  to  find  out  about  the  reaction  of  existing  firms  in  an  industry,  it   can  pay  attention  to  four  characteristics  (Porter,  1980).  If  existing  firms  have  an-­‐ swered  new  entrants  with  strong  retaliating  actions,  such  as  price  cuts  or  exten-­‐ sive  marketing  campaigns,  a  firm  can  be  sure  about  that  it  would  not  be  different  in   the  case  of  that  firm  entering  the  industry.  Second,  the  level  of  resources  available   to   retaliate   a   newcomer’s   entry   is   a   further   characteristic   that   a   firm   should   be   aware   of.   This   can   be   in   the   form   of   savings   or   other   unused   resources   such   as   power  over  suppliers.    The  level  of  retaliation  will  also  be  higher,  the  more  import-­‐ ant  that  industry  is  for  the  incumbents.  The  fourth  characteristic  is  that  of  slow  in-­‐ dustry  growth  which  implies  that  an  entrant  cannot  grow  without  decreasing  its   competitors’  market  share  (Porter,  1980).    


2.2.2 Rivalry among existing competitors

Firms  in  an  industry  are  usually  dependent  on  each  other,  which  implies  that  ri-­‐ valry  occurs  when,  for  example,  one  or  several  of  these  firms  try  to  gain  a  bigger   market  share.  Depending  on  what  the  firms  are  competing  on  (price,  advertising   etc.),  the  industry  might  be  better  or  worse  off.  There  are  numerous  indicators  in   an  industry  that  can  give  an  idea  about  how  intense  rivalry  is  among  the  firms  in   that  industry,  such  as  slow  industry  growth,  shift  in  rivalry,  lack  of  differentiation,   high  strategic  stakes  or  high  exit  barriers.  For  example,  when  the  competing  firms   in  an  industry  are  relatively  equal  in  terms  of  their  size,  it  might  lead  to  a  more  in-­‐ tense  fight  for  market  dominance,  since  they  have  similar  levels  of  resources  avail-­‐ able  for  action  and  reaction  (Porter,  1980).  


In  order  to  understand  the  level  of  rivalry  among  firms  in  an  industry,  one  should   also  look  at  the  dimension  on  which  competition  is  based.  One  dimension  can  be   price,  which  can  have  a  severe  impact  on  the  profitability  of  an  industry.  Price  re-­‐ ductions  by  one  competitor  often  lead  to  retaliation  actions  by  the  others  and  thus   can  start  a  price  war.  Customers  tend  to  focus  more  on  the  price  of  the  products   and  less  on  its  features  and  services  when  competition  is  based  on  price.  Competi-­‐ tion  based  on  price  often  occurs  when  the  products  are  perishable  (Porter,  1980;   Porter   2008).   Before   retailers   end   up   throwing   away   milk   products   that   expire   soon,  they  try  to  sell  them  for  a  reduced  price  to  capture  some  of  the  value.    


Another  indicator  that  competition  is  likely  to  be  based  on  price  is  when  the  pro-­‐ ducts  or  services  being  sold  by  competitors  are  very  similar  to  each  other.  Many   grocery   retailers   sell   the   same   food   brands   to   almost   identical   prices   which   en-­‐ courage   some   of   them   to   cut   prices   to   win   new   customers   (Porter,   1980;   Porter   2008).  


On  the  other  hand,  competition  that  is  rather  based  on  dimensions  like  the  level  of   service  or  product  features  such  as  “locally  produced”  does  normally  not  have  the   same   negative   impact   on   profitability.   This   is   because   these   dimensions   justify   a   retailer  to  charge  higher  prices  and  at  the  same  time,  customers  get  more  value  in   return.   Therefore,   these   dimensions   can   be   used   to   create   entry   barriers   against   newcomers  and  substitute  products.  A  situation  where  many  rivals  compete  on  the   same  dimensions  and  target  the  same  customers,  zero-­‐sum  competition  can  be  the   result.  This  means  that  profitability  is  decreasing  and  that  all  the  competitors  are   worse   off.   Consequently,   positive-­‐sum   competition   is   much   more   likely   to   occur   when  every  competitor  within  an  industry  targets  a  specific  customer  group  and   specific  needs  in  the  market  (Porter,  1980;  Porter,  2008).  


Chen  (1996)  points  out  that  the  relationship  between  pairs  of  firms  should  be  re-­‐ garded   when   analysing   industry   competition,   rather   than   all   of   a   firm’s   competi-­‐ tors  or  groups  of  firms  at  the  same  time.  This  is  due  to  the  fact  that  there  are  dif-­‐ ferences  within  the  market,  meaning  that  some  competitors  are  more  similar  to  a   firm  and  thus  a  bigger  rival.    


