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Shopping Bags - Case Study Example

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The company has traditionally held the view that new acquisitions are as close to Barcelona as possible because logistics costs can be kept down. Opening new stores so far away from Mercadona’s central location is a huge risk and has the potential to backfire. The reason why Mercadona chose to expand to these coastal towns is that competition is fierce in Barcelona and there is not much room for growth. Mercadona sees Cartegena, Albacete, etc. as open for competition between market competitors was small. Mercadona’s main rivals in these areas are independent grocers, traditional stores, and only a few hypermarkets. Many of the large chains have stayed away from these low population areas because the target market is much smaller than it is in Barcelona. Mercadona used to primarily operate as a warehouse and distributor. The company’s efficiency of its logistic system allowed it to offer lower prices than many of its competitors. However, this strategy has been refined over the past few years and the company is now officially a retailer. Instead of targeting consumers on the low end, Mercadona now focuses on high quality products and has also diversified its range from standard food and beverages. A company going through this kind of change would expect to take a few years to readjust to a new marketing strategy, and the company’s income statement shows that this is the case. Although sales were healthy at 300,000,000 Euros, the cost of goods sold is 246,000,000. This figure makes up more than 80 percent of sales, which does not leave a high gross margin and leaves even less for profit. After operating costs and amortization is accounted for, the company is left with a net profit of 480,000 Euros, discounting interest and taxes. While the company is not in the worst financial shape possible, the sharp focus of its marketing strategies and objectives has taken its toll on the company. Mercadona’s main rivals such as Dia, Caprabo, and Valvi all made before-tax profit of 4 percent on sales, yet Mercadona made less than one-third of a percent. If Mercadona wants to compete better within the hypermarket industry, then it needs to find some way to reduce its cost of goods sold. It would not be logical to try and increase sales because the company is already selling at the high end of the market and so prices are already relatively high. The only thing that the company can do is to find a way to reduce production costs so that its gross profit margin and net profit are higher than the present figures. In order to achieve this, Mercadona needs to concentrate on the stores that it has now, particularly in Barcelona, and try and consolidate the gains that it has already made. The one positive thing about the company’s current position is that at least it has stores further down the coast, whereas many of its main rivals are yet to expand to those areas. Still, Barcelona offers the largest market and a significant number of sales, so this is where Mercadona needs to focus all of its energies on for the time being. 2. In this case I can see three main segments that are interlinked: those within walking distance of the company’s stores, housewives who cook every day, and the working class. Because parking is limited in the city of Barcelona, there are very few car spaces available for shopper to park their cars. As a result, many of the company’ ...Show more
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Summary

Shopping Bags 1. Although Mercadona has not been as successful as its main competitors, the signs for the company in the future are positive. Sales grew by 30 percent from the previous year to 300,000,000 Euros. While sales alone cannot be used to measure success, it does show that the company is moving in the right direction…
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