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INTRODUCTION
When it comes to marketing your business, there are three generic strategies you can use
focus , differentiation and cost leadership. While the cost leadership strategy can be highly
successful, it can be can be difficult to employ. It involves marketing your company as the
cheapest source for a good or service. This means that you need to minimize your costs and
pass the savings on to your customers. By looking at examples of firms that have employed
this strategy successfully, you can see how it can benefit your own business.
Wal-Mart Stores Inc. has been successful using its strategy of everyday low prices to attract
customers. The idea of everyday low prices is to offer products at a cheaper rate than
competitors on a consistent basis, rather than relying on sales. Wal-Mart is able to achieve
this due to its large scale and efficient supply chain. They source products from cheap
domestic suppliers and from low-wage foreign markets. This allows the company to sell their
items at low prices and to profit off thin margins at a high volume.
Wal-Mart is incredibly successful in managing its supply chain. Wal-Mart applies the most
reliable supply chain management system which is very efficient because almost all product
data can be tracked to and from the manufacturer, warehouse, and the store shelf. Efficiency
in supply chain system may save Wal-Mart several million dollars as it can prevent losses
from faulty product management.
The Successful Cost Leadership Strategies of Wal-Mart
When you walk into Wal-Mart, the first thing you will notice is that the prices of the Wal-
Mart are much lower than those of any other stores. Why does Wal-Mart offer lower prices?
What are its strategies in lowering the prices?
There are two activities that drive the strategy of Wal-Mart in lowering prices; primary
activities and secondary activities. Primary activities include all the activities such as supply
chain management, operations, distribution, sales and marketing and services etc.
Wal -Mart’s strategy in cost leadership
Efficiency in supply chain management:
Supply chain management is management of a network of interconnected
businesses involved in the provision of product and service packages required by the end
customers in a supply chain. Supply chain management spans all movement and storage
of raw materials, work-in-process inventory, and finished goods from point of origin to point
of consumption.
Wal-Mart is incredibly successful in managing its supply chain. Wal-Mart applies the most
reliable supply chain management system which is very efficient because almost all product
data can be tracked to and from the manufacturer, warehouse, and the store shelf. Efficiency
in supply chain system may save Wal-Mart several million dollars as it can prevent losses
from faulty product management.
Efficiency in operations and distribution strategies:
Operations and distributions strategies have helped Wal-Mart achieve low prices- Wal-Mart
opens the stores outside of large cities and within 200 miles of existing stores. By bunching
stores together in small areas, distribution costs are below average. Furthermore, Wal-Mart
seeks to meet different customers’ needs with four main distinct retail options; these include
discount stores, supercenters, Sam’s Clubs, and neighborhood markets. In addition to that
Wal-Mart is trying to open Wal-Mart Express in urban cities where physical space is at a
premium.
The secondary activities of the Wal-Mart stores include all activities and technologies that
indirectly contribute in achieving lower prices such as R&D, human resources management
especially employee training, etc.
Bargain power:
Wal-Mart buys its products at rock-bottom prices, exchanges high purchase volumes for low
cost while passing the savings onto its customers. The bargaining power of suppliers is
weak. Many suppliers even give in to Wal-Mart’s pressure because they depend on the
discount retailer for the majority of their sales. For most producers, Wal-Mart is their largest
account. Obviously, they would do what Wal-Mart wanted them to do if they hoped to
maintain their sales. Furthermore, the bargaining power of buyers is also weak because there
is a very broad base of customers and a significant demand for low prices.
Failure of potential entrants:
Wal-Mart’s ability to continuously drive its costs lower while satisfying customers’ needs
makes it potential entrants very difficult to compete with Wal-Mart.
Therefore, those are the strategies that Wal-Mart uses to sustain cost leadership position in
the value chain market.
Footnote: This is a general study using most updated references and cases study to uncover
the successful cost leadership strategies of Wal-Mart. Not all primary activities and
secondary activities are discussed. But special emphasis is put on efficiency in supply chain
management and efficiency in operation and distribution. In addition to that, this study
mentions about the role of Wal-Mart’s buying power among suppliers, producers,
competitors and the bargain power of buyers in order to illustrate the cost leadership of Wal-
Mart.
1. a. Corporate Strategy:
Before analyzing Wal-Mart’s corporate strategy, it is important to decide what business it is
in. For example, if Wal-Mart is in the business of selling consumer goods such as TV’s,
sheets, clothes, etc then it is pursuing a concentric strategy by entering the food business.
