The Growth in Sales in Mercadona - Case Study Example

?Shopping Bags 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. A large part of this growth in sales can be accounted for the important acquisitions that Mercadona has made in Cartegena and Albacete as well as in the Balearic Islands and Castellon. This move was particularly risky considering that many of these stores were more than 500 kilometers away from Mercadona’s headquarters in Barcelona. 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’s customers come to the store by foot. There will be some people who will want to take a taxi from a long distance away, but the reality is that the majority of the company’s customers will live very close to one of Mercadona’s many stores in the city. This ease of access is something that Mercadona can take advantage of by targeting those who live close to its many stores. This can be done by sending out flyers to the local residents are encouraging them to visit the store. Apart from those who live within walking distance, housewives are also another key segment because in Spanish culture they are generally the ones who have to cook. Because they do not work during the day, they have time to visit a store before the company’s stores shut down between 2 p.m. and 5 p.m. The final target market is the working class. These people do not have the time to shop during the day, but the stores remain open until 8 p.m., so there is time for them to shop after work. Because they only have a limited amount of time in which to shop, they would likely have to live close by. In fact, the one thing that housewives and the working class have in common is that they live or work close to one of the company’s many stores. 3. Mercadona should target those who live close to its numerous stores because this can also include housewives and the working class. The company offers up high end market products, so only a few people at the top could be able to afford to buy there. Although housewives do not work for themselves, they do have control of the family finances when it comes to shopping. Also, the working class has disposable income to spend so they can afford to buy high end products. The common denominator between these market segments is that they must live close to one of the company’s stores so this segment of the market should be targeted. However, the company needs to have enough stock on hand to cater for this large market segment. Magi wanted stores of at least 500 square meters so that the company can keep 4,000 SKU, but its stores vary from 150 to 1,000 square meters. If the company is to accurately target residents who live nearby, it would be easier to have stores that were all of the same size so that the same number of products could be stocked. Since it is difficult to find stores of more than 500 square meters, the company should consider revising its target downward and try to aim for stores of at least 350 square meters. Ideally, the range in the sizes of its stores should be as little as possible. Because of this, the company will have to reduce its product assortment of 4,000 SKU down to about 3,200 SKU. This will result in a smaller quantity of goods from which customers can choose from, but it will allow the company to adopt a uniform approach and target consumers in close proximity to its many stores. 4. Mercadona should not try to change its market position or value position too much because the company does already meet the needs of its target customer quite well. Because the target market is those people who live close to the store, it is perfectly okay for the company to have a line of high quality perishable products. Because the customers don’t live too far away, they can make regular trips to the store if some of their products do not last. Also, the company has non-food products such as health and beauty aids, kitchenware, and clothes. Since parking is limited within the city, people do not want to have to travel long distances to buy all of their desired products. Having them all in one central location is appealing and would result in an increase in some of Mercadona’s other products. However, the objective of selling non-food products should only be meant to encourage consumers to purchase the company’s main items, which are high quality perishables such as fruit, produce, and meat. 5. I do not feel that the shopping bag problem is important because the average store in Barcelona uses fewer shopping bags than there are clients. The average store serves only 10,000 clients and uses 8,000 bags. This works out to be 0.8 bags per customer per month. This number is ridiculously low because every customer needs at least one bag for every visit that they make. What can be said is that some clients must live so close to the store or only purchase a couple of items, so they do not need to use a plastic bag when doing their shopping. Furthermore, one shopping bag only costs 0.0275 Euros per bag. The company charges its customers only 0.05 Euros per bag, so this figure is only around 80 percent more than the cost of the bags. With 8,000 shopping bags per month, the total cost to the store is only a measly 220 Euros. Compared to the average Barcelonan store with monthly sales of 111,000 Euros, this figure is too small to even consider. With charging clients 0.05 Euros per bag, the company is bringing in extra revenue of 400 Euros per month per store. This works out to be a net profit of 180 Euros per month per store. For this reason, the shopping bag problem is not so important. 6. Mercadona should not do anything about the shopping bags unless it really has to. The company sells fewer bags that there are clients, so there should not really be a problem in charging clients for them. If, however, there is a problem and clients start to complain, then the company can immediately stop charging clients for shopping bags. The profit per month per store is so small that it would not have a significant effect on the company’s sales anyway. Mercadona could even still buy the shopping bags but not charge its clients if the issue was going to be a problem. Magi is overreacting about the problem of the shopping bags and he needs to realize that the company does not make that much money from them anymore, which means that they could easily be halted altogether or the company could choose to attract shoppers from the company’s main competitors by offering free shopping bags to members only. This would help encourage clients to become members so they could get the benefit of free shopping bags without having to pay for them. Read More