Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
-
Upload
veda-karajagi -
Category
Documents
-
view
218 -
download
0
Transcript of Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 1/22
1
Case Study ± Strategy Development in the Global Food Retail Supermarket
Industry
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 2/22
2
Introduction
In order to develop a global strategy, the deep understanding of the term µglobalization¶ is
very important for every company.
Globalisation:
The globalization increases the mobility of goods. Globalization is a term describing different
complex ideological, political, environmental and cultural forces as one world. During World
War II, the national boundaries got faded and financial markets, information services,
manufacturing concerns as well as cultural products have made themselves available to the
whole world. American hamburgers are available in Tokyo today and Japanese cars gets
assembled and marketed in America. Virtually everybody is connected through Internet
throughout the world. The world around us seems completely borderless. (Steger, 2009)
The globalization of food retail super market industry has developed extensively in the
supply chain retailing. It has made a greater impact on the public consumer market. The
globalization has forced the local food retailers to think beyond retailing in the domestic
markets for sustainable growth and presence. The global food retailing industry is a
complex collection of diversified supermarket chains, independent food stores, and direct-to-
consumer services that supply much of the food consumed today.
The successful food retailers usually follow two strategic formats which are as follows:
y Discount Outlets
These kind of global food retailers work in same format in all the divisions regardless
of what country they are operating in. They also keep the same products for retailing.
This system usually follows adopting the same distribution channels and maintaining
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 3/22
3
centralized distribution centres. The prime examples of this format of global food
retailers are Lidals and Aldi.
y Hypermarkets
In this case food retailers adopt international multi-channelization and diversification
to achieve maximum growth out of food retailing. Some of the examples of such
global food retail super market are Wal-Mart and Tesco. The hypermarkets and
supermarkets are the food retailers where thousands of products are brought together
at single location and the availability of the products are made year round.
Global food retail sales are estimates to around $4 trillion per annum. The
supermarkets and hypermarkets make the maximum sales in food retailing. All around
U.S., the food retail supermarket industry is dominated by Wal-Mart, Target and
Costco. Wal-Mart is the leading supermarket in America with major percentage of
sales of total food retail industry.
In this paper, we will discuss in detail, the global food retail super markets such as Wal-Mart
and Tesco with their strategic implementation processes and analysing them.
Wal-Mart:
Wal-Mart was started by Mr. Sam Walton in year 1962. Wal-Mart is presently the largest
retailer in America, and it has 3,300 stores all around the world. Wal-Mart is growing
immensely under its CEO David Glass. The small discount store chain, originally started in
Arkansas is now one of the largest corporations in the world.
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 4/22
4
TESCO:
Tesco is a large retail market in UK. It has opened 2,291 stores all around the world and is
presently employing around 296,000 people. It has developed international markets in Asia,
Ireland and Central Europe. There are four pillars on which Tesco foundation stands, which
are:
1) Core UK business
2) Non-food retailing
3) Retailing services and
4)
Globalization
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 5/22
5
I) Critical understanding and application of the theories associated with global
corporate policies and strategies.
The theories related to global corporate policies and strategies are as follows:
i) Corporate strategy using the De Wit & Meyer¶s paradox of µresponsiveness¶ and
µsynergy¶
The paradox of µresponsiveness¶ and µsynergy¶ is the pressure that arises when
demands from business responsiveness and demands from the varied business
synergy get conflicted. The paradox of µresponsiveness¶ and µsynergy¶ can be
explained better with the following considerations:
y The better-of test: Either the unit gains competitive advantage from its
association with the corporation or the corporation is benefitted by its link
with the unit.
y The cost of entry test: the cost of entry need not capitalize the prospective
income.
