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When there are many players operate about the same size, they will probably have to compete for the same resources such as market share, customers’ loyalty, brand image and others. It becomes a high rivalry as well as threat for Giant, especially when its competitors like Tesco and Carrefour which are the international hypermarket chain with a global network of outlets. In fact, these companies generally have strong financial platform to support their business in Malaysia.
For their expansion in Malaysia, both Carrefour and Tesco adopted the route of forming alliance with local partners. For instances, Tesco is operated by Tesco Stores (Malaysia) Sdn Bhd, a 70:30 joint venture between Tesco and Sime Darby Bhd (The Edge Malaysia, 2010) while Carrefour is operated by locally incorporated Magnificient Diagraph Sdn Bhd (The Malaysian French Chamber of Commerce and Industry, 2010). Therefore, high rivalry would be occurred because companies like Tesco and Carrefour would not easily leave the industry, perhaps they would compete even if they are making low profits or even losses.
High storage costs or highly perishable products
The competition for customers intensifies when hypermarkets like Giant and competitors are attempting to unload the highly perishable products at the same time. Generally, high storage costs and highly perishable products cause a producer to sell goods as soon as possible.
According to Axapta Retail (2010), “as a rule, hypermarkets produce salads, baking and cookery themselves.” They have to correctly forecast the demand and speed of selling each specific product as well as calculate its cost especially when comes to raw food products.
In terms of high storage costs, it becomes a high rivalry to Giant with its competitors. High storage costs take place when the merchandises are selling slow and there are more stocks coming in to the warehouse. It increases Giant exposure to fluctuating prices, increases their cost for stock storage and hence unable to market a fresher product (Mohamed Taha, 2005).
The bargaining power of buyers
The bargaining power of buyers is high in hypermarket retailing market because the markets are overcrowded with different hypermarkets selling the same products with only slight difference in prices. In Malaysia market, there are lots of hypermarket retailers. This phenomenon attracts the entire hypermarkets retailer in the industry to compete with each others to attract the customers into their products. In fact, Giant shares the same customers as its competitors such as Tesco and Carrefour. As a result, buyer’s switching cost is definitely low.
These days, customers are becoming more knowledgeable and pricing sensitive. Thus, they are always upholding the power of bargaining and searching for cheaper and value offer. They are always looking around, searching for the finest products and services with the best price. This is the reason why there are so many different types of promotions, packages and programs being offered to the customers in the markets nowadays. . If the customers are not satisfied with the product quality and services provided by Giant, with the amount of competitors, it is easy for them to switch their allegiance to other retailers.
It is more important to focus more on customer retention rather than garnering new customers. Hence, in order to improve customers’ loyalty, Giant focuses more on customer satisfaction by providing excellent services and exclusive attention to each customer.
The bargaining power of suppliers
Giant has many suppliers. The bargaining power of supplier is low and they can easily replace their suppliers. This allows Giant to take advantage of this power and use it on their suppliers, shifting things in their favors. As the switching cost of supplier is also low, Giant can have the rights to not deal with supplier if they have do not want to. Giant can make a request and if the supplier does not accept their request, Giant can easily replace their suppliers with new ones. Unless frequent purchases are agreed and made between two parties, it would however cost a minimal amount to switch added to if the supplier are new and offering higher prices. The bargaining power of suppliers is even weaker if they try to increase the prices or reduce the quality of the products.
The Threat of New Entrants
The threat of new entrants is the possibility that new firms will enter the industry. New entrants also bring a desire to gain market share and often have significant resources. Their presence may force prices down and put pressure on profits.
Economies of scale
Giant hypermarket Malaysia has been established itself as the biggest local hypermarket that provides direct selling product from the manufacturing. Giant orders large amount quantity of product and producing their own branding which can cut down their cost of production and hence offer cheaper price compare to its competitors.
Basically, Giant has taken several years to gain its customer loyalties and brand identification in the market. Indeed, it is unachievable without the heavy expenditures spent on advertising, and creating a brand name. Consequently, the threat of entrants will be low as new companies will have to do research and analysis on the current hypermarket industry in order to achieve large customer base or market share within the industry.
Large amount of money is often required to enter one’s industry on a large scale to make profits. The natures of hypermarket retailing business require huge capital investments in manpower, stocks, landscape and market knowledge likes the customer needs and new residential area development.
The Threat of Substitute Products
Substitute refers to product in other industries. A threat of substitute exists when the product demand is affected by the price change of substitute product. The product price elasticity is affected by substitute product as more substitute become available, the demand becomes more elastic since customer have more alternatives. A close substitute product constrains the ability of firm in an industry to raise prices.
Giant has taken incentive to fight the substitute by providing slogan “everyday low price” to their customer. By making that practices Giant can get more customers compared to its competitors. For example, Giant cannot change the packaging of other manufacturing product, which also available at the competitors’ stores. Hence, Giant can only giving different price to the product.
The appearance of “Homegrown” 24-hour mini-supermarkets or convenience stores such as 99 Speed Mart and KK Super Mart are another possible substitute that exists to the public nowadays (The Star Online, 2009). Consumer can visit their nearest stores and buy the daily goods anytime compare to Giant which only opens 12 hours per day. In fact, they have expanded swiftly in these recent years and gained customer demand by operating 24 hours daily and offering lower prices for certain products.
The Malaysian French Chamber of Commerce and Industry, 2010, “Company Details: Magnificient Diagraph Sdn Bhd/CARREFOUR MALAYSIA”, Retrieved 21 September 2010 [online], Available from http://www.mfcci.com/patrons_details.php?id_data=6
The Edge Malaysia, 2010, “MARC affirms ratings on Tesco RM3.5b notes”, Retrieved 22 September 2010, Available from http://www.theedgemalaysia.com/first/1486-marc-affirms-ratings-on-tesco-rm35b-notes.html
Axapta Retail, 2010, “Hypermarkets”, Retrieved 22 september 2010, Available from http://www.axaptaretail.com/eng/formats/hypermarkets/
Mohamed Taha, 2005, “United Arab Emirates: Poultry and Products: Annual Poultry Meat Report 2005”, Retrieved 22 September 2010,[online] Available from http://www.fas.usda.gov/gainfiles/200509/146130738.pdf
The Star Online, 2009, “KK Super Mart plans to venture abroad”[online], Available from
http://biz.thestar.com.my/news/story.asp?file=/2009/4/18/business/3714602&sec=business [Accessed 14 October 2010]
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