Wal-Mart Store incorporation is a firm that is established within the discount and variety retail industry in the United States. The firm was established in 1945 and is based in Bentonville, Arkansas. The supermarket industry is amongst the largest economic sectors in the US with regard to food and other non-food product retailing. There has been persistent growth in the supermarket industry with regard to customer base. This has resulted in an increased need for the firm to undertake effective promotional strategies. In the recent past, the industry has been affected by global economic trends. The 2007 financial crisis resulted in a change in consumer trends due to the effect of inflation. Consumers have been demanding a lower price for the products.
There has also been a shift in the consumption patterns amongst the households. The consumers are emphasizing the food items on the food items in relation to the non-food products. This is due to a reduction in the level of consumers’ disposable income. This 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 size of shop visits by the consumers in the various stores.
Wal-Mart’s customer visit slightly increased with a margin of 0.7% (Mike 6). This resulted in a minimal reduction in the firm’s financial performance. With regard to food products, the consumers are concerned about the safety and nutritional value of the food products. This has resulted in increased regulation within the industry by either the government or other non-governmental organizations. Such regulations include the refrigerant regulations which involve educating the firms in this industry on various environmental issues relevant to the industry (‘Emerson climate technologies reach out to supermarket industry with refrigerants webinar’ Para. 7). In order to enhance compliance with the set regulations, there are various tax policies that have been set.
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 culminating in an increase in the firm’s earnings per share. This is illustrated by the following table. All the figures are in billions of dollars.
Amount in $
|Gross profit |
Amount in $
|Operating income in $||Total net income||Earning per share|
|January 2009||405, 607||99,449||23082||13,400||3.39|
|January 2007||348, 650||84, 498||20,777||11,284||2.71|
Source: Financial reports: Hoovers AD &B Company.
There was an increase in the firm’s net sales during the 2008 and 2009 fiscal years with a margin of 7.2% and 8.6% respectively. The increase was mainly associated with the firm’s global expansion strategy, increase in-store sales, and acquisitions. There was also an increase in the firm’s free cash flow during the 2008/2009 fiscal year. Free cash flow refers to the net cash that results from operating activities excluding the payments of property and equipment. This increase is associated with the increase in the net cash from the operating activities (Wal-Mart annual report p.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 that there has been an improvement in the firm’s financial performance. There has been an increase in the firm’s operating expense 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 increase in taxation and the cost of utilities.
There was a reduction in the firm’s return on investment from 19.6% to 19.3% during the firm’s 2007 and 2009 financially years. According to the firm’s management, the reduction in return on investment resulted from the firm investing in Chile (Wal-Mart annual report 17).
The US supermarket industry is characterized by stiff competition. This is due to the fact that there are new domestic firms that are being established within the industry. The increased level of competition also results from the increase in the size of foreign direct investment. On the other hand, there is no barrier of entry into the industry. Food retailing is amongst the supermarket’s segments that have experienced cut throat competition in the recent past. This is due to the fact 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 amount of $ 500 billion is spent to buy food stuffs in the various stores in US (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’s incorporation gross profit margin which was 28.49% compared to that of Wal-Mart which was 24.85%.Costco Wholesale Corporation gross profit margin was 12.51%. With regard to net income, Wal-Mart had a superior performance at $13.4 billion compared to Target Corporation’s at $2.09 billion. The increase in the level of competition also results 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
The future of the supermarket industry is bright considering the fact that the global economy is recovering from the recession. The economic recovery will also result into recovery of the other sectors such as the financial sector. The management of Wal-Mart is committed to ensuring that the firm has a global reach. This is in line with the firm’s objective of increasing its size of market share. To ensure this, the firm’s management has formulated an acquisition strategy (Zac para.3).
Initially, the firm intends to acquire other firm’s within the domestic market. Through acquisition, the firm’s rate of growth will be greatly fueled. With the recovery of the financial sector, the management of Wal-Mart will be able to meet its global expansion goal. This is due to the fact that it will be easy for the firm to access finances from the financial institutions. Due to the economic recovery, the interest rate will be relatively low. The firm will be able to finance its activities effectively since cost of finance will also be relatively low. Effective acquisition of other firms requires a considerable amount of finances.
Due to global recession, there was a reduction in the amount of remittance by the subsidiary firms within the supermarket industry to the parent firm. This was as a result of fluctuations in the foreign rate of exchange. The fluctuation in the currency rate had a negative impact of an approximate amount of $2.3 billion in the operation of Wal-Mart during the 2009 financial year. This culminated into a reduction in the firm’s financial performance. The global economic recovery will result into stability of the foreign exchange rate (Wal-Mart annual report 16).
Various economic sectors were affected by the economic recession resulting into an increase in the level of unemployment. This culminated into a reduction in the consumers’ disposable income and hence the level of consumption. The consumption trend amongst the consumers will be reversed upon the economy recovering. This means that Wal-Mart will be able to increase its sale of the non food products (Frank & Levy 3).
The management of Wal-Mart intends to integrate technology within the operation of the firm. This is aimed at improving the firm’s operational efficiency. Incorporation of technology is also aimed at improving the firm’s marketing strategy. To ensure this, the management of the firm has integrated electronic marketing. This will enable the firm to effectively provide the customers with the product information they are looking for during the decision making process.
With the growth in technology, there is a change in attitude amongst the consumers. This is due to the fact that the consumers are integrating technology in their buying process such as on-line buying. Various technology products are emerging and are being embraced by the consumers. This means that Wal-Mart will increase its sales level with regard to electronics. Through on-line 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 profit.