However, this changes depending on how you analyze what business Wal-Mart is in. Wal-
Mart is in the business of selling everything customers need in their everyday lives. This
includes the consumer goods listed above as well as food-service items. Even still, Wal-Mart
pursues multiple strategies. Concerning concentration, Wal-Mart continually finds more
consumer goods to sell at its stores which can take money from competitors. Additionally,
when Wal-Mart entered into the food market, it quickly consolidated and held to good,
saleable products. Wal-Mart never forays too far into a market and only sells what will make
it a profit.
Recently, Wal-Mart has pursued a conglomerate strategy by starting to sell used cars at some
of its stores in Buffalo, New York. Selling cars is an entirely different industry than selling
consumer goods. Additionally, it requires a whole new set of expertise that does not come
easily. As far as future plans are concerned, Wal-Mart should abandon this strategy and stick
to what they do best.
Lastly, an argument can be made that Wal-Mart is also pursuing a
vertical integration strategy. Wal-Mart has developed its own name brand to sell products
called Sam’s Choice. This puts Wal-Mart into the business of making things like soda,
cereal, and dog food. While they still don’t grow their own crops or raise their own livestock,
it is still a form of vertical integration. Also, Wal-Mart works heavily with its suppliers. This
symbiotic relationship can be see as vertical integration due to the level at which Wal-Mart
analyzes its suppliers and improves their manufacturing processes, etc.
b. Business Strategy:
Wal-Mart definitely has the business strategy of Low Cost Leadership. They do nothing to
really differentiate themselves from competitors and provide no-frills self-service stores that
always provide the lowest prices. Wal-Mart has built enough clout with suppliers that they
can dictate the prices and go in and change suppliers manufacturing processes in order to
wring out more and more savings for the consumer. Everything that Wal-Mart does from
calling suppliers collect to having execs double up in hotel rooms, is to save the customer
money. While they do try to provide good customer service on top of low prices, Wal-Mart’s
strength is low-prices. No one has such a supplier and distribution network like Wal-Mart
that allows such low prices.
Human Resource Management
Wal-Mart’s success in Human Resource Management is keeping their workforce of 1.3
million from unionizing, while adding to it and pursuing other HR activities to further Wal-
Mart’s success. Wal-Mart would not have been able to expand and have the same level of
success without hiring and taking care of quality employees. Some of Wal-Mart’s human
resource activities include employee advancement, employee recruitment on college
universities, and employee training and development. Additionally, while most firms have
slowed down their hiring of new employees, Wal-Mart has sought out new ways to attract
employees to compensate for their further expansion over the next five years.
Looking at Wal-Mart’s Human Resource Management, one of the most important aspects is
Wal-Mart’s employee advancement program. Currently, 65% of the company’s managers
began working hourly jobs, such as cashiers. Wal-Mart has taken great efforts to ensure that
there are opportunities for their employees to rise up through the ranks so to speak. This
availability of opportunities to advance past low-paying hourly wage jobs undoubtedly is part
of the reason that Wal-Mart was voted as one of Fortune magazine’s most admired
companies and was distinguished as one of the best companies to work for in the U.S.
In the realm of employee recruitment and employee training and development, Wal-Mart has
targeted college students to add to their workforce. Wal-Mart achieves this recruitment by
fanning out over 80 college campuses. While they are at these colleges, they are also able to
expand their demographics by looking at minority fraternities and sororities, which brings all
types of people from different backgrounds, races, and genders together in the Wal-Mart
family. Having a wide variety demographic for a workforce, only serves to attract more
people to seek employment with Wal-Mart because they are able to show that they have a
very open hiring process. Beyond this recruitment, Wal-Mart has taken an additional step
with college students by offering management training for college students while they are
still in school so they are more developed and prepared upon their graduation. This program
serves the purpose of making college students consider careers with Wal-Mart, and over the
last two years, the program has had immense success.
The results of these Human Resource activities speak for themselves. Wal-Mart has
achieved a very good retention rate for their employees, and the proof of this is their focus on
adding to their workforce over the next five years by hiring 800,000 new employees bringing
the total over two million. Despite the reports that Wal-Mart’s employees are underpaid and
not given benefits, Wal-Mart has not wavered. Employees, as much as 60%, have gone on
record saying that they stay with Wal-Mart because the benefits allow them to take care of
their families. If employees were unhappy and leaving at a considerable rate, then the focus
would be on filling these open spaces rather than expanding their workforce.
