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Strategy- the question below - Essay Example

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Wm Morrison Supermarket is made up of a retail network comprising 1500 discount stores, 100 Pal’s Clubs and 15 Supercenters that are served by 20 distribution centers across the country.The supermarket is currently in operation in 45 states only. The new entrants into the…
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WM SUPERMARKET al Affiliation) Key words: WM Supermarket, cost-advantage strategy MEMO
To: Board of Directors.
From: Wm Morrison Supermarket.
Date: 10th Nov 2014
Re: Strategy
Introduction
Wm Morrison Supermarket is made up of a retail network comprising 1500 discount stores, 100 Pal’s Clubs and 15 Supercenters that are served by 20 distribution centers across the country.The supermarket is currently in operation in 45 states only. The new entrants into the Supermarkets and Groceries industry, Lidl and Aldi Supermarkets, have swayed some of our customers by consistently undercutting the supermarket on prices leading to lower recorded profits in the last quarter.
Future Objective
In the next 5 years, the demand for the Supermarkets and Grocery Stores is expected to rise gradually and record a steady flow of revenue, the economy is going to recover, and consumers are going to have more disposable income available for purchasing both premium and private label brands. This will enhance the average transaction sizes for grocery stores and supermarkets. According to Quelch, the Supermarkets and Grocery Stores Industry, which is in the mature stage of its life cycle, will be in the next couple years preceding 2019.The supermarkets and grocery industry contribution to the GDP of the economy is predicted to remain flat. An industry’s contribution to the economy is measured by the industry’s value added or simply (IVA).However, the country’s GDP is expected to rise to an estimated average level of 2.5% annually despite the fall in the growth of the supermarket industry. According to Korda, 2012, an industry is terms as declining when its growth falls below the GDP’s annual growth level. This should however not alarm you because supermarkets and groceries have in the past-recorded low profit margins leading to a lowering of the whole’s industry contribution to the economy. Other factors contributing to the industry’s slow growth include the intense competition in the food retailing industry which cays a reduction in the profit margins of the retail stores. The introduction of new entrants to the industry (Edli and Aldi) are bound to result in lower profit margins for our company in the future if necessary measures are not taken like adopting a cost advantage strategy.
Importance of Cost Advantage
There are a number of reasons why the supermarket should adopt the cost advantage strategy. Berinstein, 2003, argues that a firm pursuing a cost-leadership strategy attempts to gain a competitive advantage primarily by reducing its economic costs below its competitors. Wm Supermarket is a big supermarket. It therefore has the advantage of economies of scale. The supermarket has a very high level of production and is therefore able to buy and use specialized specialized tools that the small supermarkets: Lidl and Aldi do not have. The company has a large volume of production and overhead costs as revealed by last year’s financial statement. Therefore, the supermarket can spread the overhead costs of its departments over additional units. Wm Supermarket employees over 100 specialized staff meaning that the high volumes of production are related to the high number of specialized staff.
The supermarket produces its own baking goods at a very high production capacity. This means that the supermarket has the capacity to build larger operations in order to increase its output already. By doing so, the firm will be able to reduce its cost per unit of the manufacturing operations and have lower average costs of production. Lastly, the distance between the market and the suppliers is not far, meaning the supermarket will not have diseconomies of scale. I conclude that the supermarket stands to gain financially and will eventually price out Lidl and Aldi Supermarkets.
References
Esty, Daniel C., and Andrew S. Winston. Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage. New Haven [Conn.: Yale UP, 2006. Print.
Grant, Robert M. Contemporary Strategy Analysis. 6th ed. Malden, MA: Blackwell Pub., 2008. Print.
Daly, John L. Pricing for Profitability Activity-based Pricing for Competitive Advantage. New York: Wiley, 2002. Print.
Business Options; A New Perspective on Strategy. (Business News)." Manila Bulletin 28 June 2007. Web. 9 Nov. 2014. .
Quelch, John A. The Global Market Developing a Strategy to Manage across Borders. San Francisco, CA: Jossey-Bass, 2004. Print.
Berinstein, Paula. Business Statistics on the Web: Find Them Fast-at Little or No Cost. Medford, NJ: CyberAge, 2003. Print.
Korda, Philippe. Strategy and Training Making Skills a Competitive Advantage. New York, N.Y.] (222 East 46th Street, New York, NY 10017): Business Expert, 2012. Print
Yu, Xingwu, and Weixing Wang. "Study on Export-oriented Enterprises’ Improvement of Competitive Capacity Based on Cost Advantage." Journal of Management and Strategy (2010). Print. Read More
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