Strategic Analysis of Kroger Grocery Store - Case Study Example

Strategic analysis of Kroger grocery store Introduction Kroger is a retail chain in the United s. It is one of the largest grocery chain store, and the largest retail store. It operates over 2500 stores and has 24 own brands. Kroger has diversified its productions on jewelry stores, drug stores, convenience store and financial services. However, it faces competition from other similar chains like Wal-Mart, Safeway and others. Kroger current business situation Currently, the economy is not performing to the standard. The customer continues to cut off their expenses by limiting the numbers of products they purchase or reducing the number of visits to the store. The economic stress has affected the business dues to the current recession. However, it has maintained its position despite the economic downturn because of its marketing strategies and excellent customer services. Wal-Mart is the greatest competitor affecting the company. It is known for its reduced prices, and therefore it can to drop the grocery prices by approximately 20% because it can be profitable with small margins due to economies of scale (Plunkett 141). Kroger may suffer increased price competition. However, Kroger offers products that balances its mix and does not go into direct competition with Wal-Mart. It has focused on developing its domestic markets. The customers have a high power in grocery industries because of their regular visits. In addition, switching cost is very low, and they can find similar products from other firms within the industry. In other words, customers are very keen on changes in prices and new products. Moreover, Kroger is facing legal issues, which may ruin the company image it the case was ruled against the company. Increase in operation costs can result in more debt because a high percentage was used in restructuring stores. The current economic recession has restricted the industry to refinance debt. Kroger has continued to enhance new technology in order to meet the customers need. Currently, the company has two data centers that conduct research to ensure the customers have quality and safe products. Also, the digital platform ensures that the company communicates with its clients. Kroger business growth Kroger has over 2500 stores located in 32 states under five retail format namely supermarkets, warehouse stores, convenience stores, and jewelry stores. However, supermarkets account for the largest percentage. These supermarkets further categorized in food and drug stores, multi-department stores, and warehouse stores. Due to its wide variety of stores, it caters a broad customer base. Kroger has also established a strong presence in the United States retail industries. Kroger uses its customer-centric business model to compete with Wal-Mart price strategy. The company has utilized customer-led model since 2001 in order to deliver high-quality services, value and selection to its consumers. Kroger initiated customer loyalty programs where the company collected a lot of information from its customers. However, despite recognition that most families had their shopping cards, the data was not used to the corporation’s advantage (Plunkett 141). Kroger realized in order to serve the customers better, and they had to understand them first. Therefore, the company engaged Dunnhumby to use the customer information to understand their behavior. Dunnhumby previous engagement with Tesco was successful. Tesco was able to overtake their competitor, Sainsburys and increase their market share from 17% to 25%. This strategy has helped to rise 2% of its market share within the last five years. The approach currently generates 21% of the company products. The customer-centric strategy has resulted in an increase of 200 points in its market shares. Kroger goals are to reduce its environmental impacts and cost of doing business. The company logistic team is planning to improve fleets productivity. They ensure that the trucks are better loaded to improve fleet efficiency. These efforts have improved efficiency, reduced costs and reduce carbon emission. The company has initiated water conservation goal designed to reduce 5% of its water consumption in all supermarkets. The company is also sourcing sustainable palm oil. Reports indicate that the company is moving toward the Environmental Protection Authoritys Zero Waste threshold all Kroger retail locations. However, Kroger will increase its divert to waste to 70%. Kroger has plans to increase its revenue growth by opening new store formats. This will give customers an easier and flexible access to their products. The company also plans to improve the technology and mobile platform to ease communication with customers and better understand their buying habits. Corporate analysis The company defines same-store sales as their performance targets for the long-term growth and strategy. Currently, the company is projecting 2.5% to 3.5% growth in fiscal year 2014, ending February this year. However, the investment community has not discounted the importance of the metric. In the current ten-year period, the company shares that were adjusted for dividends have increased their value three times in trading on the New York Stock Exchange. Roger share price grew by 196%, thereby beat the S.