ASPECTS:
One aspect of Wal-Mart that sets them apart from other corporations is how they manage
their relationship with their suppliers. We have determined that Wal-Mart is such a dominant
force and has become such an important account for their suppliers that they have managed to
eliminate Supplier Power. By eliminating Supplier Power, Wal-Mart can pursue achieving
their goals and concentrate purely on their Cost Leadership Strategy, which serves the
consumer with “Everyday low prices.” However, the fact that Wal-Mart is able to disregard
Supplier Power begs the question of where exactly does Wal-Mart derive its power?
Additionally, if Wal-Mart has nearly eliminated Supplier Power, then what kind of
relationship do they have with their suppliers?
Wal-Mart’s power is derived from their size and the influence that comes with it. A quick
look at Wal-Mart’s numbers is the proof of Wal-Mart’s size and power. Some of Wal-Mart’s
numbers include 23% of Clorox’s sales and 20% of Revlon and RJR Tobacco’s sales. If
these companies choose to walk away from their supplier relationship with Wal-Mart, then
they would lose out on nearly a quarter of their revenue. The fact of the matter is that this
same concept extends to all of Wal-Mart’s other suppliers like Kraft, Proctor & Gamble,
Gillette, Campbell’s Soup, and many more. The reality that these suppliers live in is one
where they know that their Wal-Mart account is one that they cannot afford to lose. In fact,
suppliers are also faced to look at the predictions that, in an estimated five years, Wal-Mart
will double in size, which mean Wal-Mart’s account with only continue to grow.
Since Wal-Mart has effectively eliminated Supplier Power, it is also important to consider
the state of their relationship with suppliers. In many ways, Wal-Mart has changed the
dynamic of the supplier and buyer relationship. Joe Galli, Newell CEO, was quoted as
saying, “The days of price increase are over.” Often times, Wal-Mart will tell their suppliers
upfront what they will and will not pay for a good. However, despite the fact that Wal-Mart
has removed the possibility for supplier price increase, their suppliers generally feel one of
two ways about Wal-Mart. The first supplier sentiment is serving a client like Wal-Mart
forces a company to become more efficient. Many suppliers feel that doing business with
Wal-Mart is the equivalent of entering a corporate basic training exercise. Robin Prever, who
was CEO of Saratoga Beverage Group, was quoted as saying that this relationship with Wal-
Mart, “… wakes everybody up. And all our customers benefited. We changed our whole
approach to doing business."
In this regard, if their suppliers feel cheated, does it really affect Wal-Mart in the end since
suppliers cannot afford to lose their business? The answer is yes because, “suppliers can
affect manufacturing time, product quality, and inventory levels.” All of these aspects of
supply can shape Wal-Mart’s ability to effectively restock their shelves for their inventory
turnover. In addition, if Wal-Mart pursued avenues that would seriously undercut their
suppliers, then they face a variety of possible repercussions. For instance, if suppliers
became unable to take care of their workforces, then Wal-Mart could see significant drops in
their product inventories. Therefore, even though suppliers do not have power in regards to
their relationship with Wal-Mart, it is still important for Wal-Mart to maintain relations with
their 21,000 suppliers because suppliers are the key to Wal-Mart achieving its goals and
strategy.
Growth Journey Of Wal-mart
During the 1970s
• Wal-Mart’s sales increased from $31 million to $1.2 billion, a signification growth rate of
287% & the number of Wal-Mart stores increased from 32 to 276.
During the 1980s
• Wal-Mart’s sales increasing at compounded annual rate of over 36%.
• Introduction of the Sam’s Wholesale Clubs in 1983, and the Hypermart (which was later
known as Super Center) in 1987.
• Made heavy investments in IT. In 1987, Wal-Mart installed satellite communication
systems costing an estimated $700 million.
• In 1989, Wal-Mart stared building a huge database of customer information in its data
warehouse system.
During 1990s
• Introduced customer information kiosks in its stores in 1996.
During 2000
• Wal-Mart was registered as one of the world’s largest companies, with revenues of $165
billion in fiscal 2000, and
• Launched the ‘store of the community’ program,
• By 2003, Wal-Mart, was the world’s largest company, with revenues in fiscal 2002
amounting to $244.5 billion.
Strategy of Wal-mart
• Same goods for less( charges 2-5%lower price) & still earns profit.
