Global Competitive Strategy in the Delhaize Group - Case Study Example

Global Competitive Strategy Introduction: The Delhaize Group is a transnational food marketing company with its Head-quarters in Belgium. It is a successful business group in world food retailing industry. An analysis of global or transnational strategic management of Delhaize Group would provide an overview regarding global strategies that are adopted by the business firms in the present global business environment. “Delhaize Groups sales network also includes other store formats, such as proximity stores and specialty stores.” (Delhaize Group: Company Information, 1). Global/ Transnational strategic management of Delhaize group: The Delhaize group’s business strategy is mainly focused on food retailing through supermarkets. Their management strategy is concentration on the growth and development of this core business. In order to vie in the competitive global food market, Delhaize adopted competitive marketing strategies in virtually all its business functions. The group has attained the ability to attract and retain qualified organizational personnel for all of its business needs. This provides them with competitive strength over rival firms in the industry to produce and supply quality products at reduced cost. The major principles of operation adopted by Delhaize in their transnational business are described below: (1). Dynamic growth in regional markets and retail concepts: The group identified the significant growth opportunity in the USA, Belgium, Central and Southern European and South East Asian markets and started building new supermarket stores in these areas. The growth strategy of the group is mainly based on starting new supermarket stores in important business locations in selected areas. The remodeling and enlargement of existing stores are continuously been carried out in order to maintain customer preferences and retain product viability of the stores. (2). Promote innovation and the use of technology: Delhaize Group is considered as the innovator in the food retail market. It is the pioneer of self service supermarket in continental Europe. The Food Lion in the Group introduced everyday low price concept in food retailing business and gets higher level customer acceptance. Adoption of innovative technology in production and marketing renders competitive edge to Delhaize. The Group introduced self scanning system in their super market stores and it facilitates extra convenience to customers and suppliers. Introduction of loyalty cards in the business provides high growth in the business transactions of Delhaize. The loyalty card holders contribute a major share of their total sales revenue. This scheme has proved successful in the market as it motivates the card holders to depend on the supplier for all market needs. Setting up of business- to- business exchange (B2B) system in the business operations is highly beneficial to the group to transact its international business smoothly and speedily. It facilitates them to optimize the management of business functions and improves supply chain efficiency. home delivery system is also introduced in the supermarkets and it supports the business growth by attaining higher degree of maximum customer satisfaction. (3) Operate as an integrated global group: The entire global operation of the group is integrated to create synergies and exchanging better practices. Transnational coordination groups are formed for strengthening the unification of global business functions. In addition to this, four departments are formed to support the functions. It includes finance department, legal affairs department, human resource department, information technology department. Relationships between strategy and environmental issues: The business strategy is highly depends on the environment in which the business functioning. The Delhaize Group adopted differential competitive strategy in their global business. As a transnational business firm, Delhaize is subjected to the federal, regional, state, local and foreign laws and regulations. This makes their business operations more complex. To govern the activities and operations globally the group is subdivided in to four major geographical areas of operations. The policies and business strategies of the each of the division are adopted by considering the business environment in each of the subdivided business areas. In the United States, the company introduced many sales building initiatives such as adoption of private labeling, strong holiday merchandising and other promotional activities in order to retain the customers. It leads to higher revenue growth for the business in the country. (Delhaize Group Announces Strong Year End Sales Leading to 10.3% Revenue Growth in the 4th Quarter of 2008). The Group adopted continuous review of product portfolio in order to ensure the profitability of each of the store divisions. Lower rate pricing strategies are adopted by the Group to get competitive price advantage in the market. The marketing efforts of the group are focused on the segmentation and customizing of the market on the basis of needs and interests of the local consumers. It adopted different labeling for its products. (Bentley). Continuous review of the profitability of business operations and benchmarking against the competitors in the industry provides the Delhaize better awareness about the need for improvement in the business operations. Thus it adopted disclosure of unprofitable stores and expanding the business in profitable areas by starting new ventures. Thus according to the business opportunity in different market environment, the Group adopts different business strategies to suit discrete business opportunities and segments. Global value chain: This refers to the broadening of the company’s operations on a national, transnational and even on an International level. This arising due to the fact that companies need to increase its all round efficiencies, especially in the context of escalating competition in domestic markets. Therefore, global value chain could be seen in terms of outsourcing of certain areas other company’s business, seeking new product lines and entering new markets in new regions. In case of Delhaize Group, it is seen that it is a Belgium based company, engaged in retail food supermarket segment. It has a market presence in nearly eight countries and three of the world’s continents- Europe, Asia