Wal-Mart Supermarket’s Strategy Analysis

Introduction

Wal-Mart supermarket is one of the largest supermarkets in the world. This has made it to be a very successful firm within the supermarket industry in US and in foreign markets. The management of Wal- Mart supermarket has undertaken a strategy aimed stretching its scope of operation by establishing a new store within one of the small towns in US. This has raised mixed reactions amongst various parties of the society such as small business owners, town residents and those located in the outskirts.

This is due to the increase in negative effects that result such as increased congestion and unfair competition. In order to this, the firm’s management has proposed to seek an approval from the planning commission. The discussion of this paper analysis the pros and cons to be raised by different parties with reference to Wal-Marts’ strategy.

Wal-Mart history, development and growth

Wal-Mart supermarket incorporation with its parent country being US is one of the largest supermarkets in the world (Wal-Mart stores incorporation, n.d, para.4). It is considered as the biggest non-governmental provider of employment with an approximate amount of 1.2 million workers in the US alone. It has a large number of stores which are located in US. These stores incorporate the concept of being both discount outlet and super centers. It is considered as one of the largest retail food store in US apart from the other stores which deal with a variety of merchandise. Its discount stores are located in all the US states. There are also the Wal-Mart Supercentres which are a combination of discount and grocery.

With regard to international trade, the firm ventured into the foreign market in 1991 by establishing its discount outlets and supercenters in Canada, Puerto Rico , Europe , Middle East, and Asia. More than a quarter of the incorporation stores are located in foreign countries. The international revenue generation of the firm accounts for approximately 18.5% of the total incorporations total revenue.

There was also extensive development during the period of 1992-1993 where 161 stores were opened within US. Its rapid development within this period is associated with the increased alliance with other firm. By the year 1999, Wal-Mart supermarket incorporation was the largest retailer in the world. In December 1998, the incorporation entered the UK market through an acquisition of ASDA group incorporation. It also penetrated the German market by purchasing Inters par hypermarkets.

The firm has incorporated modern technology which has made the firm to effectively stock its merchandise. In 2001 the supermarket undertook a massive roll-out of the concept of supercenter. This led to the firm becoming the largest grocery retailer in US.

One of the most important strategies that have led to the rampant development of Wal-Mart supermarket is the incorporation of the supercenter format in its entire outlet. This means that the stores can be able to deal with a wide variety of products including food products, apparels and other merchandise. These products are offered at a low price with great emphasis on avoidance of promotion and inclusion of private labels.

Mission

The main mission that Wal-Mart supermarket is committed to pursue is ensuring that all the people are able to obtain consumer products at a much lower price. This would contribute towards improvement of the quality of life of the people within the society.

Company’s internal strengths and weaknesses

For a company to succeed both in the domestic and the international market, it means that it has a wide range of strengths that originate from effective management of the firm. Wal-Mart has been able to establish a wide range of outlets both in US and in foreign economies.

Incorporation of the concept of discounts

With regard to the firm’s strength, Wal-Mart supermarket has strength in ensuring that it avails quality products to the consumers at a relatively low price. This means that the consumers are able to maximize their utility and at the same time get the value for their money. The Wal-Mart Supercentres and discount stores offer a wide range of products. This means that consumers achieve satisfaction and convenience in their shopping.

Acquisition of other firms

Its strength also lies in the fact that the firm has incorporated the concept of formation of alliances and acquiring other firms which are in the same industry. Considering the fact that the firm is listed in the New York stock exchange market thus increasing investor confidence coupled with the incorporation of the discount concept, the firm has developed a strong financial base which. This means that the firm does not have difficulties in the process of purchasing other domestic and foreign firms. This has enabled the firm to penetrate into the foreign market efficiently. For instance; the acquisition of the ASDA supermarket in 1999 which is ranked as the third biggest supermarkets have enabled the incorporation penetrate the UK market (Wal-Mart store incorporation, n.d, para.7).

Improved technology

With regard to technology, the firm has also established a number of strengths that give it a competitive edge in comparison to its competitors in terms of logistics. Amongst the technologies that the firm has incorporated is the use of electronic commerce which is supported by information technology. The firm has a well developed and managed information system. This has enabled the firm to monitor with ease the performance of the various product categories and store which are widely distributed. Information technology has also greatly contributed to the firm’s development due to ease of the procurement process. This ensures that there is a reduction in the lead lag time and that products are procured on time. The result has been increased customer store loyalty and hence the level of the firms profitability.

