The Corporate Strategy of Metro in the Canadian Market - Research Paper Example

The Corporate Strategy of Metro in the Canadian Market Executive Summary This report presents how Metro, the third largest food retailer in the Canadian Market operates and what strategies the firm has adopted in order to achieve competitive advantage. the report discusses about the strategy and how important strategies are for the success of the organization. The report highlights the importance of mission and vision of the company and strategies are formulated to define how the company would achieve its mission and vision. The report highlights the corporate strategy as well as the business level strategy of the company. The corporate level strategy is the overall or board strategies that the company has adopted. However, the business level strategy is the specific strategy that the company has implemented in order to achieve competitive advantage. Metro has applied a cost leadership strategy and the company is highly focused on reducing its overall costs so that they can offer goods to the customers at lower prices. Strategic models have been used to analyze the internal and external environment of the company. SWOT analysis and Porter’s Five forces model have been used to analyze the market conditions. SWOT analysis highlights the company has several strengths and there are opportunities in the market that Metro can capitalize. However it is important for Metro to work on its weaknesses and take steps to reduce the impact of the threats that the company faces to further improve its position in the country. Porter five forces defines the bargaining power of customers, bargaining power of suppliers, intensity of competition, threats from new entrants and threats from substitute products that Metro faces. At the end of the report gives a brief conclusion about the strategies of Metro and how the company can expand its operations and improve its profitability in the years to come. Table of Contents The Corporate Strategy of Metro in the Canadian Market 1 Executive Summary 1 Introduction 3 Content and Analysis 4 Company Overview and History 4 Current situation 5 Corporate Level Strategy 7 Business level Strategy 8 5-year projection of business environment 10 Strategic adaptation to future business environment 12 Application of strategic models 13 SWOT Analysis 13 Porter’s Five Forces 25 Discussion and Conclusion 26 References 27 Introduction Strategy is defined as the plan of actions that the firm has set in order to achieve its targets or objectives or vision or mission (Johnson, & Scholes, 2001). Every organization operates with a target or with a mission and it is important for the management to formulate strategies that would lead to the accomplishment of these targets or mission (Bartlett, and Ghoshal, 1991). Mission and vision of the company are the tools that are used to motivate the employees and management and motivation to work would only arise if there is a mission to be achieved (Porter, 1980). However, it is important to have strategies that would make sure the efforts are put in the right direction. If a company does not have a proper strategy, then despite of hard work and efforts from the employees, the company might not be able to reach its destination (Lee, and Carter, 2010). Managing a business has become complex today. With the increasing complexities in the external environment and organizations now need to be more focused and analyze their external environment carefully as well as regularly (Schroiff, and Arnold, 2004). By analyzing the external environment, an organization is able to identify factors that could influence their operations and profitability (Doole, and Lowe, 2008). Organizations can only plan and formulate their strategies if these factors are identified. Proper planning and carefully formulation of strategies would allow firms to improve their earnings and achieve growth. This report will analyze one of the leading grocery stores of Canada, Metro. Metro is the food retailer operating in two major provinces of Canada; Quebec and Ontario. The company has its headquarters in Montreal, Canada. The company has been growing despite of increasing competition in the market. The strategies formulated and adapted by the firm are important in achieving the growth of the company and therefore in this report, the strategies of the company will be analyzed in detail. This report will analyze the company’s current situation before discussing a brief about the history of Metro. After analysing the current situation of the company, the report will analyze the corporate and business level strategy of the company. The report will then analyze the industry environment in the next five years to come and strategies that the Metro Company should adapt considering the changes in the environment in future. Different strategic models such as SWOT analysis and Porter’s five forces will be used and applied on the company to analyze the company’s position in the years to come. Content and Analysis Company Overview and History Metro is a food retailing firm that is operating in two major provinces of Canada, Quebec and Ontario. The company has 600 stores in these two provinces including the headquarters of the company which is at Montreal, Canada. The food stores are mainly operated under the name of Metro Plus, Food Basic and Super C. However, the pharmaceutical outlets are under the name as Clini-Plus, Drug Basics, The Pharmacy and Brunet. The company is considered as the largest biggest grocery firm in the country. Sobeys and Loblaw Companies Ltd are the other two firms that are ahead of Metro in the grocery sales of Canada. Metro is also the leader in the pharmaceutical industry. The company was founded in the year 1947 and it has expanded its operations since then and it is now one of the renowned names in the food and pharmaceutical industry of Canada (Metro d). Rolland Jeanneau founded Metro Company in the year 1947 in Quebec and several independent grocery shops merger with the company and form Magasins Lassalle Stores Ltée and then the name was changed to Épiceries Lasalle Groceteria and at that point of time the company had around 43 stores. In the year 1955, the