• Very good operational efficiency
• Use of IT in all verticals of business
• Effective use of logistics management
• Global Expansion for new market opportunity
• Networked to HQ via private satellite in 1983
• Bargaining power over suppliers
• Data used to “profile” each market
• Predicts demand, optimizes stock
Operational Strategy:
• Wal-mart created significant advantage through the systems it developed to manage it’s
warehouses and stores
• Initially Wal-mart choose locations without direct competitions from large chains(rural
areas)
• Wal-mart created a culture of supporting values, skills, technologies, supplier –customer
relationship, HR and approaches to motivation that could not be easily copied by other
firms
Wal-mart’s future
As Wal-Mart continues to grow and expand, they should continue looking into new product
markets. The next opportunity that Wal-Mart should seek to incorporate into their stores is
the sale of musical instruments. Specifically, Wal-Mart should look into the sale of guitars
and other band equipment. This product market is a viable area for Wal-Mart to consider
because they have already involved themselves in the music industry.
Wal-Mart is responsible for 14% of music sales worldwide, and they have also jumped on the
online music bandwagon by selling MP3’s on their website for $.88 a song. They can bring a
completely new aspect of music to their consumers by selling quality musical instruments,
such as Fender electric and acoustic guitars, amplifiers, drum equipment, etc. Fender is one
of the biggest players in this industry being the largest supplier of solid body electric guitars.
Last year, Fender made an estimated $256 million dollars of sales with a workforce of 1,800
employees. The musical instrument industry is one that is growing because of increased
consumer interest. Another company that has found a great deal of success is Yamaha, which
is the nation’s largest maker of musical instruments. Yamaha made an estimated $822
million of sales last year. These companies like Fender, Gibson, and Yamaha work mainly
through dealers. Whether through online sites, such as guitarplayer.com or through actual
dealer stores like Sam Ash, these dealers specialize only in selling musical instruments.
If Wal-Mart could come to an arrangement with a company like Yamaha or Fender, it would
add a whole other level for musical instrument sales. Wal-Mart could offer a variety of
products with a variety or price ranges that will attract experienced musicians and beginners
alike. People that have never previously thought about buying a nice beginner guitar could
now have the option to purchase a Fender or Yamaha guitar at a Wal-Mart everyday low
price. One question that might come to mind is why wouldn’t a customer seek out a dealer if
they wanted to purchase a musical instrument? One potential answer to this question is that
often times dealers are not nearly as accessible as a Wal-Mart. Also, dealers can raise prices
and sell an overpriced product to an unsuspecting new musician. Dealers have the luxury of
overpricing their products because it is the only source of revenue and there is very little
competition from other dealers in a single geographic area. However, if a consumer were to
see musical instruments and equipment for sale in a Wal-Mart, they could feel comfortable
that those products meet Wal-Mart’s Cost-Leadership Strategy of “Everyday Low Prices.”
The bottom line for Wal-Mart is that there is definite potential in this product market,
provided that they could find a way to enter the market effectively and stay true to their
values while supplying their 3,000 plus stores with musical instruments.
In addition to adding products to its stores like musical instruments, Wal-Mart needs to
carefully plan further expansion. While most of the US market is already saturated with
regular and super Wal-Mart’s, there is still room to expand. Wal-Mart still has a lot of room
to grow in both New England and in California. However, they need to be careful about
doing this so as to not overextend themselves. If they were to do so, it could send ripples
throughout the company, causing them to raise prices and destroy what they have built.
Based on personal observations from having lived up there, New England is very sensitive
about outsiders coming in, especially when it is a large chain. Most of the restaurants and
stores are either owned or operated locally, and are rather small. Most convenience store
“chains” only have one or two stores. Additionally, people like feeling close and maintaining
the “ambiance.” Therefore, Wal-Mart needs to expand slowly into New England so that
people can get used to it, just like they have gotten used to large-chain Dunkin’ Donuts.
Also, they need to alter their store strategy and consider opening smaller stores that would fit
into the ubiquitous small New England town. When expanding into California, they again
need to take it slow. There have been a lot of complaints in California about zoning for Wal-
Marts. Wal-Mart needs to penetrate the market slowly and do more to help the community in
order to prevent backlash.
