Challenges to Earn Money in the Supermarket Business
Discuss about the Case Study-Strategic management of Trader Joe’s.
write-down on the values of the supermarkets- the supermarket have technically lost a major part of their revenue because the impairment charges booked by these supermarket entities has led to the spending of billions of dollars. These can be considered as the non-cash charges and represent the changes in the value of the assets rather than the revenue that is actually lost by the company. More choice for the shoppers- Previously, a small town would have been able to buy products only from a single source or may be from 2 other supermarkets. whereas the recent developments in the property development have led to the build-up of the other supermarket brands and it increases the choice of the consumers as well as market competition. Emerging players like Aldi have provided the consumers with an alternative from the traditional supermarket players. Change in the shopping habits- The presence of the extra choice along with the market recession has led to the change in the shopping habits. The change in the taste of the consumers has led to the increase of the market competition and preference of a single over the other has led to the loss of revenue by the other supermarket brands. Too many supermarkets- The big four supermarket chains continued to invest on the spread of the branches and outlets in different areas. whereas, it forgot to make necessary changes in increasing the convenience of the shopping stores. This has led to the reduction in the revenue earning and damaging the amount of the sales.
The US supermarket sector has entered an arena of heightened competition with the competition from brands like Supervalu Inc. The company even announced that it wants to make additional investments in the supermarket sector. The company announced when the market was already experiencing weak operating results and the willingness of the company has shown its desire to improve the price competitiveness. In the longer term, the investments do not result in increased volumes because the entire supermarket industry remains fiercely competitive. The presence of the larger players like Safeway and Kroger has emphasized in the investment of price reductions. The Safeway and the Kroger along with the other regional supermarkets that are competing against the Supervalu act in a way to reciprocate to the Supervalu’s lower market prices. Safeway has more market overlap with the Supervalu than in comparison to the Kroger and Safeway is competing with Supervalu in Las Vegas, Baltimore, Washington D.C., Southern California, Chicago. While Kroger competes with Supervalu in the Las Vegas, Southern California.
Competition in the US Supermarket Sector
Considering the financial data, it can be clearly seen that Walmart, Kroger, Safeway and Supervalu are the four high earning supermarkets in the USA. Considering the square feet of the selling area, the more the selling area the more there is a scope of the having increased amount of sales. Walmart clearly has the highest number of the selling area (195.5 million square area) and also the grocery sales is highest at 118.7 billion dollars. Kroger comes the next with 104 million square areas and the sales amount to is 61.1 billion. Likewise, the Safeway and the Supervalu has the has the grocery sales of 35.5 billion and 28.2 billion respectively. The revenue earned, however, is high for the Kroger in comparison to all other supermarket brands. The revenue of Whole Food is around 90 million dollars, while that of the Whole Food, Safeway and Supervalu are 10 million dollars, 43 million dollars and 36 million dollars respectively (appendix).
The various supermarkets compete among themselves following certain strategies and tools like multinational strategy, Allocentric thinking, Nash equilibrium, corporate strategy. The multinational strategy especially emphasizes the integration of the value chain activities globally. The strategy also incorporates the creation of the processes and products that are responsive to the local market needs. The local responsiveness can be increased by the adjustments of the services/products to heterogeneous demands that exist across the regions; the adjustment of the local regulations, policies, norms, culture, and local taste; Using the local talent; local responsive can be brought about through the introduction of the cultural products, clothes, beverages and food. The Nash equilibrium is the second strategic outcome that defines each player chooses a strategy that is optimal for that specific player and given the strategy of all other players; the equilibrium concept also speaks that if a player changes its strategy then the proposed strategy is not a part of the Nash equilibrium. The Nash equilibrium guides the strategic choices with respect to a particular player’s competitor, stakeholders and complementors change. Allocentric management is another management tool or strategy that helps to make choices that anticipate how others will behave and how they react to the strategic choices. Allocentric thinking is a part of allocentric management that helps to understand the motive of the other player’s motives; it also helps in assessing the capacities, experiences or knowledge; understand the options which includes the perception of the market rivals; understands what the market rivals believe in the environment; anticipate the actions of that the market rivals and tactics that they use and the optimal way to act as well as react. The last tool is the corporate strategy that helps to achieve growth by increasing the scale and the scope of a company’s operations. To identify and exploit the businesses/ opportunities that enable a company to extend its competitive advantage over the others. The corporate strategy also involves the development of the structure, systems and processes in order to manage the mix of business effectively.
Tools and Strategies Employed by Supermarkets
Trader Joe’s by the year 2013, Hs expanded to around 400 locations and over 37 states and also in the district of Columbia. Of all the 414 stores, that are currently open, around 172 are located in California. Illinois ranked second which had around 20 locations. The main fact is the top 5 states had the 60 percent of the company stores (appendix). It was estimated that the Trader Joe’s revenue earning will be around 10 billion dollars. The company did not reveal any data and at that time, however, it was found that the returns were much higher in comparison to the other supermarkets in the area. Experts have found that the Whole Food market had the highest sales per square foot in comparison to the other supermarket brands. The interesting fact is that the Trader Joe’s has the most doubled the sales in comparison to the Whole Food.
