Costco Industry Analysis

Whole Foods Market in 2010

1. What is competition like in the North American wholesale club industry? Which of the five competitive forces is strongest and why? Use the information in Figures 3.4, 3.5, 3.6, 3.7, and 3.8 (and the related chapter discussions on pp. 57-70) to do a complete five-forces analysis of competition in the North American wholesale club industry.

Competition in the North American wholesale club industry is very complex and wide-ranged. Not only do these clubs compete with other clubs, but also grocery stores, general merchandise chains, electronics stores, clothing stores, and gas stations.

Rival Sellers: There are only 3 major rivals in this industry, Costco, Sam's Club, and BJ's. Costco is the largest, controlling approximately 56% of the market share. Next is Sam's Club, which controls 36%, followed by BJ's at 8%. BJs is not as geographically widespread as the other two companies, explaining its smaller market share.

Potential New Entrants: The three major competitors have very little to worry about as far as new entrants go. These companies have established relationships with suppliers, brand awareness, and a developed customer base. The experience these companies have gained over the past 25 years is also on their side, with highly tweaked business plans aimed at getting the most out of every penny.

Substitute Products: There is not much room for substitute products in this market, as prices are already extremely low. Substitute products would also have a switching cost as well since membership of these clubs costs money.

Supplier Bargaining Power: Most of the bargaining power in supplier relationships is given to the wholesalers themselves. Bulk purchases make relationships with wholesalers appealing to suppliers, as they can move a great amount of their product with fewer transactions. The wholesalers also work with a large range of suppliers, allowing for them to easily switch if prices become too high....