Finally, Wal-Mart needs to expand further into international markets. Once again the key
word is caution since not many countries operate like the United States and Wal-Mart will
have a steep learning curve. Wal-Mart should consider pairing up with existing companies
when it is possible. This is because they will receive built-in experience and an existing
structure. They can then take these companies and Wal-Mart-ize them like they did in
Canada. Additionally, they should build only a couple stores in a new country until their staff
has learned enough about the idiosyncrasies of the country they’re in. Once they learn about
a new country, they’ll be able to leverage their strengths to deliver low prices everyday.
Wal-Mart’s Strategy through the World
Argentina:
Argentina hasn’t been a high priority market for Wal-Mart. They entered in 1995 by setting
up 100%-owned greenfield stores. They were pretty tiny: by 2007 they had only 13 stores.
Argentina is a small economy compared to Brazil and Mexico. In 2007, according to a
Citigroup report, Wal-Mart’s marketshare of organized retail was 4% and the combined
marketshare of the two biggest players was 22%. No 3 is not a desirable position in discount
retailing because it requires local scale and local marketshare
Mexico:
Wal-Mart, which is No 1 here, entered through a 50:50 joint venture with the leading
retailer. They soon acquired the partner completely. In their business, local marketshare is
critical. So what Wal-Mart sells in Canada, which is right next to the US, over 85% of it is
sourced from Canada. It is all about local economies of scale, local purchasing power and
local logistics. Discount retailing is a very “multi-local” business.
When Company A competes with Company B, local scale and local market power determine
the cost structure, branding and retail presence in eyes of customer. Wherever Wal-Mart did
not pursue this logic they ran into trouble. In the 1990s when Wal-Mart opened its first store
in Mexico, they had a huge American-style parking lot. They found all the shopping carts
were piled at far end of parking lot – because customers came in via buses not cars and went
to one side which was closer to the bus stop. They made mistakes in terms of the product
mix. They were selling the same thing as in the US.
There was a story about them selling golf balls to customers whose income levels were low.
The mistakes they made in Mexico were relatively early and non-fatal. They recovered from
them very quickly. That was really the first non-US foray so they were learning on the fly.
Today Mexico is a fantastic story for Wal-Mart.
Brazil:
In Brazil it took them more time to become No 1 because they had tough competitors like
Ahold and Carrefour. As the competitors stumbled, they acquired the Ahold stores. Over time
Wal-Mart strengthened in Brazil. They made mistakes again with regard to localization of the
product mix.
Hong Kong:
Hong Kong was their first foray into Asia. It was a brief disaster. Wal-Mart knew nothing
about Asia. They entered Hong Kong through a joint venture with a Thai conglomerate. This
was unwise because instead of picking a Taiwanese or Hong Kong company as a local
partner, they picked a Thai partner. They opened three stores and shut them down very
quickly. Hong Kong is a very compact place and they didn’t factor in how customers would
get to the stores. There was nothing wrong with the product mix.
They did not factor in the broader ecosystem – how customers will come and go. They chose
a very inconvenient location for customers. In 1995, they had 2,900 stores worldwide and if
three bombed, it didn’t matter so much. It shows that Wal-Mart from time to time, hasn’t
been the smartest company in terms of joint venture partners.
Korea:
Wal-Mart entered Korea in 1999. They entered by acquiring four units from Macro (a Dutch
chain, now owned by Metro). Korea is fairly mature market and there was a local company
called Emart, which is the market leader. Emart warned Wal-Mart that this is a very local
industry and it doesn’t matter that you are the biggest retailer in the world – we are the
biggest retailer in Korea. Wal-Mart made an acquisition offer to Emart which Emart rejected.
Wal-Mart entered as a small player and could never become big. Seven years later they sold
their stores to Emart and got out.
China:
Wal-Mart is still too early in the game in China. It’s a respected retailer in China. They do a
good job in terms of localization of the product mix and store format. There have been no big
mistakes. Carrefour entered at roughly same time as Wal-Mart – but it is growing faster, has
double of the number of stores and is much more profitable than Wal-Mart. Wal-Mart
appears to be looking at China as one big national market – the same way it views the US.
Carrefour looks at China as a portfolio of regional/local markets. Unlike Carefour Wal-Mart
has centralised sourcing and a centralised distribution centre.
Carrefour gives greater autonomy to store managers. It is not even relying on local economies
of scale, forget global. China’s infrastructure is better than India’s but it is in the process of
being built up – when you have weak infrastructure for consumer goods, you have national
manufacturers and not local manufacturers. In terms of food products, Chinese like to buy
fresh meat so local sourcing is much smarter than centralised sourcing. Just like any
developing economy, heterogeneity across China in terms of what people want to buy is very
high.