The store operations played a key role in increasing the sales. A typical Trader Joe’s store had 40 to 50 thousand square feet and as a result, did not have enough space to operate and function the way other companies operate. In order to tackle the cramped, quirky layout of the stores through a Chevron pattern of the Trader Joe’s stores. The aisles are canting left along with the offbeat floor management that works to complement the unregimented persona of Trader Joe’s. there exists a retail trick, in which the angled passageway reveals the store contents and the profile of the arriving customers or shoppers. The Rows squared along with the walls that cleverly conceal their contents from the customers. Also, the pricing strategy framed by keeps the customer visiting their stores regularly. Another important strategy is that Trader Joe’s maintained is the experience of the new products. One cannot find coca cola beverages or cheerios cereals, however, new and interesting products are found in the stores of Trader Joe’s. Trader Joe’s tried not to follow the trend and instead went with the flow of the products that a customer previously did not have experienced before. Trader Joe’s strategically featured products for a short period of time and this led to the increase in revenue earning because a large number of the customer bought products in large quantities and at low prices. This enabled Trader Joe to purchase products directly from the manufacturers instead of working through the wholesaler and retailers. In order to slot their products, Trader Joe’s did not change the supplier instead they paid the suppliers promptly.
Overview of Trader Joe’s Operations
product acquisition-The Trader Joe’s and its vendors maintain a status of secrecy with its retailers. Trader Joe’s do not want its market rivals to know about their how they sourced the privately labelled goods and products. This help in maintaining secrecy and at the same time Trader Joe’s can sell products at a much cheaper compared to the other supermarket stores. Customers- Trader Joe’s described its customers as inquisitive, educated and intelligent individuals, and it focussed on the individuals that are trying out new things, enjoy travel and are health conscious. Marketing- Trader Joe’s was found to market its products on the Fearless Flyer and also through the radio ads occasionally, however, restrained from promoting its products through the radio ads. Trader Joe’s also do not hire an advertising agency in order to advertise its products. In addition, it was found that one or more employees in every store are employed as artists that produce handwritten signage. At the same time Trader, Joe’s do not employ any public relations agency. Whereas, in comparison to the other sellers, Trader Joe’s simply restrained itself from having a loyalty-card program and do not accept or offer coupons. The Fearless Flyer provide information about their products, however, it does not provide any information regarding the weekly sales. The company even restrained itself from having a Facebook profile, however, boasts of having a large number fan-created pages.
Considering the case of Trader Joe’s it is important to note that there is one strategy called corporate strategy and Nash equilibrium that can be used both as a tool and a framework to evaluate the strategy of Trader Joe’s. The first strategy is called the corporate strategy. Trader Joe’s in order to achieve growth in the US supermarket increased the scope and the scale of the company’s operations. It identified and exploited the opportunities that will enable the company to extend its competitive advantage over its competitors. The company developed structures, systems and the processes in order to manage the mix of business effectively. The company favoured the unrelated horizontal direction of business expansion. The unrelated horizontal expansion refers to the enlargement of the scope by entering the markets and the scope that has little in common with the existing business. Next in line is the Nash equilibrium which describes that Trader Joe’s chose a strategy that is optimal for its growth and made it different from the other existing players in the supermarket sector.
Unique Store Operations of Trader Joe’s
Trader Joe’s uses a strategy that both provide the scope for its customers to pay more due to the willingness to buy and at the same time also promote the lower costs of the products. Trader Joe’s especially sells products in comparison to the Kroger or Safeway, from the brands that are not known, however, these products are available only for a short period of time. This provokes the customers to buy more products in a single go even if the price of the product is high. The next strategy of Trader Joe’s is to provide products to its customers at an affordable price. One blogger in the Los Angeles area mentioned in his blog that he loves Trader Joe’s for their price and for their simmering sauces. Trader Joe’s maintains a dynamic mix of its products and the stores provide 10 to 15 new products per week. The stock limited varieties of the products which the buyers purchased in large quantities.
3. For a new entrant in the US supermarket, it would be rather easy for a company to imitate the strategy of Trader Joe’s. Initially, it was a risky and the other retailers were hesitant of selling products that are different from the conventional. Now, that it is known that a company can actually earn revenue from selling products that are not much known to the general buyers, it will easy for any company to imitate the same act. The vendors that provide the products secretly to Trader Joe’s at lower prices can also make negotiations with the other sellers. Thus, there is a probable chance of imitation in the future.Through the assessment, it has been found that the biggest threats to the Trader Joe’s competitive advantage are the vendors that provide its products at a cheaper price to Trader Joe’s. If a rival company imitates the business strategy of Trader Joe’s then Trader Joe’s might face a tough competition from the other retailers. Trader Joe’s biggest vulnerability is the lack of its connection with any social media. In order to increase its customers, Trader Joe’s can easily promote its products through the social media. This will truly help the company to have more buyers and, in turn, can promote the products of Trader Joe’s. The lack of any social media connectivity has made it strategically to a disadvantageous and vulnerable position.
Considering the popularity of Trader Joe’s among its buyers, it is important to note that Trader Joe’s has gained its name only through the selling of the limited edition exclusive products that are unconventional and new to its customers. Thus, incorporating the online retailing into the business of Trader Joe’s can greatly help the retailer company to increase its base of the buyers. People instead of coming to the physical stores can easily buy products from their home. There is, however, a big issue with the incorporation of the online retailing. The physical stores might lose the volume of the buyers that it previously used to serve. Considering previous value chain of Trader Joe’s like the design of the stores, affordable pricing of the products, acquisition of the products, lack of integration of technology in the physical stores can effectively help Trader Joe’s to earn more revenue and sales. Considering the area of the sales, the online presence can add to its advantage, the buyers can have the same feeling of buying products that they previously used to have during each store visit. Also one of the issues was the cramped up parking space in front of the physical stores. This can be effectively negated when the more customers will pile in through the online channel.Introduction of the new products and the sale of the new products can be affected by the vendors itself. The vendors can also deliver the products depending upon the availability of the stocks. Offers and coupons can be introduced to allure the customers to buy more products during a flash sale.
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