Human resource competences

The management of Wal-Mart supermarket has realized the contribution of effective human resource management in the success of any business enterprise. The firm has adopted the concept of employee training in the course of operation. This has resulted into increased satisfaction of the employees hence their increased performance. Incorporation of employee training have enabled the firm to develop the employees and hence making it possible to retain them.

Weaknesses of the Firm

Despite the wide range of strengths that the firm has, it also experiences certain weaknesses.

Control challenge

Wal-Mart operates a large number of supermarket outlets including grocery. This means that the scale of the firms operation is very large considering the domestic and the foreign market. The large scale of operation makes the incorporation to have a wide span of control while presents a challenge to the firms management. Despite the integration of information system in the control process of the firm, the wide span of control means that the firm is will be weak in some of its areas of operation.

Lack of flexibility

Wal-Mart supermarket deals with a wide range of consumer products. This makes the firm to experience cutthroat competition from other firms. Some of these firms may be more aggressive in terms of product competition. On the other hand Wal-Mart supermarket is inflexible in terms strategies formulation such as those related to competition due to its size.

Low level of foreign direct investment

Despite the fact that Wal-Mart supermarket is a firm that operates on a global scale, its stores are located in only a few countries. Most of its stores are concentrated within US. This means that its presence is felt by just a few countries.

Analysis of the External Environment

Considering the fact that the external environment is very dynamic, the management of Wal-Mart supermarket makes it of paramount importance to analyse the market changes. This helps the firm in the identification of the various threats and opportunities that are facing the firm. This has made it possible for the firm to utilize the opportunities that the external environment presents. It is also possible to mitigate the effects of environmental threats on the firm’s performance.

Opportunities

With regard to opportunities the external environment presents a wide range of them.

Increased opportunity for the firm entering into alliances

In the recent past the there has been increased growth within the supermarket industry. Wal-Mart supermarket has taken advantage of the rampant growth by incorporating the concept of purchasing other firms whose performance is optimal. This has enabled the firm to venture into other markets where there is increased potential of growth within the supermarket industry such as Europe and China.

Considering Wal-Mart global scale of operation, the firm operates its outlets in only a few countries globally. This means that there is a possibility of the incorporation venturing into other countries in the future. Wal-Mart incorporation operates various types of stores. These include the supercenters and local small malls. Through this strategy, Wal-Mart Supermarket can effectively fit in the various categories of market thus contributing to market development.

Threats

Intense competition

Considering the fact that Wal-Mart supermarket is the biggest supermarket in the world, it experiences a lot of competition. This means that the degree of rivalry within the industry is very high. This is so both within the domestic and the foreign market. One of the main areas where the Wal-Mart supermarket experiences a lot of competition is with regard to pricing. This is due to the fact that the managers of the other competing firms take into account the pricing of their rivals in the process of price formulation (Rivalry in price and variety among supermarkets, 2006, para.8).

Intense price competition has also emerged from the rampant reduction in the cost of manufacturing consumer goods. This is due to the fact that the large firms have incorporated the concept of out sourcing especially from the regions where the cost is relatively low. This results into the firm presenting an increased price competition amongst small firms within the same industry to an extent that there is price deflation. Intense price competition is a threat for firms (Marketing teacher, 2009, Para. 6).

Political challenges

Wal-Mart supermarket has a strategy that is aimed at ensuring that it goes global. This means that the firm has to consider the foreign political environment. This may limit its scope of expansion due to the fact that it may be forced to partner with a local firm in the foreign market before it can venture into that market. This means it is not possible for the firm to undertake foreign direct investment within some of the markets where the potential of growth may be high.

Case

With regard to the intention of Wal-Mart establishing a new store in the small town, the following are the likely arguments to be raised by the various parties.

Unfair competition

Considering the scope of operation of Wal-Mart, the small business owners will be against the move. This is mainly due the fact that Wal-Mart will present a challenge to them in terms of competition. The end result will be reduction in the level of profitability for the small firms while some of them will be forced out of business. This is due to the Wal-Marts large economies of scale.

Increased rivalry

The owners of the small firms will also raise argument related to the increased rivalry amongst firms in the industry. This is due to the fact that Wal-Mart supermarket offers an assortment of products. This means that the consumers will be able to purchase a wide range of products at lower price initially before the supermarket has established a competitive edge.

Threat of cannibalization

The owners of the small firms may also feel threatened by Wal-Mart supermarket establishing a store in the town. This is due to the fact that most of the customers will shift from where they make their purchase. The small business owners may perceive that Wal-Mart is cannibalizing on their market. This is evident from the fact that Wal-Mart is known to capitalize on stores which already have an established market.

