Ethnocultural Vegetables in Canada Part I
Five Forces Analysis
October 6, 2016 By Fruit & Vegetable
Canadian vegetable markets are dominated by established retail chains, which are able to leverage brand recognition as bargaining power. These companies, such as Loblaw Companies Limited, Metro and Safeway act as the largest means for barriers to entry within this category.
Buyers are classified as the consumers who purchase fruits and vegetables in Canada and their power determines the amount of control they have over the supply and price of the good. Since fruits and vegetables are seen as a commodity item, there tends to be differentiation among available products (Datamonitor, 2009). Due to similarity among offerings, a greater reliance is placed on the selected retail outlet and the loyalty consumers have to them. Large outlets capitalize on their ability to offer low prices, in response to recent trends of a more price sensitive consumer. Further, the importance of customers place on personal health and wellbeing acts to reduce the power buyers hold. Buyer power is classified as moderate within the fruit and vegetable industry. While numerous retail options are available to compete on price, the necessity of the good creates a larger dependence for consumers.
Suppliers are represented by the fruit and vegetable producers who grow, harvest and distribute their produce. Farmers tend to be independent and act to increase personal profits. However the numerous amounts of small producers, undifferentiated products, and ease of switching results in low supplier power (Datamonitor, 2009). This has become another area where retail chains have used their purchasing power to set price and quantity requirements. Bulk purchasing and extended contracts force producers to be dependent on one supermarket chain for family income (Datamonitor, 2009). This means that supplier relationships are extremely important in this industry, and that strong relationships need to be built in order to have strong sales.
Threat of new entrants
Threat of new entrants for ethnocultural vegetables should be seen as high. This is because the product segment is relatively new and demand for domestic produce is high. Furthermore, the increased expenditure and expected growth within the vegetable market (8% from 2005 to 2009) makes it an attractive area fro new farmers. Finally, many government agencies are looking to increase the production volume of these vegetables by providing farmers with in depth information on how to go about starting up and harvesting crops. The high threat of new entrants means that famers must always be monitoring the competitive landscape, and maintaing their supplier relationships. Too many additional entrants may cause the supply of ethnoculural vegetables to exceed demand which would make entrances into thie crop category unprofitable.
Threat of Substitutes
Demand for fresh local produce is high as preferences are changing to place a strong value on fresh food and ingredients (Eurmonitor, 2011). Further the dietary role that fruit and vegetables play in a consumers life make substitutes relatively limited. A possible substitute that was reported that in order to control household expenses roughly 24% of Canadians are growing at least some of their own foods at home (Euromonitor, 2011). Threat of substitutes is low to moderate since vegetables provide essential nutrients that cannot be found in substitute products, and home growing is unlikely to have a major impact on overall sales.
Rivalry among Existing Competitors
Rivalry among the Canadian vegetable industry is deemed to be high. This is associated with the number of small established farms that compete amongst themselves for retail sales within the few main grocery chains. While small outlets are the target location for ethnic produce only farmers able to ensure a consistent supply of quality product will be selected.
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