Introduction
The supermarket industry is among the largest economic sectors in the U.S. with regard to food and other non-food product retailing. There has been persistent growth in the supermarket industry concerning the customer base. This has resulted in an increased need for the firm to undertake effective promotional strategies disregarding the recent past of restraining the industry with global economic developments. The 2007 financial crisis resulted in a change in consumer trends due to a lack of customer confidence. They have been demanding a lower price for the products and there has been a shift in consumption patterns among households. Consumers are spending more on food items than non-food products. This is due to a reduction in the level of consumers’ disposable incomes, which has affected the financial performance of the firms in this industry.
Despite the current recession, Wal-Mart has managed to improve its financial performance. During 2007, there was a general reduction in the number of shop visits by the consumers in the various stores. There was a slight increase in Wal-Mart’s customer visits by a margin of 0.7% (Mike 6). This resulted in a minimal reduction in the firm’s financial performance.
Furthermore, consumers are concerned about the safety and nutritional value of food products, which resulted in increased regulation within the industry by government or non-governmental organizations. Such regulations include refrigerant regulations, which require educating the firms in this industry on various environmental issues relevant to the industry (Emerson). In order to enhance compliance with the set regulations, various tax policies have been set.
Wal-Mart’s Performance
The financial performance of Wal-Mart has been on an upward trend for the past three financial years. There has been a steady increase in the revenue level, resulting in an increase in the firm’s earnings per share as the table shows.
Source: Financial reports: Hoovers AD &B Company.
A rise in the firm’s net sales during the 2008 and 2009 fiscal years, with a margin of 7.2% and 8.6% respectively is apparent. The boost was mainly associated with the firm’s global expansion strategy thus the amplification and acquisitions of in-store sales. The elevation is also evident in the firm’s free cash flow during the 2008/2009 fiscal year. Free cash flow is the net cash results from operating activities, excluding payments for property and equipment. This heave is associated with the rise in the net cash from operating activities (Wal-Mart annual report 18). The firm’s gross profit margin for the fiscal years 2007, 2008, and 2009 was 23.4%, 23.5%, and 23.7% respectively. This shows recurrence over improvement in the firm’s financial performance. A raise is equally palpable in the firm’s operating expenses in relation to the total sales during the 2007 and 2009 fiscal years from a low of 18.5% to a high of 19.1%. This resulted from an elevation in taxation and the cost of utilities.
A reduction in the firm’s return on investment from 19.6% to 19.3% during the firm’s 2007 and 2009 financial years was apparent. According to the firm’s management, the reduction in return on investment resulted from the firm investing in Chile (Wal-Mart annual report 17).
Competition in the U.S supermarket Industry
Stiff competition characterizes the industry because of well-established new domestic firms within the industry. The elevation level of competition also results from the rise in the size of foreign direct investment. There is no barrier to entry into the industry. Food retailing is among the supermarket’s segments that have experienced cutthroat competition in the recent past. This is for the reason that different retailers are increasing their investment in the food segment due to the lucrative nature of the food-retailing sector. According to Thom, an estimated $500 billion for buying foodstuffs in the various stores in the U.S. gets exhausted (3).
The major competitors of Wal-Mart include Costco Wholesale Corporation and Target Corporation. During the 2008 financial year, stiff competition came from Target Corporation. This is evident from the fact that Target Corporation’s gross profit margin was 28.49%, compared to that of Wal-Mart, which was 24.85%. Costco Wholesale Corporation’s gross profit margin was 12.51%. With regard to net income, Wal-Mart had superior performance at $13.4 billion, compared to Target Corporation’s at $2.09 billion. The increase in the level of competition also resulted from the fact that most of these firms are adopting the “super center” format similar to that of Wal-Mart.
Future of the supermarket industry
Economic trends
The future of the supermarket industry is bright, considering the fact that the global economy is improving from the recession. The economic recuperation will also result in the recovery of the other sectors, such as the financial sector. Our management should commit to guaranteeing that the firm has a global reach. This is in line with the firm’s objective of increasing its size of market share.