company had expanded its branches and the total number of outlets of the company reached to 50 with a total revenue of the company equal to$2 million. Jean Drapeau started a new franchise in Montreal with the name of Metro and later on all the franchise joined with the same name and the total number of franchise increased to 73 in the year 1957. The total revenue in the year 1957 equalled to $10 million. The company was listed on the Toronto Stock exchange in the year 1993 (CBC News, 2005). During the 1980s the company had to face threats from fierce competition along with recession. The company had undergone several mergers and acquisitions and this has helped Metro to become a larger and more important player in the industry. Some of the firms that the Metro company has acquired and merged with include; Steinberg supermarkets, Les Supermarches GP, Alexandre Gaudet, Grossiste Sue Shang, Loeb Supermarkets, J.L Duval, A&P Canada. More details about the merger and acquisition related to Metro are shown in the table below: (Roukhkian, and Bardouniotis, 2011) Current situation Metro is the third largest firm in the grocery market. The company achieved total revenue of more than $11 billion in the year 2011. The total number of discount and super markets of Metro have increased in the year 2011 and the figure has now reached a total of 564. Out of these 564 stores, the 370 stores are supermarkets whereas the remaining 194 are the discount stores. In Quebec province, Metro has 295 stores whereas in Ontario, the company operates 269 stores. In addition to these discount stores and supermarkets, the company has a total number of 257 drugstores or pharmacies (Metro a, 2011). The company has been going in the right direction as there are several positives considering the growth and progress of the company. For the third consecutive years, the company has been able to increase its market share in the Quebec. Therefore this reflects that the strategies adapted by the company are moving in the right direction. Not only the sales of the company have improved from the previous years, but the earnings and net profits of the company have also shown significant improvements. Below is the graph showing the sales of Metro since 2007 and is obvious from the graph that the sales of the company have been growing at a rapid pace. (Metro a, 2011) According to the annual report of the company, the net sales of the company had improved from 10.64 million to 11.43 million in 5 years. In addition to this, the earnings of the shareholders have also been improving as the following graph shows that the earnings per share of the company has increased from $2.54 to $3.87 in five years showing an increase of 52.36% in five years or 10.47% annually. (Metro a, 2011) Corporate Level Strategy Metro has been highly successful in the Canadian Market despite of increasing level of competition and changing consumer needs. Although Metro is not the market leader but it has been able to maintain its third position in the market. The company operates only in two major provinces and the strategy adopted by the company is to capitalize on these two important provinces of Canada and this is one of the reasons why that the company despite of focusing on only two provinces obtains the third position in the industry. Metro has emphasized on providing quality services along with products at a lower prices. The company always focuses on satisfying customers and this is one of the reasons why the company offers different discount packages to its customers even now and then. Recently, the company introduced loyalty cards for customers with these cards, the company can offer more discounts to its loyal customers and therefore it would be helpful in delighting them. According to the company’s annual report, the management feels that the improvements in the quality of services have played an important part in improving the revenues of the company in the recent years. The company has been very much focused on gaining competitive advantage over other firms in the industry. To gain competitive advantage, the company has focused on cost leadership strategy. In order to achieve the cost leadership, the company has taken several initiatives to reduce its overall costs. With lower costs, the company would reduce the prices they charge to the consumers and thus it would be helpful in attracting more customers and would help in further increasing the sales. The company realizes how important it is to attract, motivate and retain human resource and for this, the company pays a special attention to its human resource. The company uses both the monetary as well as the non-monetary rewards to increase the motivation level of employees (Metro e). As employees more satisfied and willing to work, this strategy is useful as the employees are more willing to help the customers at Metro and thus, investing on employees help the company to increase its customer satisfaction level. Business level Strategy Michael Porter’s (2008) generic model describes the strategies that businesses adapt in order to gain and maintain competitive advantage. According to the generic model, businesses either go for cost leadership or they go for differentiation strategy. Metro focuses on cost leadership strategy and by focusing on cost leadership, the company has been able to reduce its costs. With lower costs, the company is able to offer goods at a lower price to the consumers that help the company in gaining competitive advantage. The profitability of the company has been improving over the last few years, and one of the reasons for the success of Metro. The company has taken several initiatives to reduce its overall costs. One of the measures taken by the management in the year 2010 is regarding the transportation cost. The initiative has been successful in reducing the transportation cost of the company. The company signed a four year contract with transport provider firms in Ontario. This contract has been so far successful and it would be helpful to the company in offering more flexibility and thus would be helpful in offering better services and at the same time would reduce operational costs as well. In order to reduce the operation costs further, the management decided to extend the mandate of the national procurement group to all the perishable products including the grocery products which would also be helpful in reducing the costs (Metro b, 2010). Agreement in the year 2011 has also been signed by the company with Vantage Foods that would be helpful in lowering the costs (Metro a, 2011). Another imitative taken by the management was Drug Payment Reform that also has been helpful in reducing the prices of generic drug. In addition to this, the company has also introduced other cost-cutting initiatives that would be helpful in reducing the cost (Metro b, 2010). 