Argument by town residents and the society

Establishment of Wal-Mart, within the society results into benefits within the society. This is due to the fact that there is an effect of the box store reducing the likely monopoly effect of the small firms within the society. This is mainly with respect to reduction of price. The small businesses will also be forced to compete with the store. This means that they will have to improve the quality of the products and create a more conducive shopping environment (Jessica, 2006, para.4).

Predatory pricing strategy

Considering the size of Wal-Mart supermarket and its financial base, the residents of the town and its outskirts will raise argument against the firms move. This is due to consideration of it pricing strategy which tends to be ‘predatory’. Wal-Mart supermarket sets price of commodities initially being low and later it raises the prices after the market is well established.

There will be a perception that with the establishment of Wal-Mart within the small town, it might not contribute to economic development of the society. This is due to the fact that the small businesses are mostly socially responsible in terms of offering jobs to the local, pay tax to the local authority and obtain their supply locally. This makes the dollars of the firm to have a multiplier effect on the society. With regard to Wal-Mart, it obtains most of its supplies from outside suppliers.

Loss of jobs

Since Wal-Mart supermarket operates on a large scale and incorporates large categories of products within the store, there is a possibility that some people within the neighboring society will lose jobs. For instance; if there were a large number of florist within the town, Wal-Mart will establish only one large store to deal with flowers. This means that most people will lose their employment while those who will be employed at the store will be lowly paid.

Increase in the level of crime and traffic congestion

Wal-Mart’s level of inventory is very high. This means that there is a possibility of increase in the level of crime with that society. The managements of the box stores are very determined to follow up the crimes no matter how small they are. This has an impact on the entire society due to the increase in community tax to cater for the police resources.

Considering the assortment of products available at Wal-Mart supermarket, most of the residents and even from far areas will prefer making their purchases at the store. This means that there will be increased congestion within the town and hence pollution. The increase in pollution can result into increased cases of ailments such as asthma. The traffic congestion will make it difficult for the particular authorities to respond to cases of emergency.

Lack of connection between the Wal-Mart and the community

In venturing a new market Wal-Mart incorporation is known for its establishment of a discount store that offers products at a reduced price. Later the firm closes down the discount stores and establishes a supercenter in another location. This is mainly so upon the management of Wal-Mart realizing that the outlet is operating at a loss. The decision by the store management does not consider the effect it will have on the society. The society will thus end up more worse since the small businesses will have been affected while at the same time they lose the box store from their society. This is contrary to the small firms which would not close down despite the reduction in profit.

Low customer service

The customer service offered in a small firm is relatively high in comparison to a big firm. In most of the times, there is a personalized service that is given to the customers. This makes the customers to be more satisfied. If Wal-Mart is established within the local town and the small firms closed down most of the customers will lose attention upon shopping at the corporation.

Arguments by a Wal-Mart representative

In order to gain approval of the local commission on planning with regard to the firm establishing a store within the town; Wal-Mart representatives will raise the following argument in support of the firm’s decision.

With regard to the claim that the firms establishment will result into intense competition within the industry, the nature of competition will not be unfair. This is due to the fact that the supermarket has an already established financial base. The discounted product price is as a result of the large economies of scale of the firm. The challenge hence presented to the small business firms is with regard to their pricing strategy which might be rigid. This makes them to be monopolistic in terms of certain product prices. Through introduction of the discount stores the consumers would be in a position to obtain a wide range of products especially during the current economic downturn.

The supermarket will also consider the concept of corporate social responsibility. This proofs that the society in general will benefit. Corporate social responsibility means that the firm will not solely operate for the profit motive by it will contribute for the wellbeing of the society. This strategy will enable the development of a strong relationship between the society and Wal-Mart. For instance; with regard to environmental pollution, the firm has realized that it is a major contributor. This has made Wal-Mart representative to formulate a strategy that is aimed at ensuring that the firm uses renewable form of energy. It is also committed to ensuring that it contributes to zero waste within the society it operates in (Ferdinard, 2007, Para. 4).

On the sentiment that the firm will result to loss of jobs within the community it establishes its store, the firm will actually lead to job creation. This is due to fact the small firms can develop strategies on how to cope up with the competition. The firm will also ensure that the employee’s remuneration is well developed in order to incorporate their needs. This will be in regard to the labor law requirement.

Evaluation of the SWOT Analysis

The management of Wal-Mart will have to conduct evaluation of its SWOT analysis to determine the possibility of the firm’s success within the new location. With regard to competitiveness of the firm, the firm stands a higher chance of success. This is due to the fact that its incorporation of the discount strategy will lead to the firm gaining a greater market share in comparison to the other firms within the industry. It is also possible that the small firms will not be in a position to compete with the big box firm. This increases the chance of firms success since there will be a reduction in the level of competition.