2.2.3 Bargaining Power of Buyers

Buyers  try  to  reap  the  biggest  benefits  from  the  goods  and  services  they  buy.  This   can   be   for   example   in   the   form   of   price   reductions   or   better   service   conditions.   Consequently,  industry  profitability  can  be  significantly  reduced  depending  on  the   level  of  the  bargaining  power  of  buyers  (Porter,  1980).  


Several  conditions  signify  whether  the  bargaining  power  of  buyers  is  weak  or  in-­‐ tense.   For   example,   if   a   large   portion   of   a   supplier’s   sales   go   to   one   retailer,   the   chances   are   high   that   this   retailer   possesses   bargaining   power.   One   mean   to   de-­‐ crease  bargaining  power  of  buyers  is  by  increasing  the  service  and  thus  raising  the   buyers’  switching  costs  (Porter,  1980;  Porter,  2008).    


Grundy  (2006)  argues  that  there  are  a  lot  of  interdependencies  between  Porter’s   five  forces  that  one  should  be  aware  of.  One  of  these  interdependencies  is  between   bargaining  power  of  buyers  and  threat  of  new  entrants.  Buyers  can  have  the  power   to   spur   new   companies   to   enter   an   industry   and   hence   decrease   entry   barriers   (Grundy,  2006).    

2.2.4 Bargaining Power of Suppliers

The   threat   of   rising   prices   and/or   the   reduction   of   the   quality   of   the   products   a   supplier  leverages  to  its  buyers,  are  means  to  gain  bargaining  power  over  firms  in   an  industry.  Just  like  under  a  condition  where  there  is  bargaining  power  of  buyers,   suppliers’  power  can  lead  to  a  severe  reduction  of  industry  profitability.  A  situation   where  there  are  only  a  few  suppliers  and  a  more  disconnected  buyer  group,  raises   the  bargaining  power  of  that  supplier  group.  In  addition  to  that,  the  importance  of   the  supplier’s  product  for  the  buyer  should  be  regarded.  The  more  important  it  is,   the  more  vulnerable  the  buyer  is  to  actions  benefiting  the  suppliers  (Porter,  1980).    

Of  significant  importance  is  the  threat  of  forward  integration  into  the  buyer’s  mar-­‐ ket  (Porter,  1980).  According  to  Levy  and  Weitz  (2009,  p.7),  “forward  integration   occurs  when  a  manufacturer  undertakes  retailing  activities”.  Chocolate  and  confec-­‐ tionary  producer  Lindt  is  one  of  those  producers  who  integrated  forward  into  its   buyers’   business   by   opening   small   stores   where   exclusively   Lindt   chocolate   and   confectionary  is  being  sold.    

On  the  other  hand,  backward  integration  occurs  when  a  retailer  enters  the  market   of  its  suppliers  and  manufacturers  (Levy  &  Weitz,  2009).  

2.2.5 Threat of Substitute Products

Substitute  products  are  those  that  are  similar  to  the  ones  produced  within  an  in-­‐ dustry.  The  breadth  and  depth  of  the  merchandise  offered  by  retailers  are  of  im-­‐ portance  when  identifying  substitute  products.  The  breadth  of  merchandise,  also   known  as  variety,  is  the  amount  of  merchandise  categories  that  are  covered  in  a  re-­‐ tailer’s   offering.   Assortment   on   the   other   hand,   is   the   synonym   for   the   depth   of   merchandise,  and  refers  to  the  aggregate  of  different  articles  within  a  specific  mer-­‐ chandise   category   (Levy   &   Weitz,   2009).Especially   the   depth   of   the   merchandise   might  be  deeper  in  certain  merchandise  categories.  For  instance,  the  assortment  of  


conventional   pasta   sauces   in   Swedish   retail   stores   is   deeper   than   the   one   of   or-­‐ ganically  produced  pasta  sauces.    


Substitute  products  can  decrease  the  price  level  that  firms  in  an  industry  have  as   their  target.  The  more  similar  a  substitute  product  is  to  a  firm’s  product,  the  less   freedom  that  firm  has  to  alter  the  price  setting  as  it  wishes.  A  mean  to  decrease  the   threat  of  substitutes  is  by  adding  new  features  and  value  to  the  product  or  service   being   offered   (Porter,   1980).   Well-­‐educated   employees   that   have   extensive   pro-­‐ duct  knowledge,  such  as  in  a  speciality  store,  is  an  example  for  good  service.  Pri-­‐ vate  brands,  a  firm’s  own  brand,  are  another  way  to  decease  the  threat  of  substi-­‐ tutes.  This  is  due  to  the  fact  that  these  private  brands  create  uniqueness  for  a  re-­‐ tailer  as  well  as  store  loyalty  among  its  customers  (Levy  &  Weitz,  2009).  


