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Global food retail industry has become tightly competitive in last few years. In dynamic operating environment, companies need to understand the competitive nature of the global food industry means to understand changing consumer preferences. They are making continuous efforts to meet these demands in order to secure their positions in the industry. Companies have the aim to build collaborative working relationships with stakeholders, the ultimate objective of building an efficient food distribution system.
Wal-Mart is the world largest retailer in food retail industry. The company operates retail stores in various formats. It operates more than 6,000 stores in the United States and in 13 international markets. Food retail industry is a highly saturated market, new entrants would face difficulty to become successive in this industry. Stable relationships with suppliers are essential to Wal-Mart business. Wal-Mart is focusing on expanding its product line by including demanding products as well as environmentally friendly products.
When analyzing the business of Wal-Mart, they actually utilize all three of the “hard S’s” of McKinsey’s 7S framework in their chase of their goals: Strategy, Systems, Structure. As a retail company, Wal-Mart offers a wide collection of products to the consumers. the grocery items can be placed as Wal-Mart’s star products. Appliance, kitchen tools, furniture, digital products, music files and software are the cash cows of the company. Pharmaceuticals, toys, electronics and health products are Wal-Mart question marks. The photo development, jewelry and shoe products distributed by the company are those that show low market share.
Wal-Mart has the largest IT systems of any private company in the world. It has made significant investments in supply chain management. Wal-Mart Stores aims to capture the market penetration in food that it has achieved in hard and soft line goods. The product development team frequently attends trade shows in Europe and key fashion capitals and travels to places globally. Wal-Mart’s diversification strategy of the 1980s was a great success in terms of tapping and recognizing new market segments. Based from the analysis of the data by appling marketing and strategic models, it is appropriate to recommend that the product and service development strategy be applied by Wal-Mart, considering that these factors serve as the core factors affecting its growth and progress.
Strategy Development in the Global Food Retail Supermarket Industry
Globalization of retail is not an emerging or totally new strategy, but a current focus for many retailers. Established retailers have recognized that natural growth becoming more difficult to sustain in domistic markets, expansion into new markets is a necessary step towards securing future profitability. To understand the competitive nature of the global food industry means to understand changing consumer preferences and the food industry efforts to meet these demands. The task of moving food items from the seller to buyer is becoming increasingly complex, involving diverse local, national, and global issues.
The food retail industry consists of the total revenues generated through supermarkets, hypermarkets, cooperatives, discounters, convenience stores, independent grocers, bakers, and all other retailers of food and drink. Supply chain management (SCM) is the management of materials, information, technology and funds from the raw material supplier to the consumer. It has become highly critical. It is now essential to a company revenue generating activities as it relates to growth, efficiency and customer satisfaction. SCM is critical to a company financial success in terms of revenue, cost and asset productivity. It has the aim to build collaborative working relationships between distributors, retailers, manufacturers, sales and marketing agents with the ultimate objective of building an efficient food distribution system.The most important goal of global food retailers and wholesalers is to ensure that the products they sell are safe. They act as the purchasing agent for the consumer and the final link in the supply chain. The supermarket food industry continually seeks ways to make the nation food supply safer.
Question One: ‘Globalization’ in the food retail industry
Selected Company: Wal-Mart
Wal-Mart Stores (Wal-Mart) is the world largest retailer. The company operates retail stores in various formats. It operates more than 6,000 stores in the US and 13 international markets including the UK, Canada, Japan, Mexico, Brazil and China. The company retails a broad range of merchandise and services at low prices. Wal-Mart operates its business under three business segments: Wal-Mart Stores, Sam’s Club, and the international segment. The company has more than 2,000 retail stores in other countries. The operating formats vary from country to country.
Strategic Alliances, Merger and Acquisition (M&A) activity
(WAL-MART IN INDIA)
Wal-Mart began looking into doing business in India back in 2005. At that time Indian government was considering opening up foreign direct investment (FDI) to retailers. In November 2006, Wal-Mart beat out Tesco for a joint venture opportunity with Indian mobile services leader, Bharti. The reason was because Wal-Mart was more flexible about the retail model to be adopted. The company priority seemed to be an early entry, so that the world’s largest retailer did not miss out on the Indian consumer boom. As per the agreement between the two corporate giants, Bharti would manage the front-end of the business, while Wal-Mart would take care of the supply chain, logistics and other back-end operations.