The firm will also be in a position to increase the level of profitability within the new location. This will result from the increased convenience of the firm with regard to product availability. This is due to the fact that the firm will incorporate the use of technology in the process of merchandise procurement.

In order to mitigate the effects of the criticism raised by the various parties, the management of Wal-Mart supermarket should ensure that it complies with the requirements of the local planning. This would reduce the negative effects of politics on the basis of the firm’s location.

Analysis of Corporate Level Strategy

With regard to the firm’s mission, there is a commitment of the firm to ensure that it delivers quality products to all its customers. This is strengthened by the fact that the firm specializes in a wide range of products such as in its various stores. These include general merchandise, supercenters and the discount stores. The firm’s corporate strategy is to ensure that it procures its products at the lowest cost. This in turn would enable the firm to price the products at a discount. The firm is also committed to diversifying the number of its store location. Through diversification it is possible for the firm to enjoy large scale economies of scale. This enables the firm to effectively incorporate discounts in its products.

The firm has built its own portfolio over the years through a combination of various strategies. These include the establishing of new stores within various locations where there is a potential of growth. It has also over the years perpetuated the concept of purchasing other firms within the same industry. It is in pursue of the corporate level strategy that the firm is considering the establishment of a new store in the small town. This would contribute to improvement in the firm’s future performance.

Analysis of the business level strategy

Wal-Mart business strategy is concerned with low cost and low wage. The low cost strategy does not mean that Wal-Mart offers its products at the lowest price in the entire market. The low cost strategy is possible due to the fact that the firm has an already established base in terms of resources. Through this strategy, the firm can be able to effectively establish a new store and cope with the competitors effectively. It also translates that the firm can the firm management will consider the effect of the strategy on the competitors within the preferred location.

With regard to the firm’s functional strategy, the firm incorporates the concept of price point. This strategy is meant to develop customer store loyalty. In the new location, the Wal-Mart will be in a position to draw a large number of customers due to its low product prices. The firm is involved in intense research to determine the product that it will price at a low price in order to attract customers. This will mainly base on what the customers within that location demand most. It will also determine the consumer product that is in high demand amongst the consumers of that location.

Analysis of the firm’s structure and control

The nature of organization structure adopted by Wal-Mart supermarket is divisional in nature. This structure is effective for the operation of Wal-Mart considering the fact that it operates a large number of stores that are geographically distributed. Through the geographic structure, it is possible for the particular firm to address the divergent needs of the consumers where the firm is located effectively. The firm’s management has ensured that it has a well developed training program that takes care of both the development needs of the employees and the various level managers (Marketing teacher, 2009, para.8).

In ensuring that the Wal-Mart ventures the new market effectively, the management will have to ensure that all the strategies are effectively implemented. This would increase the level of confidence of the customers and the society on the firm.

Recommendations

In order to ensure that the Wal-Mart is competitive in a healthy manner, the US government should cease from allocating subsidies to the firms’ stores or else all the related stores should be included in the subsidy. This would enable even the small firms to be in a position to lower their product prices as one of the competitive strategies. In its effort to venture the small town; the management should ensure that it does not impose unfair competition to the small businesses. It should strive towards ensuring that the competition is healthy. The low cost strategy of the firm should incorporate the existing market price. This would ensure that the small firms can be able to make profit despite the firm’s presence.

The control of the firm should be decentralized. This will ensure that each store is able to deal with the unique market needs. This will lead to an increment in the level of the firm’s flexibility. This means that the firm will be able to deal with the customer needs within the new location.

The firm should not only concentrate on profit optimization in the short run. This is evident from the fact that Wal-Mart supermarket closes down the firms upon profit shrinkage. The firm management should ensure that it intends to exist within the society for a long duration. This would reduce the negative impact on the society upon closure of the firm.

References

Bizcovering (2008) Is Wal-Mart business good for America? Web.

Ferdinand, A. (2007) Wal-Mart determined to lead in corporate social responsibility. Web.

Jessica, P.(2006) Is Wal-Mart worth it? Bozeman daily chronicles. Web.

Marketing teacher (2009). Wal-Mart SWOT analysis. Web.

Goliath (2006) Rivalry in price and variety among supermarket retailers, American journal of agricultural economics, vol.3, issue 1, pp.65. Web.

Wal-Mart store incorporation, n.d. Web.