Tantramarsh Club the Threat of New Entrants

Tantramarsh Club

The threat of new entrants is relatively small. The Sackville market is mature, with limited population growth, and there was little expected growth in the student population at Mt. A. Most of the existing competitors in the market had been in business for over a decade or more. Although there are few barriers to entry, the limited upside offered by the market reduces the threat of new entrants.

The rivalry among existing firms is characterized as "friendly but relatively fierce," a condition that is predictable based on the limited market upside and the personal stakes that many of the local bars have in maintaining their business. The annual turnover of students provided opportunities to win new customers each autumn, and the student population is generally quite fickle and price sensitive. This high propensity to switch and the lack of switching costs meant that every night was a new opportunity to win business, and this drove the competitive intensity, and existing firms in the industry are competing in a zero sum game for customers.

The threat of substitution is moderate. The main threat of substitution comes from drinking at home. This is the most cost-effective option, but carries with it a limited social upside. Thus, most students do some combination of drinking at home and then going out to drink in a more social situation. There is a lesser threat of substitution from non-drinking activities, and from student road trips to Moncton or Halifax. All told, students at Mt. A are mostly likely to spend at least some of their entertainment dollars at the town's bars, given the limited realistic options for substitution.

The bargaining power of suppliers in the industry is high. Suppliers include breweries, the NBLC, food suppliers and labor. All suppliers but labor are high volume operators for whom the volume offered by a bar in Sackville is unimportant. There is little differentiation among inputs, but there is a high level of supplier concentration. There is no credible threat of forward integration. An individual bar has little pricing power over its suppliers, and even the cost of labor is limited by the minimum wage. The only opportunity for bargaining power is that breweries and liquor companies want to build brand loyalty for life among the student population, and any establishment that can deliver a high number of students will have the opportunity to leverage this to get better deals or enticements from the breweries.

The bargaining power of buyers is relatively high. The students are highly price sensitive. Their buying volume as a group is critical to the survival of any bar in town. There is some product differentiation between the different bars in Sackville, but not enough to keep students from switching bars on a whim. The bars must use price as a means of enticement, indicating that they have little bargaining power. Margins are going to be inherently tight.