Carrefour can open one store in the middle of the city and tell the local store manager you are
an independent profit manager – so you decide what you want to buy, from whom. Your
competitor is the small mom and pop store in the city. It’s a perfectly fine strategy. In
retailing, local government bureaus become very important so if you give store managers
high degree of autonomy it makes it easy for them to understand how to work with local
governments. Carrefour is looking at China as a portfolio of local markets.
Wal-mart’ Strategy in India
When you enter a new market, a lot depends on the kind of a partner you have. If you have a
partner that itself has ambitions to be a major retail powerhouse in India, there is a strategic
conflict. Sooner or later India will permit foreign retailers to have direct equity ownership in
India. Then what will Wal-Mart be left holding? Bharti has retail ambitions – it will want to
buy Wal-Mart’s shares then, rather than sell.
If stores are branded BestPrice, what is Wal-Mart getting in this deal? One could argue that
Wal-Mart should have thought of India as a portfolio of regional markets and work with
smaller regional partners. It’s hard for them to have much bargaining power or have national
ambitions. They would have been happy to brand them as Wal-Mart and when regulations
change, Wal-Mart would be able to buy them out.
Wal-mart Entering India
1.Wal-Mart should focus on local customer preferences, strategic
locations, regionaldiversity. Given the compliance with
Regulatory norms and fast market penetration, Wal-Mart to gofor
strategic alliance – joint venture. Success depends on
implementation within time-limits.. Wal-Mart should apply its
‘Repeatable formula’ of Lowest price - supported with
efficientsupply chain and Information technology for Indian
markets as well.. Organized retail are expected to increase its
market share from 5.7% in 2011 to about 12%by 2016. Major
gainers are expected to be the new entrants like Wal-Mart and
Carrefour. Recommendations. Increasing per capita income and
changing consumption pattern are the key drivers of fastgrowing
Retail sector in India..With the opening up of Indian Retail sector
for FDI up to 51% in multi-brand retail, India isset to become
hub of Multinational Retailers from across the Globe.
2. The Corporate Level Decision: Entering India Should Wal-
Mart Enter India? No Yes More Downside Risk Growth
Opportunities Acquiring a local Player Joint Venture Organic
Start Growth Greenfield Operational & Cultural Issues - Not
Recommended Recommended Regulation Issues – Too risky –
Not Not Recommended Recommended Considering various
Regulatory & Risk vs. Return aspects, it is recommended that
Wal-Mart should enter India with a strategic Joint Venture, at
least to start with.
3. Indian Retail Market - Growth & Opportunities Indian Retail
Food Industry Market Value• Indian Retail Industry had total
Revenues (Billion USD)of $470 bn in 2011. 500 400 300• CACG
between 2007-11 stands at 10.7%. 200 100• Data Monitor
Research estimates a 0 2005 2006 2007 2008 2009 2010 2011
2012 2013 2014Industry size of $675 bn between 2010- Source
Datamonitor India – Food Retail Industry Retail report dated
June 20102014 with a CAGR of 14.7%. Indian Food Retail
Segmentation 2009 (% by Value)• Fast Urbanization & Young
demographics 1.3% 0.1% 0.3% Convenience Stores &are key
drivers. Gas Stations 32.9% Food and Drinks• Changing
preference will boost 65.4% Hypermart, Supermarhypermarket &
super markets in India. t & Discounters Cash & Carries &
Warehouse Clubs With rising per capita income & changing
consumption pattern, retail industry to become massive in next 5
years. Organized retail & hypermarkets to have a even higher
proportionate growth.
4. Profitability Analysis: Porter’s 5 Forces Threat of New
Entrants • Carrefour to enter market. • Wal-Mart has first mover
advantageBargaining Power of Suppliers Competitive Rivalry
Bargaining Power of Customers• With ‘high volume’ model of •
Large unorganized sector • Present Organized/ Wal-Mart,
suppliers have low • Moderate to high organized Unorganized
sector unable to bargaining power sector e.g. Big Bazaar give
low price deals Threat of substitute products • No immediate
substitutes possible to Retail With fast increasing demand &
proposed model of cost leadership, Indian Retail Industry looks
substantially PROFITABLE.
5. SWOT Analysis: Wal-Mart Strengths Weakness1. Deal with
Suppliers - Cost Leadership 1. Unable to adapt to different
cultures/2. Efficient Supply Chain countries e.g. Germany3.