1. The attractiveness test: Either the industry operating has to be attractive in
nature or it should at least have the capacity to turn attractive in the near
future. (Porter, 2009)
The relationship between responsiveness and supply chain cost is regarded as
substitution. The synergy factor is highlighted through identification of the
different scope of supply chain responsiveness. The conclusions derived from this
analysis are as follows:
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 6/22
6
a. The identification and exploitation of synergy has helped supply chain
managers to identify the problem and take actions accordingly which could
implement responsiveness and drive costs down.
b. By considering the specific extent of responsiveness, the organization
increases the potential to find synergistic relationships which can be used
for competitive advantage.
ii) Portfolio theory (Outside ±In)-µeggs in multiple baskets¶
The eggs in multiple baskets refer to Diversification. Eventually all the
progressing companies diversify in one way or other. If the eggs or investment is
in the single basket and if we drop the basket, then all the eggs break. (Edwin,
2009)
iii) BCG / GE-McKinsey Matrix
BCG Matrix was first proposed by the Boston Consulting Group. Due to the
simplicity of the model, it had its own set of limitations, which was further
addressed by the GE-McKinsey matrix.
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 7/22
7
The vertical axis of the matrix is the industrial attractiveness, which is affected by
following determinants:
y Market growth rate
y Market size
y Demand variability
y Industry profitability
y Industry rivalry
y Global opportunities
y Macro-environmental factors
Industry attractiveness is calculated with the following formula:
Industry attractiveness = factor value 1 x factor weighting 1+ ««..+ factor value
N x factor weighting N
The horizontal axis determines the strength of the business unit. The determinants
of the business unit strength are as follows
y Market share
y Growth in market share
y Brand Equity
y Distribution channel access
y Production capacity
y Profit margins relative to competitors (Grant, 2010)
iv) Core competencies (Prahalad & Gary Hamel, 2009)
The core competency can be applied to an organization if it is satisfying two
conditions
y The products cannot be imitated by the competitors easily
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 8/22
8
y The core competency can be applied to many products and services from
the various markets.
y The core competency should be able to contribute towards the end
product.
Core competencies result into the development of the core products. The market
opportunities along with the core competencies serve as a foundation for launching new unit.
A large corporation seems to be the collection of unrelated businesses without core
competencies. Core competencies acts as an adhesive which bonds the business units
collectively into an articulate portfolio.
One example of Core Competency is Wal-Mart¶s Logistics.
II) The holistic nature of strategy and apply analytical techniques to solve complex
problems in real life organizations.
The Global Strategy and Strategic Thinking:
Strategy definition is important in the company because once the common interest
towards strategic direction of the company is derived and is implemented through out the
company over the years; the outcome derived is not only sustainable but progressive in
nature. In such cases not only the CEO is strategically tuned but every individual of the
company get strategically tuned and works towards the goal in the same direction.
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 9/22
9
(Robert, 2006). The strategy defined should be able to widen the gap between the
company and its competitors by thinking beyond them in the decision making.
However, it has always been proved again and again that for a successful has to achieve
the supremacy of thinking before it achieves the supremacy of strategy.
The factors such as tariff reduction, free trade agreement, non-tariff barrier, threat from
competitors from different parts of world, the growth of developing countries, low labour
cost have attracted the food retail industry to spread across the world. Due to above
reasons, the major food retailing super markets such as Wal-Mart and Tesco have come
up with different Global Strategies.
An organization full of people who think ahead of curve will be strong because it will
head off problems before they start and maximize future productivity. (Steven,2005).
The organization is always in the need of people who can think: look ahead, anticipate
changes, and invent new solutions, avert the crisis and find ways to streamline work
methods.
A holistic strategic thinking can be achieved by applying Soft System Methodology. Soft
System Methodology is used to process our thinking in systemic strategic way. The seven
implementation processes of Soft System Methodology are as follows:
1) The company employees and consumers express their understanding of the
problematic situation as a raw data.
2)
Then a process of µrich picture¶ development takes place which includes visual
description of the situation in which the concerned people are found. Usually, this
visual description includes drawings and preparing of a map of real world and the
challenges along with it.
