Grocery Stores – Module 1

1. Grocery Stores – Module 1 Industry overview Junichi Hara, Edward Hjerpe, EwaNelip, Megan Wiethoff Walmart Junichi Hara

2. Industry Overview

3. Definition • Retailer of food and non-food products

4. Major competitors

5. Definition not as clear

6. Key statistics • Revenue: $517.8 B • Profit: $6.7 B (1.3%) • Annual Growth 2008-2013: -0.4% • Expected Growth 2013-2018: 0.8%

7. Industry Life Cycle

8. Industry life cycle: Mature

9. Industry life cycle: Mature • Low profit across industry: ~1.29% • Industry to grow slower than economy • US GDP: 2.1% • Industry: 0.4% • Smaller stores to be consolidated

10. Porter’s Five Forces

11. Threat of Entry Threat of Suppliers Threat of Competition Threat of Buyers Threat of Substitutes

12. Threat of Entry Threat of Suppliers Threat of Competition Threat of Buyers Threat of Substitutes

13. Threat of competition: High • Top four players own 30.9% of revenue • Consolidation to slow due to regulation • Mainly compete on cost leadership

14. Threat of Entry Threat of Suppliers Threat of Competition Threat of Buyers Threat of Substitutes

15. Threat of suppliers: Medium • Commodity products • Brand products • Private labels

16. Threat of Entry Threat of Suppliers Threat of Competition Threat of Buyers Threat of Substitutes

17. Threat of buyers: High • Loyalty and rewards cards • One stop shop • Close proximity of competitors • 75% shop in 5+ retailers for lower prices

18. Threat of Entry Threat of Suppliers Threat of Competition Threat of Buyers Threat of Substitutes

19. Threat of entry: Medium • Mass retailers already entered • Drug stores and dollar stores entering • Economies of scale/Capital investment • Distribution network relationships • Online grocery shopping?

20. Threat of Entry Threat of Suppliers Threat of Competition Threat of Buyers Threat of Substitutes

21. Threat of substitutes: Low • Only real substitute is eating out • Groceries are necessity

23. Largest company in world Source: Forbes.com

24. Largest grocery company in US Annual Grocery Sales (2012) • Walmart: $151 billion • Kroger: $96.8 billion

25. Largest grocery company in US

26. Grocery vital to Walmart

27. How did it get here? • Initially targeted isolated, rural areas • Benefited from lack of competition • Distributors unwilling to deliver • Walmart forced to do its own distribution • Led to Walmart’s core competencies

28. Walmart’s strengths S W O T

29. Walmart’s assets and practices • Warehouses and fleets • “Cross-flowing” • “Everyday Low Prices” • IT system and data • Information sharing • Profit sharing • Store within store Core competency in inventory management Lower Prices

30. Walmart’s opportunity S W O T

31. Walmart’s experiments Leveraged core competencies • International expansion • Operates in 27 countries • Sam’s Club • Walmart Supercenter • Based on European concept of “Hypermarket”

32. Advantages over supermarkets • World class logistics • Investment and scale • Bargaining power • Diversification • One stop shop

33. Walmart’s weaknesses S W O T

34. Negative image

35. Incompatible business model? Source: NyTimes.com

36. Incompatible business model? • Not enough workers to stock shelves properly • Fresh foods more labor intensive and wasteful • Safeway: 71% confident in fresh produce • Walmart : 48 % confident • Internal memo: “Lose Trust”

37. Walmart’s threats S W O T

38. Amazon threatens Walmart

39. Non-Grocery

40. Grocery

41. Walmart’s counter

42. Questions to answer • Business environment’s effect on Walmart? • Walmart’s effect on business environment? • Effect on financial statements?