India is a ready and appealing market for Wal-Mart with its growing middle class of 250 million and an economic growth rate of nearly 9%. Although the FDI laws of the country are relatively stringent, government officials are not opposed to engaging foreign businesses in the Indian market. Since the announcement of the Wal-Mart/Bharti JV, one leading organization has emerged to represent the interests of the small mom-and-pop stores. This is India FDI Watch and in addition to educating the owners about Wal-Mart, they have held large rallies and demonstrations against Bharti, Wal-Mart, and other big-box retailers. The mom-and-pops have an advantage as they are conveniently located on street corners or in the heart of cities and usually have personal relationships with most consumers. However, they do not carry the variety of goods that larger retailers do.
Threat of New Entrants and Substitutes
Being that the food retail industry is a highly saturated market, new entrants would face difficulty succeeding in this industry. In fact, it is highly difficult for discount retailers to penetrate other markets as Wal-Mart tried to enter Germany and South Korea. The company was unsuccessful and had to pull out because of its unprofitability. Retailers are subject to these obstacles:
- Economies of Scale
- Cost of Capital
- Distribution Channels
Substitute products are products that can be used as replacements for other products to satisfy the same necessity of consumers. Wal-Mart benefits from this idea as discounters have lower prices than department stores and consumers go for higher quality product with the lowest prices. Wal-Mart is working on providing the best customer service possible but as a high-traffic store, it is generally impossible to provide one on one service.
Bargaining Power of Suppliers and Buyers
Stable relationships with suppliers are essential to Wal-Mart business. Without timely inventory deliveries, Wal-Mart could not maintain its full shelves and would lose customers. For this reason, the company engages in contractual agreements with its suppliers. This arrangement is beneficial for both parties, as the supplier makes sure it will have constant access to retailers with large market share. This way, suppliers have a guaranteed buyer for the supplies and can arrange specific prices.
Consumers today are searching for the best deals possible. They are waiting for discounts and sales to bulk up on products. Discount retailers like Wal-Mart are creating huge supercenter stores because they want their stores to become a one-stop trip. Customers know what they want and how far they are willing to search for the item. Retailers must maintain high inventory levels to retain customers and their market share. Customers traveling a couple of miles to a store want to find the products they need in stock.
Question Two: Global food retail market dynamics
The ongoing changes and innovations in global food markets, as well as the trends in different sectors of the food industry, make up a complex dilemma with consumers, producers, and global retailing and manufacturing firms. A growing trend in food markets is the shift in growth of food sales from high-income (developed) countries to lower income (developing) countries. Despite the shift, per capita commercial sales show wide regional disparities worldwide, though growth in food sales in the developing countries is expected to continue. In anticipation of this growing market, food firms appear to be repositioning themselves and investing in many developing countries.
Measures of competitiveness vary at the firm, industry and country level. Competitiveness is influenced by such forces as technological innovations, public institutions, infrastructure support, firm organizational structure, and government policies. Small food manufacturers face macroeconomic constraints similar to those of large firms, such as exchange rate fluctuations and market access barriers in foreign markets. Retail sector issues centered on the impact of globalization on food retailing in emerging economies, and the impact of changing consumer preferences on food retailing. Although a country may import little food, the impacts of globalization impacts are reflected in its food retail sector.
Wal-Mart Profitability Secure Strategies
A prominent trend in the retail industry is consumers buying less and less. Until about few years ago, consumers depended on credit cards. They did not hesitate to add to their already large debts but now consumers are trying to pay down debts instead. Wal-Mart discount stores, supercenters and wholesaler clubs have maintained their price leadership strategy known as “Save money & live better.” This strategy was implemented in year 2008 and is aimed at families with children and middle income consumers trying to save.
Wal-Mart is focusing on expanding its product line by including wellness products as well as environmentally friendly products. With the high energy prices facing consumers and the ideas of eating healthier and natural food, Wal-Mart has stocked products that would appeal to these consumers while maintaining its competitive prices. The company maintains a flexible management style where it is willing to satisfy changing demands. To meet demand, the company must encourage managers to monitor high demand products and drop unpopular product lines that may be a waste of inventory space.
Another trend is discounter development of private labels. To compete with national brands, supermarkets and retailers have developed their own brands with the cooperation of manufacturers. These products are to be distributed and sold only in the retailers stores.
Net Profit Margin measures how much out of every dollar of sales a company actually keeps in earnings. A company with high net profit margin indicates that it has better control over its costs. In this category, Wal-Mart outperforms Costco, BJ’s and industry, but lags behind Target.
This table shows that how much Wal-Mart has been successful to invest into food retail facilities in order to secure its future profitability in terms of earnings.