Strategic Location/ Facilities at Stores 2. Heavily dependent on
‘bulk sales’4. Strong IT backup 3. Late entrants5. New
Technology Implementation 4. No success beyond Americas
Opportunities Threats1. New Economies - India/ China/ Brazil 1.
Restriction on FDI e.g. India2. Rising disposable incomes 2.
International law against dumping3. New channels – Marketing/
Internet 3. Regional competitors based models 4. Law against
‘Monopoly’– Anti-thrust4. J.V. with some leading players
policies Opportunities look impressive. The key to success lies in
how Wal-Mart tackles local laws/ regulations & makes its
‘repeatable formulas’ work in new markets.
6. Key Success: Factors for Indian Markets1. Cost Leadership –
Attracting Masses2. Strategic Retail Outlet Location3. Wide
Range of Goods/ Variety - keeping ethnic & economic diversity
in mind4. Sales Promotion/ Marketing Campaigns in Festive
SeasonsStrategic Gaps in Indian Retail Sector1. Limited mainly
to Metros, Tier-I cities. Huge potential lies in sub-urban, rural
markets, Tier-II & Tier-III cities2. Geographical Gaps – Markets
like North East are yet to be explored3. Truly Global Shopping
Experience missing in Indian Retail Stores Wal-Mart has to
incorporate Indian Values & preferences while designing the
business model. Focus on strategic gaps critical for its eventual
success.
7. Competitors in India: Name Category Target Segments
Comments Rating Big Bazaar Merchandize Diversified Middle
Class(Future Group) The main competitors Pantaloons Apparels,
Accessories Upper Middle Class +(Future Group) Lower Upper
Class Star Bazaar Merchandize Upper Middle Class + String
Backing by Tata, (Tata Group) (Diversified) Lower Upper Class
Limited Reach Spencer’s Smaller outlets, Limited More
Merchandize Middle/Upper Middle Growth D.Mart
ClassShopper’s Stop Apparels, Accessories Mostly Upper Class
Strong hold in Metros. Good (Corporate) presence in Target
Segment LifeStyleGiven bargaining power (with FMCG
companies) along with its Logistic& IT support, Wal-Mart is
expected to tackle its competitors. Key lies in capturing new
geographies & finding strategic locations
8. Wal-Mart Expansion: Past Track RecordCountry Mode
Strategy ResultsCanada Acquired a Weak Player • Operating in
markets which Very Successful required minimum adaptation •
High Brand Recognition Segment UK Acquired ASDA M&A
Synergies Successful- Competition from TescoGermany
Acquired a Big Player Leveraged Acquired Network Failed –
‘Werkauf’ cultural & operational issues China Greenfield
Operations Sourced from Chinese suppliers; Neutral- focused on
need gaps Labour Union and Law Suit issuesSuccess & Failure
mainly driven by adapting to local culture, consumer need gaps
and tackling Government issues.
9. Key Challenges in India:
1. FDI Restrictions - FDI Restrictions of 51% on Multi-brand
Retail. Proposal for increasing the cap to be discussed in winter
session, but chances are low
.2. Social & Political Resistance - A strong opposition from
certain political parties is certainly expected in some pockets of
society – local retailers, dealers would protest
3. Countering deep penetration of ‘Mom & Pop’ Stores -
Especially in Tier-II & III cities, the network of ‘ Kirana Stores’
is extensive. Also sales on credit facility is available which Wal-
Mart cannot do.
4. Poor Infrastructure will cause friction - Indian standards of
roads, ports & freight facilities are way below global benchmark.
It will lead to inefficiency in the value chain.
Wal-Mart’s Keys to Successful Supply Chain Management
As the following case study demonstrates, a successful supply chain management strategy
can lead to lower product costs and highly competitive pricing for the consumer.
Over the past ten years, Wal-Mart has become the world’s largest and arguably most
powerful retailer with the highest sales per square foot, inventory turnover, and operating
profit of any discount retailer. Wal-Mart owes its transition from regional retailer to global
powerhouse largely to changes in and effective management of its supply chain.
Wal-Mart began with the goal to provide customers with the goods they wanted when and
where they wanted them. Wal-Mart then focused on developing cost structures that allowed it
to offer low everyday pricing. The key to achieving this goal was to make the way the
company replenishes inventory the enterprise of its strategy, which relied on a logistics
technique known as cross docking. Using cross docking, products are routed from suppliers
to Wal-Mart’s warehouses, where they are then shipped to stores without sitting for long
periods of time in inventory. This strategy reduced Wal-Mart’s costs significantly and they
passed those savings on to their customers with highly competitive pricing. Wal-Mart then
concentrated on developing a more highly structured and advanced supply chain
management strategy to exploit and enhance this competitive advantage.
