Case Study Strategy Development in the Global Food Retail Supermarket Industry

Introduction In order to develop a global strategy, the deep understanding of the term globalization 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-toconsumer services that supply much of the food consumed today. The successful food retailers usually follow two strategic formats which are as follows: 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

centralized distribution centres. The prime examples of this format of global food retailers are Lidals and Aldi.

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.

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) 2) 3) 4) Core UK business Non-food retailing Retailing services and Globalization

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 & Meyers paradox of responsiveness and synergy The paradox of responsiveness and synergy is the pressure that arises when demands from business responsiveness and demands from the varied business synergy get conflicted. The paradox of responsiveness and synergy can be explained better with the following considerations:

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.

The cost of entry test: the cost of entry need not capitalize the prospective income. 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)

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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:

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)-eggs 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.

The vertical axis of the matrix is the industrial attractiveness, which is affected by following determinants: y y y y y y y Market growth rate Market size Demand variability Industry profitability Industry rivalry Global opportunities 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 y y y y y iv) Market share Growth in market share Brand Equity Distribution channel access Production capacity Profit margins relative to competitors (Grant, 2010)

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
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The core competency can be applied to many products and services from the various markets.

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-Marts 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.

(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 rich 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.

3) Few manpower based systems are prepared called root 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 companys 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 worlds 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.

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7) The plan of action is implemented.(Peter, 1999) Company Strategy of Wal-Mart: Providing the same products for less & still earns profit. Maintaining excellent operational efficiency Applying IT in all departments of business Best logistics management Globalization Bargaining power over suppliers Data analysis for each market Prediction of demand and accordingly optimizing stock

y y y y y y y y

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

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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 Porters 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.

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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. Buyers 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.

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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 sellers market and vice-a-versa. 2. Degree of dependency on channel of distribution: 3. Buyers price sensitivity 4. Bargaining power 5. Availability of buyers 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 suppliers concentration ratio. 4. Suppliers 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)

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IV) The business mission, objectives and policies of international organisations.

The mission statement of the company explains dos and donts 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: To save the peoples money and help them lead a better life. To offer the best quality product at the lowest prices and make them available continuously in all their stores

y y

The following table defines the effectiveness of the mission statement and how far it is achievable:

Effectiveness criteria Specific enough? Reflect organization? Realistic and attainable? Flexible?

Comments

Covers what business you are in or what

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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. EFQM Excellence 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:

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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 y In the continuos process of building new stores. It never buys stores of other chain. 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.

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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 todays time, y The change in tagline i.e. the initial Everyday Low Prices has been changed to Save Money. Live Better. It is motivated towards sustainable growth while providing quality products at low prices.

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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 Save 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 Dukes 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 Save 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. WalMarts 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 Sams Choice, which makes the organization less dependent on the suppliers. The Wal-Mart
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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-Marts 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 Wal-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 retail 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 1/3rd 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)

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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.
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Tesco Food Retail. Available at: www.tesco.com/ Walmart Stores. Available at: http://walmartstores.com/ Wal-Mart. Available at: http://www.walmart.com/

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