Industry Analysis

1. The threat of new entrants into the senior housing industry is low and not a major threat to established companies in the industry. One major barrier to entry is the large amount of capital needed to build or purchases housing communities and to provide trained personnel such as managers and nurses to fill them. Product differentiation in the industry includes different types of living accommodations such as independent living, assisted living and special care centers such as Hyatt’s, Alzheimer’s care center. Other methods of differentiation in the industry include features of the communities like luxury accommodations, entertainment, and scheduled transportation. Another barrier to entry is the cost disadvantages independent of scale. The larger established companies in the industry have established advantages in receiving lower financing costs and the ability to acquire favorable locations for senior housing communities. Government policy also adds a barrier by raising regulations imposing more stringent life safety and staffing regulations.

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3. The bargaining power of buyers is high in the senior housing industry. As the US population age 85 and over is increasing so is the demand for senior housing. Customers are seeking a very high quality of care and have the majority have the disposable income to afford it. According to the US Bureau of the Census, senior wealth has increased 39% over the past seven years, making them more able to pay for desired housing. This wealth gives them the power to switch housing with the minimal difficulty if care is not acceptable. The bargaining power of the buyers is also increased by the buyers occupying 96% of the industry’s total output.

4. The threat of substitute products is low in the industry. Outside the senior communities the basic alternatives are family care and in house nursing. The typical US family leads a very fast paced life that no longer includes time for the care of elder relatives. As family care is diminishing, the in home nursing alternative is extremely expensive and still does not serve all the basic needs provided by a senior community.

5. The intensity among rivalry among competitors seems to be rather moderate. The industry is dominated by a few large firms. Also the industry is currently experiencing quick growth to accommodate the increasing demand for senior housing, which tends to lower rivalry. High fixed costs are also associated with the industry increasing rivalry. Some major companies are now providing a fee-for-service basis to reduce costs and residence fees. Diverse competitors tend to lower rivalry in the industry. This diversity includes types of special care centers, locations, and price ranges.

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