Question Three: McKinsey’s 7S framework for identifying core competencies and capabilities, discuss the ability of “Wal-Mart”
When analyzing the business of Wal-Mart, they actually employ all three of the “hard S’s” in their pursuit of their goals:
Their strength in all three of these S’s is probably a big reason why they have been so successful.
Wal-Mart’s overall strategy is to always provide the lowest prices. Additionally, they aim to have a store which provides convenience by allowing consumers to find everything they need under one roof.This strategy of convenience with low prices has driven Wal-Mart to be the business leader that it is. Additionally, they plan to continue to expand into markets not yet penetrated by major chains, and some markets that are already saturated, such as New England and California.The other two hard S’s, systems and structure, support this strategy. Also, low prices everyday has become the style and shared values of Wal-Mart. Even the staff is completely committed to providing the lowest possible prices. The skills of workers are also geared to finding inefficiencies and towards decreasing prices. The low cost strategy has driven Wal-Mart to do things such as call suppliers collect, do away with manufacturer representatives at sales meetings, do away with regional offices, etc.
Wal-Mart has in place a set of systems that helps it achieve its strategy of low prices everyday. The largest and most profitable of these systems is the Information Technology system. Wal-Mart has employed computers, networking, and the internet to reduce inventories and waste, and speed deliveries. Wal-Mart can connect to their suppliers and transmit them data so they know what Wal-Mart needs and when.The lower inventories allow Wal-Mart to produce inventory turnover rates of around 70% which is really high. Additionally, Wal-Mart has worked with suppliers in order to improve their efficiencies in production which they then pass to Wal-Mart and then to the consumer. Because of Wal-Mart strategy, these reduced costs due to systems allow Wal-Mart to reduce consumer’s prices. Wal-Mart has streamlined the supply system so well that it would be very hard to find any inefficiency and would be hard for any competitor to beat. Additionally, Wal-Mart has a very efficient human resource system set-up that has both mostly kept employees happy, and resisted unionization. Wal-Mart is the largest private employer and has developed systems to tie raises and bonuses to performance. This encourages employees to think of the company and to always do their best.
Wal-Mart also employs a good structure that works with the systems to empower the low price strategy. Wal-Mart has planned warehouses and integrated them with systems. Additionally, they place their warehouses strategically so that one warehouse can serve many stores. They have developed time schedules so that one truck can service many stores and that after a delivery the truck can take back returned goods to the warehouse. The supercenter design itself is a structural advantage and strategy that Wal-Mart uses. This design allows consumers to come to a single Wal-Mart store to find everything they need from groceries to gifts to clothes to toys. Wal-Mart has designed an efficient management structure that allows it to eliminate the regional office. This structure alone has saved Wal-Mart millions of dollars a year. When Wal-Mart places stores in strategic locations and drives traffic using convenience and then combines the sales with its systems and structure, people get a highly efficient corporation that can cut costs to a bare-minimum which are then passed along to the consumer. If Wal-Mart continues to dominate these three S’s, it will continue to dominate the retail market.
Question Four: BCG product matrix model, identifying major products of Wal-Mart
As a retail company, Wal-Mart offers a wide array of products to the consumers. These include groceries, toys, apparel for women, men and children, jewelry as well as other hard goods; all of these product lines are sold at reasonable and generally affordable prices.
In order to analyze the operation and performance of the selected products of the company (Wal-Mart), the Boston Consulting Group (BCG) Matrix is used. The Boston Consulting Group (BCG) Matrix is a tool developed to assess company business units. Specifically, the BCG Matrix is used to evaluate the business units’ level of market growth and share.
The distribution done in this matrix was based on the 2008 revenue report of the company.
In above diagram, the grocery items function can be placed as Wal-Mart’s star product. The report stressed that this served as the top revenue generator of the company, contributing to 22% in the total sales. While this generates the most cash flow, it should also be considered that this product causes the most inventory cost to the company, considering that Wal-Mart has to derive its grocery supplies to multiple suppliers or companies.
On the other hand, the hard (appliance, kitchen tools, furniture) and soft goods (digital products, music files, software) are the cash cows of the company. Compared to the groceries, the supply chain for these products are less complex. The private-label goods are considered cash cows particularly in the international sector. This is because American brands do not exhibit the same impact or appeal to foreign buyers as with foreign consumers. As cash cows, it is essential that Wal-Mart uses these products to generate funds that would support its other business units particularly those categorized as stars and question marks.
Pharmaceuticals, toys, electronics and health products are Wal-Mart question marks. As indicated in the revenue report, these products may generate sales but not enough to compensate the level of funds required to distribute them. Multiple suppliers and costly inventory make these products the question mark type. For this reason, it is practical that Wal-Mart consider limiting the inventory of these products to save on inventory expenses.