and North Americas. It operates its stores across these countries, however retaining their major business in USA. The total number of operational stores in US is 1,549, broken down as follows: Serial Name of the store Number of stores 1. Food Lion (including 8 Reid stores ) 1,159 2. Hanna Ford 158 3. Sweet bay 69 4. Harveys 68 5. Bloom 39 6. Kash & Karry 38 7. Bottom Dollar food Total 18 1,549 (Prospectus Summary: Delhaize Group, 7). The global value chain with respect to Belgium, their home turf could be seen as follows: Serial Description Super markets Proximity Stores Speciality stores 1. Delhaize “Le Lion ‘” 364 2. Proxy “city & shop ‘n go Banner 230 3. Speciality stores Di Banner Tom & Company 132 117 (Prospectus Summary: Delhaize Group, 7). Greece: It is seen that Delhaize group owns majority stakes in Alfa-Beta, a major food retailer. At an international level Alfa-Beta operates a network of 148 food stores under various trade names: 97 large-assortment Alfa-Beta supermarkets, 41 company-operated and connected neighborhood stores under the AB City, AB Shop & Go and AB Food Market banners, and 10 ENA cash & carry stores. (Competitive Strengths, 8). It is seen that this group is working in highly competitive markets both in the US and in the other locations outside US. Although it’s main market is in Belgium, the major chunk of the business sales are generated from the US stores and they continue to dominate, turnover and profits wise. Under Global value sourcing, it is necessary that this supermarket chain concentrates to build value additions for their profit making units, and dispose loss making units. This is because the food industry is highly competitive and it is very important that the business gains strong and robust supply chain management systems and vendor benefits. If more economically, it could import some of its food items from cheaper outlets and countries, like China, Taiwan, Middle East and Far East countries and if necessary, even set up stores in these places where profits could be higher. The main advantages would be in terms of cheaper labor and overhead costs, with lesser degree of governmental interferences mechanism, as compared to other highly sophisticated and discerning markets like USA, UK, etc. where regulatory regime are more stringent and obdurate. It is seen that Delhaize’s forays into certain markets have not been successful. During 2007, it had closed down its Czech operations but has also opened up new branches in Cologne, Germany and other regions. As has been mentioned earlier, it is necessary for the supermarket chain to make forays into high demand markets in order to augment its bottom line and earn substantial profits. Stock Position of Delhaize Group on 6.02.2009. (Stock Chart: Delhaize). Most insiders believe that the Stock position of Delhaize group would improve over time and it could be able to overcome tough market conditions through sheer resilience, business ingenuity and create stabile market conditions. Portfolio analysis: In this era of competition competitive strategy serves as the base for existence of each company. In this context portfolio is a term used to refer the total of the businesses and activities of a company. The analysis of the portfolio that is the analysis of securities, investment…etc. is called portfolio analysis. In other words a port folio analysis is the analysis of the total investment of the company. Delhaize Group is a group of food market with its Head quarter in Belgium The group, operates in ten countries. The company has designed its portfolio strategy in such a way that it considers the local society and environment where each Delhaize Group food market operates. The company attaches significant importance to the environmental issues like energy, waste and environment pollution as the company is dealing with the food items it is doing all the efforts to avoid waste. The company has record in energy saving. As part of its environment friendly policy it recycles tons of cardboards every year. It actively participates and co-operate with the environment protection programs conducted by the government. The group with the help of its customers offers cash and food items for charity activities. “Early in 2005, Delhaize Group and its operations responded promptly to the devastating tsunami in Southeast Asia, contributing EUR 1.3 million through donations of approximately EUR 200,000 and another EUR 1.1 million collected from its customers. A similar reaction took place in our U.S. operations after Hurricane Katrina hit the Gulf Coast areas in the Southeastern U.S.” (Corporate Responsibility: Car for People). The company has a portfolio strategy spread in ten countries which is grouped into four regions namely Belgium, United States of America, Asia and rest of Europe. It is the part of company’s portfolio to offer quality food items. The group has expert watch teams who ensure that only quality and safe food items are supplied. The company has a concern for the environment because they believe that the food items they are dealing with, is produced from the earth, thus environment protection is an important factor. Market structure analysis: Delhaize Group is the retail leader in the food market United States, Belgium, Asia and some other European countries. The Group has a strong market share as it gives significant consideration for the environment and social commitment. Market structure analysis will help the company to identify the competition in the market. The main factor that influences the market structure is the consumers. Sweet bay supermarket is the main competitor in the market. Alfa-Beta, in which Delhaize Group has more than sixty percentage of the share, has the second position in sale in retail food market. It has around 150 stores of retail food in different categories. The Delhaize group has expanded its market to Indonesia and Romania. The company is always keen to watch the competitors’ strategy in the market. They think that they have greater position in the customers’ mind which is evident from the market share that the company have. The company always tries to distinguish its products from competitors’ product by following a global competitive strategy. The competitive strategy that is being followed by the group, which helped the company to be the leader in the market, is explained below. 