&P. 500 index. Therefore, Kroger has overtaken Wal-Mart and Target. The same-store performance target has also exceeded topline and bottom-line growth over the last ten years. Net income for 2013 financial year was $1,531 million higher than 2012 fiscal year $1,203 million. Moreover, the net sales in fiscal 2013 were $98 billion, which is almost twice the sales of 2002 fiscal year, $52 billion Kroger financial analysis In 2010, financial year Kroger posted $76.7 billion in revenue. There was an 8.2% increase in sales compared to 2009 financial year. However, the net earning reduced from 1.2 billion to millions compared to the previous years. The decrease in earnings was due to increase in operation cost and administrative costs as a direct result of higher health care costs. In some store, sales rose by 2.7% though gross margins decreased 12breakpoint sales. This is because of its strategy to increase the volume rather than gross profit as its bottom line driver. The overall company growth sales were 0.9%, gross margin 22.6%, operating margin 1.42%, net profit margin 0.07% and capital expenditures 2.99%. 2010 Wal-Mart overall company growth sales were 7.1%, gross margin 34.8%, operating margin 5.9%, net profit margin 2.7 % and capital expenditures 2.9%. In 2010, Safeway overall company growth sales were (4.9%), gross margin 28.62%, operating margin (1.54%), net profit margin (2.69%) and capital expenditures (2.08%). Competition Apparently, the supermarket located in the United States is enormous with very few major players because the top brand controls most of the markets. In addition, the growth rate is also very high because most big companies have a huge market share. Kroger has several supermarket chains, which it has achieved by acquiring smaller supermarkets and stores. However, Kroger is among the large supermarkets who dominate the market and they are likely to rise due to depriving other underperforming business. Kroger uses its size to offer lower prices on its products. In fact, despite intense competition from other traditional supermarkets in the industry, it has increased its market share. However, as a retail grocer, faces stiff completion from various other retail stores. Wal-Mart is the largest food retail in the United States with about 3500 stores and supercenters. Therefore, Wal-Mart can offer low prices through its distribution channels and economy of scale. They charge less compared to Kroger for the same products. Some consumers may shift to other discount store such as Wal-Mart during an economic downturn. Moreover, Kroger faces competition from Safeway and Supervalu, which are food retailers and operators of traditional supermarkets in the United States (Michman and Mazze 69). Kroger faces competition from other retail stores. Latest entry into the grocery and general merchandise stores is Sears Grand. Moreover, there is an entry of ethnic food stores, specialty and organic food that have entered the market. Moreover, Kroger faces competition from already established competitors. Currently, the grocery industry is mature and faces stiff competition. The large retail grocer has competitive forces due to the effective distribution networks and large purchasing power (The Kroger Co 12). However, entry of small firms has become competitive in the industry, which has differentiated from the large firm selling specialty products or superior quality products. Retail grocery industries face many challenges including excess capacity markets, slow growth, high concentration, and lack of opportunities to differentiate their products. In addition, the large firms use competitive weapons such as advertising, sales special, and coupons. In addition, the threat from of other substitutes like food prepared in restaurants and consumer providing own food source is moderate high. Foods from restaurant are easier to obtain, thus provide a less expensive alternative (₺Kroger Customer Recall, FDA₺). Particularly, when the threat of unemployment is low and economic climate is favorable, restaurants provide a higher threat. Restaurant meals are a good alternative sin terms of price and quality. Consumers can easily to other substituents easily. Retail marketing strategy The company retail and grocery store are located in south and the west. However, adding new stores in the north would increase company growth. Kroger’s has store in 32 states, and there are plans to expand to other states. Opening new stores in the