Buying Power Provides Competitive Advantage
Bigger isn’t necessarily better, but it does have its benefits. Just ask Apple, which has found a competitive advantage in being able to buy all kinds of components for its iPads and iPhones at a fraction of what other manufacturers pay because they simply don’t have the market to manufacture nearly as many units.
According to an Associated Press report, the reason that Apple has been able to add sophisticated features to its new generation iPad while keeping the price at the same level as the previous model is buying power.
Increased buying power is often given as one reason for mergers. The just completed BI-LO and Winn-Dixie merger means the combined company will now be the ninth largest grocer in the U.S. Certainly the combination of the two entities should produce better deals than the chains — ranked number 47 and 27 respectively by Supermarket News — have been negotiating separately up until now.
"Together, we are a stronger company that will be focused on meeting and exceeding our customers’ expectations by offering even greater value with the service and shopping experience that they have come to expect," said Randall Onstead, CEO and President of BI-LO Holding, the parent company of BI-LO and Winn-Dixie, in a press release.
Regional chains and independents have long complained that they could not compete with the likes of Costco, Walmart etc. even when they were purchasing on a net price basis and not looking for any of the typical trade fees.
A center store category manager once told me the best he could do is get within seven or eight percent of a much larger rival by going to net pricing. Of course, on that basis, he could never compete unless he lost money on every sale and the advertising to generate it.
- Apple’s market dominance stems largely now from its buying power – The Associated Press/Arizona Daily Star
- BI-LO and Winn-Dixie Complete Merger – BI-LO Holding/Business Wire
- Top 75 Retailers & Wholesalers 2012 – Supermarket News
Discussion Question: How important is buying power in today’s competitive retail environment? What competitive tactics do successful regional chains and independents rely on?