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 10/22
10
3) Few manpower based systems are prepared called µroot definations¶ which is used to
develop a n agreement and common understanding among the participants of different
department. Then the features relevant to respective department are outlined. These
features are tested under the named CATWOE, which includes:
a. Customers: These are the people who are directly affected by the
company¶s strategic thinking.
b. Actors: These are people involved in making the system work.
c. Transformation Process: Identify the raw material that is to be used to
make system transform into the end product
d. World view: The system has to be reviewed critically from the world¶s
perspective.
e. Owners: These are the people who could prevent the system from
working.
f. Environmental obligations: The environmental factors have to be taken
into consideration.
4) The models are prepared through the systems defined in root definations. The models
that relevant to the present problem are discussed upon. The practical design is yet to
be planned. The models only take the shape of map in which the process of
implementation has to flow.
5) The resultants from the discussion are brought to the real world and its suitability with
real world is taken into consideration. The resultant system should meet following
criteria:
a) The resultant system should be systematically desirable.
b) It should be culturally feasible.
6) The plan of action is outlined.
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 11/22
11
7) The plan of action is implemented.(Peter, 1999)
Company Strategy of Wal-Mart:
y Providing the same products for less & still earns profit.
y Maintaining excellent operational efficiency
y Applying IT in all departments of business
y Best logistics management
y Globalization
y Bargaining power over suppliers
y Data analysis for each market
y Prediction of demand and accordingly optimizing stock
Company Strategy of Tesco:
The company strategy of Tesco is long term growth. The foundation of Tesco lies on two
strong values which has been the motivational force all along.
1. No one tries harder for customers
2. Treat people
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 12/22
12
III) The strategic decision making process :
Strategic Decision making process is a process in which the concerned person identifies
the problem, gathers the data, analyse it and then recognizes the best option for
implementation. The strategic decision making process includes strategic thinking and
problem solving methods.
A strategic decision making can be derived at effectively after taking into consideration
Porter¶s Five Force Model and apply the system developed through the following
processes:
The threat of entry:
For any global food retailer, the threat of entry is an important consideration while during the
process of strategic decision making. The threats of entry to be taken into consideration are as
follows:
1. Economies of Scale
2. Distribution access: This is an important consideration as the total
global food retailing relies in the Logistic efficiency. Walmart
functions properly due to Logistic efficiency.
3. Capital requirement: This is the most important consideration while
making the decision because without this nothing can function
properly.
4. Industry profitable: The food retailers have to take into consideration
the profitability of the industry in which they are planning to venture.
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 13/22
13
5. Barrier to entry: The most suitable segment is one which high entry
barriers and low exit barriers so that new companies does not come
into the competition.
The threat of substitution:
The products those are available beyond the boundaries of common products increases the
probability of the consumers switching to that product.
1. Buyer¶s tendency to switch to substitution: The buyer at any time might switch to
another product if the services provided by any particular food retailer are not
satisfactory.
2. Price structure of the substitute product: The price structure of the substitute product
is an important consideration. For eg: Walmart sells all its products at discounted rate.
It gives the local food retailers tough competition to survive.
3. Buyer switching cost: If the switching cost of substituting the product is kept high,
then the consumer might rethink while considering substitution.
4. Substandard product and Quality depriciation: If the services offered by the particular
food retailer are not up to the standards, the consumer may approach towards
substitute product.
5. Ease of substitution: The facilities such as online product ordering through internet
also attract consumers towards substitute product. Walmart and Tesco have always
maintained online product ordering facility available to their consumers which has
attracted the consumers towards them.
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 14/22
14
The bargaining power of the consumer:
The bargaining power of consumer is the capacity of a buyer to put the industry under
pressure.
1. Food retailers concentration as against buyers concentration: If the food retailers are
too less and the buyers are more, then it is a seller¶s market and vice-a-versa.
2. Degree of dependency on channel of distribution:
3. Buyer¶s price sensitivity
4. Bargaining power
5.
Availability of buyer¶s information.
6. Uniqueness of the product: In the food retailing super markets such as Walmart and
Tesco, the range of products are available under single roof.
The bargaining power against the supplier:
1. Presence of substitute inputs
2. Strength of distribution channels
3. Industry concentration to supplier¶s concentration ratio.
4. Supplier¶s competition
5. Cost differentiation
6. Switching cost of suppliers
Threat from the competitors:
1. Sustainable growth through innovation
2. Advertising and marketing expenses
3. Strategy definition (Porter, 2004)
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 15/22
15
IV) The business mission, objectives and policies of international organisations.