5-year projection of business environment Food industry could not grow at an attractive rate after recessionary periods as in the year 2009 and 2010 the growth rate has been around 2.8% and 2.9% respectively. There are several reasons for this unsatisfactory growth rate. Some have predicted that the high level of competition and aggressive pricing strategies by several players in the market and discount programs offered by the firms to capture the market share are among some of the top reasons. However, analysts predict that the market would improve in the years to come. There are several factors and opportunities in the market that would be helpful in improving the growth rate of the market. It has been estimated that the industry would grow with an annual growth rate of 4.6% by the end of 2014 and this would mean that the value of the industry would grow up to more than $100 billion in the year 2014 from current figure of $84 billion. The Canadian food market has almost 21,200 food stores and it has been estimated that this would further grow in the years to come. Metro is among the top three players of the industry and it would be able to further improve its financial figures in the years to come. There have been several changes in the consumer behaviour. Consumers have started preferring more of organic foods and the focus has been shifted towards healthier foods rather than processed food. The consumption pattern has changed to a great extent. There has been an increase of intake of fresh fruits of around 5% in the period of 2005 to 2009. Also the consumption of pulses and nuts has also increased. There are several products that are unhealthy have seen reduction in their consumption. For instance, oils and fats have been reduced by almost 10%. Also there has been a reduction in consumption of soft drinks. The following graph shows the changes in the consumption pattern of consumers from 2005 to 2009 (Roukhkian, and Bardouniotis, 2011) (Roukhkian, and Bardouniotis, 2011) The market of Grocery retail in Canada is an attractive market and a huge market. The total value of the industry is $111.8 billion in the year 2010 which represents the 38% of the non-automotive retail sales in Canada. The sales of this industry has been growing with a rate of 4.6% annually since 2006 and with growing industry, the level of competition has become more intense. The consumption pattern has changed and consumers have started spending more. The per capita spending of the consumers has increased in the retail and food industry. For years, the per capita spending of Canada has remained low in comparison to the per capita spending of USA. However the gap between the two has been reducing as the per capita spending of Canada has been increasing and it would surpass USA. The following graph shows the comparison of the per capita spending of the two countries: (Smerdon and Bell, 2011) Strategic adaptation to future business environment Metro needs to consider the changes in the market and in the consumer buying behaviour and then modify their offerings accordingly. It is important for the company to offer goods that would meet the needs of the consumers as this would be a better strategy in terms of gaining the attention of the target market. With several changes that have been estimated like the increasing demand of organic and healthier foods, increase in the private label brands, increase in more natural foods etc, the management needs to capitalize on these opportunities. The management of Metro has been proactive in several situations for instance, in offering discount programs to attract and retain customers particularly at times when the competition in the industry has been high. The company has been able to expand its offerings and its number of stores since its inception and with increasing customer loyalty the company has been able to take steps to meet the needs of the customers. Metro needs to focus on different opportunities that are available in the market. For instance, the company needs to prepare a revised e-marketing plan and start offering goods on the online platform as well. With the increasing online sales around the world, Metro also needs to start selling goods online as well. Many researchers have predicted that the online sales would further increase in the years to come (Kotler, and Keller, 2011) therefore Metro needs to look into this market as well. Expanding services online would allow the company to expand their operations and at the same time increase their revenues. Application of strategic models SWOT Analysis Strengths Third largest firm in the Grocery market One of the strengths of Metro is that it is the third largest firm in the grocery market with total revenue of more than $11 billion. The strength and market share of the company is a big plus considering the number of competitors in the industry. The other firms that have higher sales than Metro include Loblaw Companies and Sobeys. The following graph also reflects the revenues of the firms in the industry and it can be seen that Metro is the third largest firm: (Tyghe, and Kohbodi, 2012) Pharmacy plus food The other strength of Metro is that it is not restricted in offering grocery products. The company has discounted stores and supermarkets where customers can buy a variety of products. In addition to this, the company has its own drug stores where the company sells pharmaceutical products. All these things have helped Metro in increasing its customer base and increasing its revenues. This has also helped the company in becoming an important player in the market. With the positive