Components of Supply Chain Management (SCM)
The main elements of a supply chain include purchasing, operations, distribution, and
integration. The supply chain begins with purchasing. Purchasing managers or buyers are
typically responsible for determining which products their company will sell, sourcing
product suppliers and vendors, and procuring products from vendors at prices and terms that
meets profitability goals.
Supply chain operations focus on demand planning, forecasting, and inventory management.
Forecasts estimate customer demand for a particular product during a specific period of time
based on historical data, external drivers such as upcoming sales and promotions, and any
changes in trends or competition. Using demand planning to develop accurate forecasts is
critical to effective inventory management. Forecasts are compared to inventory levels to
ensure that distribution centers have enough, but not too much, inventory to supply stores
with a sufficient amount of product to meet demand. This allows companies to reduce
inventory carrying costs while still meeting customer needs.
Moving the product from warehouses or manufacturing plants to stores and ultimately to
customers is the distribution function of the supply chain.
Supply chain integration refers to the practice of developing a collaborative workflow among
all departments and components involved in the supply chain to maximize efficiencies and
build a lean supply chain.
Wal-Mart’s Method of Managing the Supply Chain
Wal-Mart has been able to assume market leadership position primarily due to its efficient
integration of suppliers, manufacturing, warehousing, and distribution to stores. Its supply
chain strategy has four key components: vendor partnerships, cross docking and distribution
management, technology, and integration.
Wal-Mart’s supply chain begins with strategic sourcing to find products at the best price from
suppliers who are in a position to ensure they can meet demand. Wal-Mart establishes
strategic partnerships with most of their vendors, offering them the potential for long-term
and high volume purchases in exchange for the lowest possible prices.
Suppliers then ship product to Wal-Mart’s distribution centers where the product is cross
docked and then delivered to Wal-Mart stores. Cross docking, distribution management, and
transportation management keep inventory and transportation costs down, reducing
transportation time and eliminating inefficiencies.
Technology plays a key role in Wal-Mart’s supply chain, serving as the foundation of their
supply chain. Wal-Mart has the largest information technology infrastructure of any private
company in the world. Its state-of-the-art technology and network design allow Wal-Mart to
accurately forecast demand, track and predict inventory levels, create highly efficient
transportation routes, and manage customer relationships and service response logistics.
Benefits of Efficient Supply Chain Management
Wal-Mart’s supply chain management strategy has provided the company with several
sustainable competitive advantages, including lower product costs, reduced inventory
carrying costs, improved in-store variety and selection, and highly competitive pricing for the
consumer. This strategy has helped Wal-Mart become a dominant force in a competitive
global market. As technology evolves, Wal-Mart continues to focus on innovative processes
and systems to improve its supply chain and achieve greater efficiency.
Conclusion
• Wal-mart is the leader in the Low cost retailing industry
• With $404.16 billion in revenue, the company is bigger than 160 nations.
• Imbibing sustainable business practices in it’s business process
• Has strategic partnerships with P&G, China, several consulting firms which provide them
sustainable business consulting.
• Excel at attributes such as price, quality, on-time delivery, selection, availability, that
their competitors can’t match
• Non-commodity brand based on lower prices, which is a key differentiator and value
proposition to most of our society today.
• hange in tagline last year – from “Everyday Low Prices” to “Save Money. Live Better.”
proves it’s move toward sustainable products with low cost.
.
Awards & Recognition
• Ranked #1 Consumer Staples Company - Carbon Disclosure Project (CDP) 2008 report
and scored 89 out of a possible 100
• Corporate Energy Conservation, Energy and Environment Award
• 2009 Green Choice Award
• 2009 Sustainability Excellence Award
• Top 50 Companies for People with Disabilities
• Top Organizations for Multicultural Business
• Number One Most Admired Company in America
• Best Place to Work in the United Kingdom (ASDA)
• Top Organizations for Multicultural Business
Bibliography
• www.Wal-Martfacts.com
• www.gartner.com
• www.forrester.com
• www.hoovers.com
• www.wikipedia.com
• www.tsmg.com
• www.finance.yahoo.com
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