north will increase the company growth. In addition, these will increase company revenue. The number of supermarkets continues to grow, and the only market, Kroger can venture in, is drug markets. Roger has opened up pharmacy, as well as natural food at its grocery stores. The company plans to sell fresh products because people are looking for healthier foods (₺Kroger keeps pace with change | food business news₺). Kroger strategy is to reduce the operating costs so as to maximize on the economies of scale and invest in the business to increase its market share. Moreover, reduce the retail price in order to increase prices advantages over other traditional supermarkets. In addition, Kroger has adopted a strategy to improve labor productivity, reduce production costs, conserve energy and improve administrative efficiency. Moreover, the company intends to be unique by offering convenient shopping experience to the clients including pharmacy and private label products (₺The Kroger Co.₺). The grocery industry has much attractive potential, and Kroger will continue to grow because this market is very attractive. Kroger should continue with product diversification as their long-term strategy. There are more buyers in the retail markets, Since Kroger is one of the leading grocery stores in the United States, and it has gained a competitive position in this industry. Kroger swot analysis Strengths Kroger enjoys a good marketing position and has weathered economic downturn. The company operates Kroger held number two market share position in 35 of its branches. Moreover, its brand image provides a competitive advantage. The branding strategies include Kroger value, banner brand and brand selection (Kroger Co. Swot Analysis 4). This enables the company to meet the consumers’ needs. Weaknesses The company obtains its purchases from several vendors, and thus it does not have control over its suppliers. As a result, Kroger had to maintain consumer alerts and products recall. These recalls have an impact on brand image reducing customer loyalty and confidence. The Kroger workforce union is a disadvantage because other companies such as Wal-Mart can enjoy reduced labor costs. Moreover, the company has faced legal issues for the acquisition of Fred Meyer and Ralph’s Grocery. A negative court decision could have a negative huge impact on its financial position. Opportunities The company should increase the private label brand, which is a strategic asset. Decreasing its dependency on the national brand, the company was able to increase promotions of its own products (₺Business Analysis for Wal-Mart, a Grocery Retail Chain, and Improvement Proposals₺ 12). This offered appreciated saving during economic downturn. Additionally, the company intends to remodel its store and open new ones. Kroger also plan to start clinics and health assistance in the stores to serve its customer better. Threats The company is facing increased labor cost because the employees have joined workforce unions. The employees have benefited from increment of minimum wages and may benefit from healthcare reforms. This will increase its operational costs, as well as its profitability. These increased costs may increase the company debt burden. Moreover, the current economic recession will continue to have a huge impact on the customer expenditures. Future growth Kroger should establish new strategies in order to reduce its cost, for example, communication with its employees so that the trade unions will not affect its operation. In addition, improve the corporate image so the people understand the corporate values. The company should expand it growth by opening new stores and increase their level of advertisement. This will increase the company revenue. The size of the department stores should also be increased. Conclusion It is evident that Kroger is facing a lot of completion from other firms in the grocery industries. However, Wal-Mart represents the most significant threat to its growth. Kroger is now focusing on making a one stop shop for customers need as a competition strategy. The company also uses the customer first strategy in order to learn the customer purchasing trends. Works Cited Business Analysis for Wal-Mart, a Grocery Retail Chain, and Improvement Proposals. N.p., n.d.. Print. Kroger Co. Swot Analysis. Cleveland: Datamonitor Plc, n.d.. Print. ₺Kroger Customer Recall, FDA₺. Web. January 20 2015. . ₺Kroger keeps pace with change | food business news₺. (N.D.). Web 20 Jan, 2015 Top of Form Michman, Ronald D, and Edward M. Mazze. The Food Industry Wars: Marketing Triumphs and Blunders. Westport, Conn: Quorum, 1998. Print. Bottom of Form Plunkett, Jack W. Plunketts Food Industry Almanac. Houston: Plunkett Research, 2009. Print. The Kroger Co. Hoovers handbook of American business 1998.Austin:TX, The reference press,1997. Print ₺The Kroger Co.₺ n.d. Web. January 20, 2015 Read More