There is also a change in the consumer’s lifestyle which results from the increase in the rate of globalization. On the other hand, there has also been an increase in the rate of immigration into US. During the period from 1990 to 2006, there was an increase in the number of immigrants in US from 20 million to 37 million. This has culminated into a wider ethnic diversity.
According to Jean, the Asians are amongst the ethnic group that is growing at a fast rate in US. According to Jean& Ben, it is estimated that there will be 26 million Asians in US by 2025 (187). The increase in ethnic diversity presents an opportunity to Wal-Mart. Considering the fact that the management of Wal-Mart is committed to supply quality food products, the firm will have to increase its food product categories. This will enable the firm to meet the diverse customer priorities in relation to food products.
The US government is committed to improve its international trade in an effort to improve its economic growth rate. International trade is enhanced by the US Department of Commerce by ensuring that there is fair trade. It also ensures that various industries comply with the set international trade laws and regulation. The government is also ensured that the firm’s 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. This is through incorporating the free international trade agreement.
For example, the Americas Competitiveness Forum was formed in 2009 to increase international trade amongst the American countries (Gary 1). Through such a regional integration, the Wal-Mart’s goal of venturing into the foreign market through foreign direct investment is enhanced. This is due to the fact that such trading blocs results into elimination of international trade tariffs and other trade restrictions amongst the member countries.
In some cases, firms intending to undertake foreign direct investment are required to form partnership with other private or public firms in the host countries. This limits the operation efficiency of the firm. Formation of free trade agreement leads to elimination of barriers related to foreign direct investment. By the fact that US government is committed to improve its economic growth through entering various trading blocs, the management of Wal-Mart will be able to invest in different countries. In undertaking the foreign direct investment, the management will undertake a cost-benefit analysis to determine the most effective investment destination. This will result into an increase in customer base enabling the management to attain its profit maximization objective.
In order for Wal-Mart incorporation to remain competitive, the management 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, the management will be able to effectively meet the product needs of a particular target audience. The management will consider a segmentation strategy. According to Marketing Teacher, segmentation refers to the process of identifying the various portions of the entire market that are unique from others (‘Market segmentation’ para.1). Through segmentation, the management will be able to attain a higher level of customer satisfaction. In segmenting the different customer categories; the management will consider the cosmopolitan nature of its US and other international market.
In this strategy, Wal-Mart’s management will segment its products in relation to the different cultures within the society. By incorporating culture, the firm will be able to provide diverse traditional food products. This means that the firm will be able to effectively penetrate the different foreign markets. According to Jean & Ben (189), most of the consumers in the current world do not know how to prepare traditional meals. In other cases; they don’t have the time to cook a traditional meal. This has resulted into a disappearance of traditional food products in the consumer’s diet.
To ensure that the strategy succeeds, the management will invest in research and development. The research and development department will ensure that there is continuous value addition to the firms’ products. The Research and development department will be involved in conduction of customer market research on a repetitive basis. This will enable the management identify the changes in consumer tastes and preferences with regard to the food products. Through customer market research, the management will be able to undertake value addition more effectively. This is due to the fact that the changes will be integrated in the products. The firm will be able to attain a competitive edge by supplying products that integrate changes in tastes and preferences.
To attain a competitive advantage, Wal-Mart’s management will differentiate its some of its food products. In the differentiation strategy, age will be considered.
According to Jean & Ben, there is a decline in US population growth rate from 1.7% that was experienced during the baby boom to 1%. This makes the population to be skewed towards the old. By 2025, there will be an increase in individuals who are aged above 65 years from 13% to above 18%. In total, this population will approximately be 62 million. On the other hand individuals who will be above 85 years will double to 7.5 million. This shows that there will be an increase in elderly customers who are of different ethnic origin. There will be an increase in demand for nutritious and healthy food products amongst these customer categories. To cater for this customer category, the Wal-Mart’s management will ensure that the foods product supplied to these customer categories meets the demanded nutritional value
Through the different customer categories, Wal-Mart’s management will ensure that its products are effectively differentiated to meet the different customer priorities. If a firm effectively differentiates its products, it is able to create a kind of a monopoly. Thus the management of Wal-Mart will be able to develop a monopoly in relation to its own products thus appealing this market niche (‘Product differentiation’ Para. 1).
Currently, the global world is very complex. The degree of complexity is increased by the high rate of innovation. With regard to food retailing, there is emergence of genetically modified food products. Most of the consumers especially the youth are currently integrating the consumption of the genetically modified food (Keith & Renee 2). Through genetic modification; it has become possible to improve on the nutritional value of the food products. The genetically modified products can be stored for a long period of time. This presents a risk to the firm in terms of increased competition. Through scientific innovation, there is a rapid rate of growth in the genetically modified food products. This poses a threat to the operation of Wal-Mart.
This is due to the fact that there will be a decline in of the size 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 due to the fact that the consumers change their attitude towards food products more rapidly. With more consumers embracing the genetically modified food products, the potential market of these products also increases. This means that there is a possibility of producers increasing the production of the genetically modified products relative to the traditional food products. In the event of this happening, there will be a reduction in supply of the 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 Wal-Mart’s management does not focus on individual customer categories, it will not be able to attain a significant market share. This is due to the fact that it will not be able to identify and satisfy the different customer categories. This means that the firm will not able to build sufficient competitive advantage since there is will no particular market niche that the firm will be exploiting. Lack of appreciating the diversity of consumers in the domestic and the foreign market also means that the firm will have a small customer base. This is due to the fact that the firm will not have established customer and store loyalty. In most cases, a firm with a small customer base does not have a high financial performance.
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