Porters 5 Forces Essay

325 WordsMay 23, 20152 Pages
orter’s Five Forces Buyer Power In the dairy market, buyer power is estimated to be a strong force. In fact, players like Saputo can only sell to a small number of larger buyers since the main distribution channels for this industry are dominated by supermarkets which accounts for roughly 75% of the total market value.(1) Furthermore, staple foods like milk and butter are undifferentiated products, which makes it easy for buyers to switch to one of Saputo’s competitor. This is enhanced with the fact that the dairy market is highly price sensitive. Luckily, this aspect is mitigated by the fact that Saputo also offers other products such as specialty cheeses, which are more differentiated. Moreover, although it used to be common for milk producers to do morning “milkmen” deliveries, it is now largely replaced by more conventional retail distribution. There is little likelihood that players such as Saputo reverse the trend by integrating forward and sell directly to consumers, which increases the power of food retailers. Nevertheless, dairy products are an important part of most people’s diet, and supermarkets are therefore strongly motivated to keep on carrying these products, which in turns, weakens their buying power. Supplier Power The suppliers in this market are dairy farmers and their power is assessed as being moderate. Dairy products are made of milk, and there are no real substitutes to this raw input. In most industries, if a firm’s inputs are limited and can only come in a few forms, they have a narrower range of choices, which limits their capacity to shop for the best deals. That typically increases bargaining power of suppliers. But, in the dairy industry, since the government sets the prices of milk, for players like Saputo there are virtually no differences between buying from one farmer to another, which significantly reduces supplier power.

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