Industry Overview

Industry Overview

FamilyMart Co., Ltd is a type of convenience store that operates as a franchise chain in Japan (Kyodo, 2019). It also expands in various countries, and it launched its first store in Shanghai, China, in 2004. A convenience store refers to a small retail business that sells multiple items daily, such as snack foods, groceries, soft drinks, confectionery, and coffee, among others. Mainly, FamilyMart Japan operates in the convenience stores industry, and this paper looks at the industry analysis and future outlook of FamilyMart Japan in the Shanghai region.

Porter’s Five Forces

The primary purpose of porter’s five forces to analyze the attractiveness and competitiveness of the industry in which FamilyMart Japan operates in Shanghai. This analysis puts forth five factors; the threat of new entrants, rivalry among the existing businesses in the industry, the risk of substitution, bargaining power of buyers, and the bargaining power of the suppliers (Business Wire, 2016).

Threat of New Entrants

The risk of new entrants in the convenience stores industry in Shanghai, where FamilyMart Japan operates, is high. This aspect implies that new players can easily venture into the industry. Shanghai’s population density is high because it stands at 24.24 million inhabitants; thus, it is a massive opportunity for new investors. A higher population density is a primary contributing factor for the establishment of convenience stores in Shanghai. For instance, FamilyMart, Japan, launched its first outlet in Shanghai, and currently, it has expanded in 400 outlets in the same region. Shanghai is a famous city that is associated with high customer buying power; hence, it attracts new entrants in the convenience stores industry. Shanghai also comprises of various roads and alleys that make it easier for customers to navigate through the city. Besides, the costs of establishing a convenience store are manageable in Shanghai, especially for potential investors that leaves the threat of new entrants in the industry. For this reason, new business ventures always anticipate grabbing the opportunity of the vibrant shopping culture in Shanghai; therefore, the threat of new entrants is high.

Threat of Substitution of Products or Services

There is a high substitution of products and services in the convenience stores industry in Shanghai. Usually, substitute products for FamilyMart in Shanghai exist due to the current innovative and technological improvements. For example, Alibaba Group is an online platform that opened the Yike EGO store, and it seeks to substitute some unpopular products. Yike EGO runs a bakery, and it is likely to sell food items that may be unpopular in other convenience stores. Therefore, through innovation and technological improvements, Alibaba develops features that facilitate the selling of unusual products such as medical products. Such products are uncommon in other convenience stores like FamilyMart in Shanghai that leaves the threat of substitution.

Rivalry among the Existing Players

The intensity of competition among the convenience stores in Shanghai is high. Usually, the strength of industry competitiveness depends on the current competitors in the industry. 7-Eleven is FamilyMart’s main competitor in Shanghai that strives to acquire a larger market share in the industry. Additionally, the Lawson convenience store in Shanghai is the main competitor that has 325 outlets that operate as franchises in the region.

The Bargaining Power of Customers

Notably, the customer’s bargaining power in Shanghai’s convenience stores is high. Based on the nature of convenience stores, the customers’ switching cost is relatively low. As mentioned, the customer’s purchasing power in Shanghai is high due to the high population density. For this reason, the customers shop flexibly according to the prices offered in the convenience stores that leaves the threat of buyers’ bargaining power. China undergoes a significant economic development that creates job opportunities for the young generation; therefore, it stimulates the consumption demands among young people. This type of customer segment demands personalized, convenient, and enhanced shopping experiences that increase the customers’ bargaining power. Besides, customers may consider shopping in stores such as Yike EGO that allows self-delivery services. Therefore, convenience stores in Shanghai need to undergo significant developments to overcome this threat.

Bargaining Power of Suppliers

There is a low bargaining power among the convenience stores’ suppliers in Shanghai. Typically, convenience stores like FamilyMart do not produce goods. However, they redistribute the assets acquired from the retailers in the industry. Because there is a massive number of products or brands to select in the industry, convenience stores can secure specific suppliers with low bargaining power.

Analysis of the Future 5-Year Outlook of the Industry

Porter’s Five forces reveal that convenience stores in Shanghai encounter numerous improvement difficulties due to factors such as the emergence of e-commerce and changing consumer preferences. For this reason, convenience stores like FamilyMart strive to attain progressive growth by overcoming the current challenges such as competition in the industry. In the next five years, the convenience stores in Shanghai will need to utilize technological advancements to improve and integrate the daily operations to boost the customers’ shopping experiences. Mainly, convenience stores will need to reflect on the type of products and services that will likely meet the customers’ demands. Among the changes, the convenience stores should consider improvements such as optimizing the product categories to establish substantial competitiveness. FamilyMart’s statistics in Shanghai show that high-quality products satisfy the customers’ demands; therefore, they make a significant contribution to the increase in sales and profits. Besides, branding is a vital improvement direction that should be adopted in Shanghai’s convenience stores industry in the next five years. This aspect implies that FamilyMart needs to embrace the rule to offer high-quality products and services at affordable prices to attract customers in large numbers. Therefore, convenience stores like FamilyMart in Shanghai should reshape their value through digitization to increase their profitability in the future.

To summarize, the FamilyMart in Shanghai encounters significant challenges due to the unattractiveness of the industry. According to Porters’ five forces, there is a high level of threat of substitution, intense rivalry among the existing players, high risk of new entrants, and a high buyers’ bargaining power while the suppliers’ bargaining power remains low. Therefore, FamilyMart needs to undergo significant improvements based on the future industry outlook to overcome the challenges.