response from the customers, the company has been able to increase its number of stores in the two provinces where it is operating. Both the drug stores as well as the discount stores along with super markets have increased in the last few years. By the end of year 2011, Metro has 564 stores that include discount stores as well as super markets and in addition to this, the company had 257 drug stores. Improving financials of the company The financial statements of Metro are improving over the passage of time. The revenues of the company has been improving and so as other important financial figures like Earnings before interest and taxes (EBIT), Net Earnings, Earnings per share (EPS), Dividends per share (DPS) and other important ratios. The improving financial statements suggest that the strategies adopted by the company are appropriate and the direction of the company is in the right way. The following image reflects the five year financial performance of the company: (Metro a, 2011) With the improving profitability ratios of the company, the management is able to provide stable returns on their equity. The returns on equity of the company over the years have been very much stable and it has been in the region of 14.6 to 16.6%. The following graph shows the return on equity of the shareholders of metro over the last five years. (Metro a, 2011) Also the share prices of the company have improved indicating that the company has performed well in the stock market as well and demand of the company’s stock has increased. The share price has increased since 2007 however there has been a small reduction in the share price from last year. The year ending share price of Metro is $44.69 however the ending share price of Metro in the year 2010 was $45.15. But comparing the share price of the company over the last five years, there has been an annual growth of 6.3% which is a positive sign for the shareholders. (Metro a, 2011) Another important financial ratio that the shareholders look for is the dividends per share. The dividends per share of Metro have been increasing and in the last five years, it has grown with an annual growth rate of 13.5%. The following graph reflects the dividends per share paid by the Metro Company to its shareholders since 2007. (Metro a, 2011) Market share increasing in Quebec The market share of the company has been increasing in one of the provinces where it is operating, Quebec. The market share of Metro has increased for the third consecutive years in Quebec which shows the response of the customers towards the offerings of the company (Metro, 2011). As the company is operating in only two provinces, therefore improving market shares in one of the provinces is a positive sign for the company. Improvements in the Quality of Services and operations As the financial figures of the company have been improving, the company in their annual reports have claimed that the improvements in the quality of services and operations have been one of the major reasons for this growth. Weaknesses As Metro has several internal strengths that help the company to grow but at the same time, it has some weaknesses as well that limits its performance. The main weaknesses of Metro are: Operating only in 2 provinces One of the major weaknesses of Metro is that the company is only operating in two provinces, Quebec and Ontario. Although these two provinces are the most profitable ones and have the highest potential, but still there are other markets that have good potential as well. The following image shows the map of the country along with different regions and their market shares in the overall sales of Canada. (Roukhkian, and Bardouniotis, 2011) It can be seen that the Quebec and Ontario have market share of 25% and 31.8% respectively. However there are other markets as well that the company can capitalize to further improve its market share. This would also improve the bargaining power of Metro and would also help the company to increase its overall market share in the country. The following graph shows the number of food stores in the country and it is distinct that the Ontario and Quebec have the highest number of stores and these two markets have been already exploited by Metro. However there are other regions as well where the company can capitalize and even after operating since 1947, Metro has not been able to capitalize on other important markets. (Roukhkian, and Bardouniotis, 2011) Overall Market share has reduced The other weakness of the company is that the market share of the company has not been increasing. In the year 2006, the market share of Metro was equal to 12.3% however in the year 2010, the market share of Metro has slipped to 10.9% which is an alarming sign for the company. It is important for the company to move on and analyze its growth however the growth has been negative since 2006 as the market share has reduced despite of consecutive three years of increase in the market share of the company in Quebec region. It shows that the performance of the company in Ontario region is not satisfactory. (Tyghe, and Kohbodi, 2012) Opportunities There are several opportunities in the market that Metro can capitalize. Some of the major opportunities in the market have been discussed below: Growing industry The market has been expected to grow which would create several opportunities for the company to capitalize. The industry sales have been expected to grow at a rate of 4.6% annually by the end of 2014. The market by the end of 2014 would reach a value of more than $100 billion (osec, 2011). Increasing trend of online retailers The trend of online sales has been increasing throughout the world and many retailers have taken advantage of advancement of technology. Although Metro has an online presence but it could also allow the option to customers to shop online as it would help the company in increasing its overall sales and also capture markets in other provinces of Canada where it is not operating. Gross margins in Canada can be improved The food market of Canada is relatively immature considering the food market of United States of America. The market has been showing improvements over the years however the gross profit margin of the firms in the