Not far from me is a huge liquor/wine/beer store. They've been in business for many years, and have the lowest prices around. On any given time, there are at least a dozen or more cars in the store's parking lot. On a holiday weekend, you can't even get close to the place. As far as I'm concerned, they own the market in this area.
A few weeks ago, I saw a new liquor/wine/beer store open about eight or ten blocks away. A nice, attractive, modern-looking building. I stopped in this evening to buy a six pack of PBR, but also out of curiousity. I wanted to see what the new store offered that the established store did not.
Prices appeared to be about the same. The only advantage that struck me immediately was that the store carried a variety of name-brand frozen pizzas, and I bought one.
But I got to thinking about this: the established store has been in a building that they bought years ago, which tells me that they've either paid for the building, or it's close to being paid for.
The new store looks like it cost a lot of money to build. It's much nicer. But the owner is still competing on price alone.
Another difference I noted was that I was the only customer in the new store tonight, whereas there were probably a dozen or so customers at minimum at any moment in the established store.
When it comes to business and finance, I've always admitted that I could screw up a free cup of coffee. But this just seems like a recipe for failure. Why take on one of the most successful competitors in the area, try to compete on price alone (when the owners of the established store tell the distributors what they will pay for the goods, not the other way around), and spend probably a few hundred dollars to construct the new store?
If the owner of the new store had looked at some other areas around the county, I'm sure he could have found some that didn't have competition like he does now.
So, am I right, or is this new owner right?