1. Effective implementation of cost control system: As the company is effective cost control system by way of systematic purchasing, competent distribution system, and efficient management, the net profit the company was always high in the market. And also the company effectively utilized the possibilities of modern technology and information system. As stated earlier the company is more committed to the society and environment. The company recycles the waste cartoons and plastics and reuses the same. This also helped in cost reduction. 2. Brand value: As the company is loyal to the society and customers it has a well-built brand value. This helps the company to take competitive advantage over the competitors. As the company operates in different names in different markets each one can create its own brand image than the competitor 3. Low financial leverage: For so many years the company is having reasonable debt-equity ratio as the company is following well organized management of working capital and also they have a rate of return on investment. 4. Expertise and experienced management: the management of the Group’s stores is vested with a team of dedicated and experienced professionals who are familiar with the market which they belong to. This helps the company in easy implementation of the global competitive strategy. Competitive strengths review (CSR): There are certain key strengths that differentiate Delhaize from its competitors. These could be discussed as follows: 1. Leadership roles 2. Strong operating margins and lowered costs 3. Reducing debt equity ratio to serve stakeholders’ interests better 4. Commitment of top management percolates down the organization 5. Wide diversification ensures better market coverage and consumer reach 6. Promotional aids for better sales effects and window display 7. Experienced and seasoned management team 8. Well located stores with ample space and pleasant décor 9. Excellent warehousing and logistics control management. Leadership roles: The company hopes to attain sales figures that could make it among the three large supermarket chains, with annualized sales of $5.4 billion. This could increase substantially in later years depending upon strong focus on business development plans. Strong operating margins and lowered costs: The company is striving to reduce superfluous costs and create economies of business in areas like vendor management, inventory controls and distribution expenses. It has a robust centralized purchasing system (CPS) which seeks to control and achieve economies in purchases. In a supermarket business like the present one, inventories need to be well controlled to achieve higher bottom line figures. Lowering debt equity ratio and leverages to serve stakeholders’ interests better: The level of debt of the organization is crucial, especially in the context of its disbursement, by ensuring inflows and lower dependency on outside debts, the company honors its commitment to its stakeholders and creditors whose interests are affected. Moreover, a company of this size ensures liquidity through “strong profitability, disciplined working capital management and selective investments.” (Competitive Strengths, 8). Commitment of top management percolates down the organization: It is necessary that motivational techniques need to be enforced in order to gain maximum from the workforce and also ensure adherence to targets. This needs to be ingrained in the workforce in order to make optimum use of scarce resources in terms of materials, manpower and money. Wide diversification ensures better market coverage and consumer reach: This ensures better market coverage and consumer reach, and could also cater to specialized needs of different types of customer having varied preferences, tastes and choices. Promotional aids for better sales effects and window display: It is necessary that a supermarket chain like Delhaize chain needs to develop promotional aids that could attract and retain customers, especially the younger ones. For this it is necessary that window displaying, pleasant staff and good conduct of business are maintained throughout. Also special gift and discount schemes could be introduced on special occasions. Experienced and seasoned management team: Delhaize could take pride in the fact that their employees and managers, most of them drawn from the consumer product industry have decades of experience and acumen in dealing with food products and related business activities. Well located stores with ample space and pleasant décor: The company intends to invest continually in building a viable and competitive store environment where consumers could relish a supermarket experience. Approximately, €825 Millions would be invested in the coming periods to achieve this end. (Our strategy, 9). Excellent warehousing and logistics control management: The warehousing has spare capacity that could be used for future expansion programs. It is also seen that the management would invest substantially in future warehousing management schemes. Conclusions: From the above deliberations it is clear that the future of Delhaize would depend upon how well they are able to increase their market shares, not only in US but also in other markets where they operate. They need to develop strong strategies and marketing positioning with regard their strong brands and ensure that their products are well identified and popular brands like Wal-Mart, Sainsbury, etc. They need to make market surveys and understand their position vis-à-vis their rival brands, and how they could score over them and reign supreme in these markets. It is also needed that new markets are explored, new product lines introduced and also latest marketing strategies used for maximizing brand position and image of this company, not only in US but also in all locations where they operate. Works Cited Bentley, Ashley. Delhaize Plans to Close Stores, Remodel Others. Infratab Freshtime: It’s the Label that Counts. 2009. 09 Feb. 2009. . Competitive Strengths. Sec Watch. 2007. 09 Feb. 2009. . Corporate Responsibility: Car for People. Delhaize Group. 09 Feb. 2009. . Delhaize Group: Company Information. The New York Times. 2009. 09 Feb. 2009. . Delhaize Group Announces Strong Year End Sales Leading to 10.3% Revenue Growth in the 4th Quarter of 2008. TMc net.com. 2009. 09 Feb. 2009. . Our strategy. Sec Watch. 2007. 09 Feb. 2009. . Prospectus Summary: Delhaize Group. Sec Watch. 2007. 09 Feb. 2009. . Stock Chart: Delhaize. Answers.com. 2009. 09 Feb. 2009. . Read More