USA are higher than the gross profit margin of the firms in Canada and therefore there is an opportunity for the firms in Canada to improve their gross profit margin. This would also improve the overall profitability of the companies in the market. The following graph shows the gross profit margin of the firms in USA and in Canada: (Roukhkian, and Bardouniotis, 2011) Higher demands of healthier food There are high opportunities for the companies in the food sector if they are able to offer healthier food options to the customers. Therefore Metro can focus on offering healthier foods to its customers considering the growth in the market. In addition to this, Metro can focus on offering value-added health benefits as this would further help the company to grow. Focus on readymade and convenient food products With the changes in lifestyle, there has been an increase in the demand of readymade foods and more convenient foods in the market. Metro can capitalize on this segment of the market to further improve its market share as the demand for such products have been increasing and would further increase in the years to come. Organic food market has been growing There are more opportunities in the market as the demand for fresh and organic foods have been increasing and the focus of the customers has moved away from processed foods. Therefore Metro can capitalize on this segment of the market as well. The following graph shows the increase in the demand of the organic foods and it also shows the expected future demand of organic foods in the Canadian Market. (Roukhkian, and Bardouniotis, 2011) Improvements in Private Label Sales Private label brands have been able to improve their performance and improve their market share in comparison to the other branded products available. The market share of private label brands have been increasing over the years and it has been expected that the share of private label products would further increase in the years to come. The following graph shows the overall sales of the industry along with the sales of private label brands along with the market share of private label brands in the overall sales. (Tyghe, and Kohbodi, 2012) Threats Increasing competition Competition has been one of the major threats of the industry. The growth of the industry slowed down to only 2.9% from the year 2000 to 2010 and one of the major reasons for this was the increase in competition and firms were forced to offer several discount programs. So this did not allow the firms in the industry to achieve such high growth. Overall the market is dominated by the top three players as these three players have the 70% of the market share. Metro is ranked third and it needs to improve its sales and increase its market share and gain more share from the other two big players in the market. Porter’s Five Forces Bargaining power of suppliers There are several suppliers of Metro and Metro being one of the most important players in the industry, Metro would have high bargaining power over its suppliers. Bargaining power of Customers Customers have several options to choose from when it comes to food retail industry. There are several competitors in the industry however Metro is considered as the third largest firm. Therefore it can be said that the customers have relatively high bargaining power. Threats of substitutes Substitute products of Metro would include the processed foods and as the demand of processed foods have been decreasing and consumers are looking for healthier products, therefore the company faces lower threats from substitute products. Threats of new entrants Considering the amount of investment required in such a business and the level of competition, the company faces low threats from new entrants. Intensity of competitive Rivalry The intensity of competitive rivalry is very high. The industry has several players however the market has been dominated by the top three players. The market share captured by the top three players is almost 70% Discussion and Conclusion Metro has been performing well in the food retail market of Canada. The company has been showing improvements in its financial statements and the increasing demand of the industry suggests that the company would further improve its financial statements in the years to come. There are several opportunities in the market and Metro has the potential of capitalizing on these opportunities. The company would be able to improve its market shares if these opportunities are capitalized and if the company is able to overcome its weaknesses and minimize the impact of the threats it faces. The market reports suggest that the consumers would prefer more organic and natural food in the years to come particularly because they are healthier in comparison to the processed foods. Metro needs to identify such changes in the consumer buying behaviour and it needs to formulate strategies accordingly to meet their needs and make sure that the company is able to modify its offerings with the alternations in the needs and wants of the consumers. The company has been analyzing its cost structure and it has taken several initiatives to reduce its overall cost in the last few years. These initiatives have been helpful in reducing the cost and offering products at a lower price to the consumers. however, the company is only operating in two provinces of Canada, even if it does not start any store in other provinces, then at least it needs to offer the facility to shop online so that consumers from other provinces are also attracted towards the offerings of Metro. References Arbulu, M. (2012). Retail Food Sector Report – Canada. GAIN Report. retrieved 15 July, 2012 from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Retail%20Foods_Ottawa_Canada_3-9-2012.pdf Bartlett, C. and Ghoshal, S. (1991). Global strategic management: impact on the new frontiers of strategy research. Strategic Management Journal, 12 (S1), 5-16. CBC News. (2005). Metro Inc. in deal to buy A&P Canada for $1.7B. CNC News Business. retrieved 15 July, 2012 from http://www.cbc.ca/news/business/story/2005/07/19/metro-050719.html Doole, I and Lowe, R. (2008). International Marketing Strategy. 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