To certify the global accomplishment, we have formulated an acquisition strategy (Zac.3). Initially, the firm acquired other firms within the domestic market. Through the acquisition, the firm stands a great-fuelled growth rate. With the recovery of the financial sector, the management of Wal-Mart will be able to accomplish its global expansion goals. This is because it will be easy for the firm to access financing from financial institutions. The economic recovery will also lower the interest rates and the firm will be able to finance its activities effectively since the financial costs will also be relatively low. Effective acquisition of other firms requires a considerable amount of financing.
Due to the global recession, there was a reduction in remittances by subsidiary firms within the supermarket industry. This was because of fluctuations in the foreign rate of exchange, which had a negative impact of approximately $2.3 billion on the operation of Wal-Mart during the 2009 financial year. This led to a reduction in the firm’s financial performance. The global economic recovery will result in instability of the foreign exchange rate (Wal-Mart annual report 16).
The economic recession affected various economic sectors, resulting in an increase in the level of unemployment. This culminated in a reduction in consumers’ disposable income and hence the level of consumption. Upon the economic recovery, there will be reversing of the consumption trend among the consumers. This means that Wal-Mart will be able to upgrade its sale of non-food products (Frank & Levy 3).
Consumer trends
We intend to integrate technology into the operation of the firm essentially the marketing sector through electronic marketing. Incorporation of technology aims at the improvement of the firm marketing strategy as well as operational efficiency. Electronic marketing entails strategies for soliciting and facilitating the online transfer of goods and services. This will enable the firm to provide the customers with the product information they are looking for effectively during the decision-making process.
With the growth in technology, there is a change in attitude among the consumers. This is because the consumers are integrating technology in their buying process, such as online buying. Various technology products are emerging and being warm embracement by the consumers. This means that Wal-Mart will elevate its online sales level with regard to electronics such as cable TVs, telemarketing, and website marketing. E-marketing also entails talking ads, fax mails, video brochures, virtual market groups as well as interactivity. Through online buying, the consumers will be able to make purchases more cost-effectively. This means that the firm will increase its volume of sales and hence the level of profits.
There is also a change in the consumer’s lifestyle that results from the elevation in the rate of globalization. Some of these notable changes include the competitive strategies for future developments achievable through rational gain to information access. The elevation also entails the global distribution of current information, qualitative shifts of global prices, and consumer capacity enlightening. According to Jean & Ben (189), most of the consumers in the current world do not know how to prepare their favorite traditional meals. In other cases, they do not have the time to cook a traditional meal. This has resulted in the disappearance of these desired traditional food products in the consumers’ diet.
On the other hand, there has also been a rise in the rate of immigration into the U.S. During the period 1990-2006, there was an increase in the number of immigrants in the U.S. from 20 million to 37 million. This has culminated in a wider ethnic diversity. According to Jean, Asians are the ethnic group growing at the fastest rate in the U.S. According to Jean & Ben, estimates are that there will be 26 million Asians in the U.S. by 2025 (187). The increase in ethnic diversity presents an opportunity for Wal-Mart to add Asian food product categories. This will enable Wal-Mart to meet diverse customer priorities in relation to food products.
Political trends
The U.S. government is committed to improving its international trade in an effort to improve its economic growth rate. The U.S. Department of Commerce enhances international trade by ensuring fair trade and compliance with international trade laws and regulations. The government is also supporting that US firms in the various industries develop sufficient competitiveness in the international market. In the recent past, the government formulated a policy aimed at increasing the volume of trade with other countries, through incorporating international free trade agreements. For example, informing the Americas Competitiveness Forum done in 2009 to increase international trade among the American countries (Gary 1). Through such a regional integration as enhancement of Wal-Mart’s goal of venturing into the foreign market through foreign, direct investment. This is because such trading blocs result in the elimination of international trade tariffs and other trade restrictions among the member countries.