Moreover,   firms   should   always   pay   attention   to   changes   in   other   industries   that   have  some  relatedness  to  their  own.  This  is  due  to  the  fact  that  technological  im-­‐ provements   or   changes   in   customer   preferences   can   lead   to   the   fact   that   an   in-­‐ dustry’s   products   can   suddenly   become   a   substitute   for   the   ones   of   another   in-­‐ dustry    (Porter,  1980;  Porter,  2008).  


However,  the  identification  of  a  firm’s  product’s  substitutes  is  not  that  easy,  due  to   the  fact  that  there  are  direct  and  indirect  substitutes.  For  example,  a  supplier’s  ser-­‐ vice  sold  to  a  retailer  is  threatened  when  the  retailer  is  acquired  by  another  com-­‐ pany  with  an  already  existing  supplier  of  that  service  (Porter,  1998).  One  does  not   immediately  think  of  milk  to  be  a  substitute  to  Coca  Cola.  Nevertheless,  both  are   beverages  and  the  sales  of  Coca  Cola  can  be  negatively  affected  by  a  large  market-­‐ ing  campaign  that  highlights  the  healthy  ingredients  of  milk  against  the  unhealthy   ones  of  soft  drinks.  Porter  (1980)  identified  three  characteristics  that  make  up  the   function   of   the   threat   of   substitution.   These   are   first,   the   costs   that   occur   when   switching  to  a  substitute,  second,  the  tendency  of  the  buyer  to  buy  the  substitute   product  and  third,  the  difference  in  value  and  price  between  a  substitute  and  the   current  product.  


Based  on  the  knowledge  about  these  five  forces,  a  firm  better  knows  in  which  areas   it  can  make  use  of  its  core  competencies  and  compete  against  its  rivals  as  well  as  in   which   areas   it   should   avoid   competitive   actions   (Porter,   1980).   This   goes   in   line   with  Hatten’s  and  Hatten’s  findings  (1987),  who  point  out  that  a  successfully  im-­‐ plemented  strategy  of  firm  A  might  not  work  for  firm  B  due  to  differences  of  firm   B’s  resource  capabilities.  However,  the  analysis  of  the  five  forces  should  be  linked   to  factors  outside  of  an  industry,  such  as  legal  and  economic  factors,  in  order  for  a   firm  to  get  a  better  picture  of  the  competitive  landscape  in  which  the  industry  is   embedded  (Grundy,  2006).  When  regarding  these  factors,  and  understanding  the   five   forces   that   shape   its   industry,   a   firm   can   successfully   reshape   the   industry   structure.    


The Components of a Competitor Analysis

The   reason   why   a   competitor   analysis   is   of   importance   is   due   to   the   fact,   that   it   gives  a  better  idea  about  the  likelihood  of  a  competitor’s  possible  strategic  moves   and  reactions,  based  on  changes  in  the  competitive  industry  environment.  A  com-­‐


petitor  analysis  can  help  a  firm,  among  other  things,  to  more  easily  figure  out  what   a  certain  strategic  move  of  a  competitor  implies  for  its  own  strategy,  which  area   and/or   competitors   it   should   tailor   its   strategic   moves   for,   and   which   competi-­‐ tor(s)  it  should  avoid  to  attack.  At  the  same  time,  a  firm  can  use  this  framework  for   self-­‐assessment  (Porter,  1980).  



Figure  2-­‐2   The  Four  Elements  of  a  Competitor  Analysis  (Porter,  1980)  

Figure  2-­‐2  shows  the  four  elements  of  a  competitor  analysis,  namely  the  current   strategy,   capabilities,   assumptions   and   future   goals.   Having   analysed   these   four   elements,  a  firm  will  better  understand,  how  a  competitor  might  respond  and  act   now,  as  well  as  in  the  future  (Porter,  1980).  


A   competitor’s   future   goals   give   an   idea   about   the   likelihood   of   a   change   in   its   strategy   and   the   level   of   retaliation,   given   a   strategic   action   taken   by   one   of   its   competitors.  This  is  because  future  goals  can  predict  whether  a  firm  is  satisfied  or   not  with  its  current  situation  and  results  and  in  what  market  position  it  wants  to   see  itself  in  the  future.    In  order  to  avoid  strong  competitive  actions  and  reactions   due   to   a   new   market   entrant,   a   firm   may   investigate   if   there   is   a   position   in   the   market  that  does  not  directly  threaten  its  competitors  (Porter,  1980).    


