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ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Dorset Bakeries buys flour from many mills and the product is a standard commodity. Recently, the largest mill, Granary plc, announced it would begin selling bread directly to consumers through its own shops. Which strategic implication from this development is most accurate?

The threat of forward integration strengthens supplier power. Granary can credibly compete with its customers, so Dorset has reduced leverage in negotiations and faces a new competitor, even though flour itself is a commodity with many sellers.

  1. AGranary's forward integration increases the threat of supplier encroachment, which strengthens the supplier's bargaining position over timeCorrect
  2. BDorset's buyer power rises because flour is a commodity, so no change in the forces results
  3. CEntry barriers in baking have risen because Granary is vertically integrated
  4. DSupplier power has fallen because Granary now competes with its customers

Explanation

Credible forward integration by a supplier is a source of supplier power, and it also adds a new entrant or competitor. Commodity flour and many mills do limit supplier power generally, so the effect is moderate, but the integration threat still strengthens the supplier's position. Option D wrongly treats competition as weakening it.

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