In some cases, firms intending to undertake foreign direct investment are required to form partnerships with other private or public firms in the host countries. This limits the operational efficiency of the firm. The formation of free trade agreements eliminates barriers related to foreign direct investment. By the fact that the U.S. government is committed to improving its economic growth through entering various trading blocs, Wal-Mart will be able to invest in different countries. In undertaking foreign direct investment through the trade unions, we will carry out a cost-benefit analysis to determine the most effective investment destination. This will result in an increase in the customer base, enabling Wal-Mart to attain its profit-maximization objective.
Strategy
In order for Wal-Mart to remain competitive, we should tailor its operations to meet the needs of the different customer categories. This is mainly so in relation to the firm’s food retailing. By considering the different customer categories, we will be able to meet the product needs of a particular target audience effectively. We should consider a segmentation strategy, which refers to the process of identifying the various portions of the entire market that are unique from others (‘Market segmentation’). Through segmentation, we will be able to attain a higher level of customer satisfaction. In subdividing the different customer categories, we should consider the cosmopolitan nature of its American and international markets.
In this strategy, we will segment our products in relation to the different cultures within the society. By incorporating culture, Wal-Mart will be able to provide diverse traditional food products. This means that Wal-Mart will be able to penetrate the different foreign markets effectively.
Value addition
To ensure that the strategy succeeds, the management should invest in research and development. The research and development department should ensure that there is a continuous value addition to the firm’s products. The research and development department will be involved in conducting customer market research on a repetitive basis. This will enable the management to identify the changes in consumer tastes and preferences with regard to food products. Through customer market research, the management will be able to undertake value addition more effectively since the changes should integrate into the products. The firm will be able to attain a competitive edge by supplying products that integrate changes in tastes and preferences.
Product differentiation
To attain a competitive advantage, we will have to differentiate some of our food products. In our differentiation strategy, buyer age needs consideration.
According to Jean & Ben, the U.S. population growth rate fell from 1.7% during the Baby Boom to 1%. By 2025, the number of individuals aged above 65 will grow from 13% to more than 18%. In total, this population will be approximately 62 million. On the other hand, individuals who will be above 85 years will double to 7.5 million. This indicates an increase in elderly customers who are of different ethnic origins. There will be an increase in demand for nutritious and healthy food products among these customer categories. To cater to this customer category, Wal-Mart will ensure that the foods product supplied to these customer categories meets the demanded nutritional value.
Through the different customer categories, Wal-Mart will ensure effective differentiation of its products to meet different customer priorities. If we are able to differentiate our products, we will be able to appeal to market niches.
Risk assessment integrate
Potential loss
The fast rate of innovation is increasing the degree of global complexity. With regard to food retailing, there is an emergence of genetically modified food products. Most consumers, especially the young, are currently consuming genetically modified food (Keith & Renee 2). Through genetic modification, it has become possible to improve the nutritional value of food products. Genetically modified products can be stored for a long period. This presents a risk to the firm in terms of increased competition. Through scientific innovation, a rapid rate of growth in genetically modified food products is evident. This poses a threat to the operation of Wal-Mart due to the fact that there will be a decline in the size of the firm’s market share. The net effect is that there will be a reduction in the size of the firm’s financial returns. The consumers are also very dynamic. This is because the consumers change their attitude towards food products more rapidly. With more consumers embracing genetically modified food products, the potential market for these products also increases. This means that there is a possibility of producers increasing the production of genetically modified products relative to traditional food products. In the event of this happening, there will be a reduction in the supply of traditional food products. This means that the change in consumer attitude and the growth in genetically modified food present a risk to the firm’s competitive strategy.
Possible consequences if the management does not adopt the strategy
If we do not focus on individual customer categories, Wal-Mart will not be able to attain a greater market share. This is on the basis that Wal-Mart will not be able to identify and satisfy the different customer categories. This means that the firm will not able to build a sufficient competitive advantage. Not appreciating the diversity of consumers in the domestic and foreign markets also means that the firm will have a small customer base. This is for the reason that the firm will not have established customer and store loyalty. In most cases, a firm with a small customer base does not have strong financial performance.