The µmission statement¶ of the company explains dos and don¶ts of an organization. The
strategic decisions of an organization have to be made in the set framework of the mission
statement. The effectiveness of the mission statement can be determined by Effectiveness
Criteria.
Wal-Mart vision and mission:
y To save the people¶s money and help them lead a better life.
y To offer the best quality product at the lowest prices and make them available
continuously in all their stores
The following table defines the effectiveness of the mission statement and how far it is
achievable:
Effectiveness criteria Comments
Specific enough?
Reflect organization?
Realistic and attainable?
Flexible?
Covers what business you are in or what
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 16/22
16
want to be in?
From customer perspective?
Reflects core values and beliefs
Covers your sustainable competitive
advantages?
Summarizes the main reasons for the
strategic approach?
(Prahalad, 1994)
David Glass of Wal-Mart fame lays for us this philosophy:
"we approach this new and exciting decade of the 90's much as we did in the 80's focusing on
only two main objectives, (1) providing the customers with what they want, when they want
it, all at value, and (2) treating each other as we would hope to be treated, acknowledging our
total dependency on our associate-partners to sustain our success." Through this statement, it
is very clear Wal-Mart had devised in strategical growth from the very beginning.
EFQMExcellence Models
Every organization of any size, structure, maturity or sector is needed to prepare suitable
management systems for their sustainable growth. The EFQM Excellence Model is a tool that
assists the organization by measuring the growth of organization. It helps the organization in
understanding the gaps and provides the solutions. The EFQM Excellence Model is used in
the following ways:
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 17/22
17
1. It helps determining where the position of the organization on its ways towards
excellence is.
2. A common strategically developed language is formed within and outside the
company which promotes the exchange of information and ideas.
3. To merge the existing activities along with the planned activities. This improves
organizational effectiveness and efficiency.
4. It helps in presenting the basic outline of management system of the organization.
Through the above model, the organization can easily come up with its organizational
strategy, Organic growth and Value prposition which is the motivational factor for the
management as well as the employees of the organization.
Operations Strategy of Wal-mart:
y Wal-mart created systems that helped the organization to manage its stores and
warehouses effectively and efficiently
y For the start Wal-mart chooses the areas that under ± developed for rural to expand
their business as there is less threat of competition.
y Wal-mart has the culture of encouraging skills, values, supplier relationship,
technology, consumer relationship, approaches to motivate the staff and efficient
Human Resource department. All these factors cannot be copied by other food
retailers easily.
Organic Growth of Wal-mart
y In the continuos process of building new stores. It never buys stores of other chain.
y It always builds its stores in the cheap areas and leaves the scope for expansion if the
sales are good. The Wal-mart never makes any acquisition.
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 18/22
18
y It believes in its logistic efficiency. It keeps only 10% of the space for the purpose of
storage.
Value proposition
y Wal-mart is excellent at the attributes such as quality, price, selection, availability and
on-time delivery. Their competitors cannot compete with Wal-mart in such attributes.
y The key differentiator for Wal-mart is all the non-commodity brands are valued at
lower price. This is major value proposition for most part of our society in today¶s
time,
y The change in tagline i.e. the initial ³Everyday Low Prices´ has been changed to
³Save Money. Live Better´. It is motivated towards sustainable growth while
providing quality products at low prices.
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 19/22
19
V) Problem Solving Process.
Mike Duke was elected as CEO of Wal-Mart in year 2009 with great fan following. The
new CEO of the company had planned to brighten up all the stores and convert them into
a better place to shop. There was a new set of Wal-mart stores well cleaned and well
maintained. The stores looked cleaner; logos were in blue and yellow colour schemes.
