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ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Harbourview Foods supplies packaged salads to three national supermarket chains, which together buy 85% of its output. The chains can easily switch to rival producers and regularly demand price cuts. Using Porter's five forces, which statement best describes the main implication for Harbourview?

Buyer power is high. A small number of large supermarkets buy most of Harbourview's output and can switch easily between producers, so they can force price reductions and squeeze Harbourview's margins.

  1. ABuyer power is high, so Harbourview's pricing and margins are under pressureCorrect
  2. BSupplier power is high, so Harbourview's input costs will rise
  3. CThe threat of new entrants is low because the supermarkets are large
  4. DRivalry is low because only three customers exist

Explanation

Few, large buyers accounting for most sales, with low switching costs, give buyers strong bargaining power. This pushes prices down and squeezes margins. Supplier power concerns Harbourview's inputs, which the case does not discuss.

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