Parknshop - Analyze Wellcome with Porter's Five Force Model

Porter’s Five Force Model :

1. Bargaining power of buyers (High pressure)

The main buyer of Wellcome supermarket is consumer and they are powerful. As the products of Wellcome are undifferentiated, their bargaining power is significantly high. The products can be purchased from many other suppliers such as PARKnSHOP, DCH Food Mart and wet markets, as well as their prices are easy to be compared by buyers. Therefore, buyers will base their decision mainly on price and then go to other shops as there are few switching costs of them. They can switch to an alternative supplier at their convenience because there are many branches of other supermarkets and wet markets so that they do not need to spend many costs on switching.

Wellcome is facing the high bargaining power of buyers although its market share is large in Hong Kong.

It has tried to reduce the bargaining power of buyers through increasing their loyalty (joining Octopus Rewards of Octopus Cards Limited and Stamps Program) and launching its own brands.

2. Bargaining power of suppliers (Low to Medium pressure)

There are different inputs of Wellcome such as labors and products. For labors and small-medium suppliers, they are not such powerful as they may not influence the terms and conditions of employments or transactions in their favor. There are over 5,000 employees in Wellcome and lots of them are frontline staff. The recruitment conditions offered to them are similar among retail industry so that they have low bargaining power to Wellcome. This situation is same as small-medium suppliers because there are lots of small-scale suppliers selling undifferentiated products in the market and they are fighting for an opportunity to cooperate with large-scale retail shops. Also, the purchase of Wellcome may represent a significant portion of their business and they may depend on this business. Hence, the bargaining power of labors and small-medium suppliers is low and it may not influence the operation of Wellcome.

For larger-scale suppliers such as Procter & Gamble, their bargaining power is higher because the purchase of Wellcome does not have a significant portion of their business. They still have other customers which support their business, for example, pharmacies and grocery stores. Moreover, the suppliers which sell differentiated products like Swire Coca-Cola HK Limited, there are few substitutes in Hong Kong so that the companies have strong bargaining power to Wellcome.

Apart from this, it poses a definite threat that those companies can become forward integrate into their customers’ business. For example, there are many branches of “Eat-east” from Sun Generation Ltd which sells boxed rice. It controls the direct distribution of its products. Therefore, large-scale suppliers