Assumptions  about  a  competitor  can  be  drawn  by  looking  at  facts  like  its  values,   beliefs  about  its  market  position  or  its  history.  For  example,  a  firm  may  look  at  one   of   its   competitor’s   areas   in   which   that   competitor   has   been   successful,   and   may   thus  be  able  to  assume  what  that  competitor  is  going  to  do  next  (Porter,  1980).  



A  competitor’s  capabilities  show  its  strengths  and  weaknesses  and  thus  the  level  of   power  to  act  and  respond.  These  capabilities  help  a  firm  to  determine  whether  a   competitor  is  able  to  adapt  to  a  new  entrant’s  way  of  doing  business.  This  way  of   doing  business  can  be  related  to  many  aspects,  like  for  example  cost,  service,  pro-­‐ duct  or  marketing.  In  addition  to  that,  the  level  of  a  competitor’s  financial  strength   is   a   further   characteristic   worth   investigating.   It   can   give   a   firm   a   good   picture   about  how  the  rival  will  act  in  terms  of  fierce  competition  and  retaliating  actions   (Porter,  1980).  


Based   on   the   results   of   the   analysis   of   these   four   elements,   a   firm   can   create   a   competitor’s  response  profile  (Porter,  1980).  Chen  et.  al.  (1992)  did  some  further   research  on  how  competitive  actions  impact  firm  rivalry,  which  builds  on  Porter’s   findings  related  to  the  five  forces  and  a  competitor’s  response  profile.  The  time  lag   between   a   competitor’s   move   and   its   competitors’   responses   was   investigated.   Chen  et  al.  (1992)  found  that  it  depends  whether  a  competitor’s  move  is  strategic   or  tactical.  Strategic  actions  require  more  firm  resources  and  have  a  greater  impact   on  the  business  than  tactical  actions.  The  latter  leads  to  more  responses  by  com-­‐ petitors  in  a  shorter  period  of  time.  Strategic  actions  on  the  other  hand  can  reduce   the  number  of  competitive  responses  and  can  take  the  competitors  a  longer  time  to   respond.  This  is  due  to  the  fact  that  it  takes  more  time  to  implement  a  strategic  ac-­‐ tion  in  comparison  to  a  tactical  one  (Chen  et  al.,  1992).  


Market   commonality   and   resource   similarity   are   two   more   measures   that   are   of   importance  when  doing  a  competitor  analysis.  Both  of  them  are  closely  linked  to   Porter’s   five   forces   (Fig.   2-­‐1)   and   Porter’s   four   sources   of   a   competitor   analysis   (Fig.   2-­‐2).   Market   commonality,   is   a   measure   about   the   number   of   markets   in   which  a  firm  and  a  rival  are  competing  in,  as  well  as  the  importance  of  the  markets   to  each  of  them.  Sweden’s  food  retailers  ICA  and  Coop  for  example  compete  in  sev-­‐ eral  markets,  such  as  in  Sweden  and  Norway,  groceries  and  home  ware.  Resource   similarity  is  the  degree  to  which  two  firms’  resources  are  similar  to  each  other  in   both  type  and  number  of  resources  (Chen,  1996).  This  can  be  for  example  in  the   form  of  the  similarities  between  two  retailers’  suppliers  like  Arla  or  Axa  that  both   supply  Coop  and  ICA  with  organic  food  products  among  other  things.    



The  SWOT  analysis  is  a  tool  to  analyse  the  broader  environment  of  an  organization.   According  to  Dyson  (2004),the  SWOT  analysis  combines  internal  and  external  fac-­‐ tors  and  is  useful  for  analysing  the  fit  between  an  organization’s  capabilities  and  its   external   environment.   Furthermore,   it   is,   according   to   Mintzberg   et   al.   (1998),   a   powerful  tool  in  the  strategy  development  process.  Therefore,  we  will  use  it  to  ana-­‐ lyse  and  develop  a  strategy  for  our  cases.  

SWOT  stands  for  strengths,  weaknesses,  opportunities  and  threats.  It  includes  the   internal   capabilities   of   an   organization   in   terms   of   strengths   and   weaknesses,   as   well   as   the   external   business   environment   in   terms   of   opportunities   and   threats   (Fleisher   &   Bensoussan,   2003).   According   to   Fleisher   and   Bensoussan   (2003),   strengths   are   those   capabilities   and   resources   which   help   an   organization   to   be  



Figure 2-­‐1

Porter’s Five Forces (Porter, 2008) p.13

Figure 2-­‐2

The Four Elements of a Competitor Analysis (Porter, 1980) p.18

Figure 2-­‐3

Porter’s Generic Strategies (Porter, 1998) p.21

Figure 5-­‐1

Cross Case Analysis: SWOT p.49

Figure 5-­‐1

below gives an overview of the positioning strategies actually applied by the three companies in question: p.50


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