Finally, the photo development, jewelry and shoe products distributed by the company are those that exhibit low market share as well as growth. Considering the number of alternatives available in the market with these products, it is indeed difficult for the company to keep these product lines. As certain retailers are focused on distributing these goods, they have more business flexibility than Wal-Mart, allowing them to overcome sales issues.
Question Five: product life cycle and “Ansoff growth matrix”
Product life cycle
Wal-Mart is committed to improving operations, lowering costs and improving customer service. But the key to retailer Wal-Mart’s success is its ability to drive costs out of its supply chain and manage it efficiently. Many supply chain experts refer to Wal-Mart as a supply chain-driven company that also has retail stores. Wal-Mart’s company philosophy (‘The Wal-Mart Way’) is to be at the leading edge of logistics, distribution, transportation, and technology. Wal-Mart has the largest IT systems of any private company in the world. The Wal-Mart business model would fail instantly without its advanced technology and supply chain. Wal-Mart has made significant investments in supply chain management.
Ansoff growth matrix
Ansoff matrix allows the marketers to look at different ways to grow the business through existing products and markets and new products and markets. Moreover, the matrix is composed of four various strategies:
- Market Penetration
Wal-Mart Stores aims to capture the market penetration in food that it has achieved in hard and soft line goods. The retail giant, which posts more than a 10% market share in many nonfood categories, plans to rise up its food share through quick supercenter expansions. To achieve their market penetration goals, they believe in three guiding principles:
- Customer Value and Service
- Partnership with its associates
- Community involvement
- Product Development
Wal-Mart product development group influenced the look, feel and variety of merchandise. The product development group headed by strong communicators worked with the buyer for the category and various suppliers to improve the consistency of qualities and sizes of merchandise. The product development team frequently attends trade shows in Europe and key fashion capitals and travels to places globally. The group findings are then regularly presented to merchants, marketers and package designers during the year. Major seasonal trend overview meetings are held for spring and fall with smaller meetings held for summer and holidays.
- Market Development
Wal-Mart always seek to take advantage of on its international strategy, it is working in the direction of building new retail stores in other countries.They planned to educate activists around the world about Wal-Mart retail development strategies and the company impact on local retail culture. The three major tactics used by the company before to enter a country include:
- Building partnerships with local businesses and organizations
- Working with government officials
- Tapping into the growing middle class purchasing power
Wal-Mart’s diversification strategy of the 1980s was a great success in terms of tapping and recognizing new market segments. Sam’s club was the most successful diversification of all at the decade by adopting wholesaling concept. The first Sam’s Club launched in April 1983. The company, on the other side, opened its first Wal-Mart Supercenter in 1988. It was essentially a complete Wal-Mart discount store with a supermarket added to it. Wal-Mart diversification into new retail formats during the 1980s did more than improve the firm growth in the fundamental areas of retail. Diversification also gave the company the chance to take risks and experiment.
Evaluation the Usefulness of Marketing and Strategic Models
Based from the analysis of the selected company, it is then appropriate to recommend that the product and service development strategy be applied by Wal-Mart, considering that these factors serve as the core factors affecting its growth and progress. With this type of strategy, Wal-Mart can increase its sales by means of modifying or enhancing its existing products and services. This strategy has been recommended as it has the ability to support the company potential to reach greater markets. Wal-Mart has multiple product lines that will be affected by this strategy. With the BCG matrix, it is appropriate that the company starts off the development with its prime product lines. Through this, the company will have sufficient funds to support other relevant activities in the future. However, by means of this strategy, Wal-Mart will be able to strengthen the market position of each of its product divisions, resulting to greater hold to these specific markets.
The suggested strategy does not only fit the purpose of the company and support its future growth but has also been recommended based on the capability of the company to implement it. Wal-Mart has an efficient distribution system which in turn would support this strategy. The culture of the retail company also fits the requirements of this recommendation. Specifically, the company devotes ample time and resources to develop and maintain a skilled workforce. With productive managers and employees, the delivery of the developed goods of the company will be made possible. As a result, greater satisfaction from the customers will be obtained.
- Lynch, R. (2006) Corporate Strategy, Fourth Edition, Financial Times Prentice Hall.
- Mintzberg, H., Ahlstrand, B. and Lampel, J. (1998) Strategy Safari, Financial Times Prentice Hall
- Johnson, G., Scholes, K. and Whittington, R. (2005) Exploring Corporate Strategy: Text and Cases, 7th Edition, Financial Times Prentice Hall.
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