The slogan was changed to ³Save money. Live Better´. The items being sold were cut
down considerably. This policy was meant to have a cleaner and clutter free stores. But
the only trouble was the consumers started buying fewer items. This resulted in
incapability of Wal-mart to reach larger audience. Eventually Mike Duke had to adopt
the few of the original Wal-mart format and strategical changes were made through
which the organization again started to flourish. That is the reason Mike Duke¶s
predecessor CEO refers to him as a doer.
Wal-Mart has to identify and develop the core competency which had initiated their growth
in the first place. Their primary core competency included satisfying consumer demands by
making available large variety of products under one roof while maintaining their slogan
³Save Money. Live Better´. Wal-Mart is a world leader in inventory control, logistics,
channel management as well as customer services. Through all the above mentioned top-class
abilities, Wal-Mart is able to co-ordinate a complex distribution network effectively. Wal-
Mart¶s efficient communication network is connected to all the branches, offices and
warehouses all over the world. Wal-Mart has managed its suppliers most efficiently through
huge size and effective bargaining. It has the power to purchase the goods at lower price as
compared to the market price from the suppliers. Wal-Mart has its own branding named
Sam¶s Choice, which makes the organization less dependent on the suppliers. The Wal-Mart
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 20/22
20
has raised effective barriers to entry by providing low priced product and abundant and
continuous supply. Its mainly traps rural market as they are least ventured.
While Wal-Mart is full of effective and efficient management, it has its own drawbacks too.
Wal-Mart¶s growth is mostly motivated towards profits generation. In many parts of
America, Wal-Mart has seized the business from the retailers like Mom and Pop and other
food retailers of all the stages.
Carroll and Buchholtz (2009) once mentioned that ³Wal-Mart has also created a negative
impact on the local economy and the quality of life of the people.´
Due to continuous construction of supermarkets and hypermarkets, the supermarkets have
turned out more necessary. The death of smaller businesses in Iowa describes the µretail
hurricane¶. The buying habits of the localites have changed tremendously. They have started
buying more from Wal-marts and less from local domestic food retailers. Due to this, the
small retailers cannot keep their businesses and have to close their stores.
As per reports, In the cities like Kinder Louisiana, the 1/3 rd of the local food retailing stores
closed down due to which 10% of the city revenue was lost. Same situation was faced in the
cities of New England and Boulder Colorado. The local food retailers have suffered a lot after
Wal-Mart got introduced. (Carroll, Buchholtz, 2009)
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 21/22
21
Bibliography
Archie B. Caroll, Ann K. Buchholtz, 2008: Business and Society: Ethics and Share holders
Management.
Edwin J. Elton, 2009: Modern Portfolio Theory and Investment Analysis.
Global Food Markets: Industry Structure . Available at:
www.ers.usda.gov/Briefing/GlobalFoodMarkets/Industry
Manfred B. Steger, 2009: Globalization: A Very Short Introduction. Oxford University Press
Inc., New York.
Meet the CEO of Biggest Company on the Earth available at:
http://money.cnn.com/2010/09/07/news/companies/mike_duke_walmart_full.fortune/
Michel Porter, 2009: From Competitive Advantage to Corporate Strategy. Harvard Business
Review.
Michel Porter, 2004: Competitive Strategy.
Michel Robert (2006). The New Strategic Thinking. Mc-Draw Hill.
Peter Chuckland, Jim Scholes(1999). Soft System Methodology in Action. John Wiley &
Sons.
Prahalad, Gary Hamel, 2009: The Core Competence of Corporation. Harvard Business
Review.
Prahalad, Gary Hamel, 1994: Competing for the future
Robert M. Grant, 2010.: Contemporary Strategic Analysis. John Willey & Sons Ltd. UK
Steven Stowell, Stephanie Mead, 2005: Ahead of the Curve. CMOE Publications.
8/3/2019 Case_Study – Strategy_Development_in_the_Global_Food_Retail_Supermarket_Industry
http://slidepdf.com/reader/full/casestudy-strategydevelopmentintheglobalfoodretailsupermarketindustry 22/22
22
Tesco Food Retail. Available at: www.tesco.com/ -
Walmart Stores. Available at: http://walmartstores.com/
Wal-Mart. Available at: http://www.walmart.com/