LOW COST LEADERSHIP OF WALMARTPresented by Rohith Castelino Advait Bhobe Anshu Lakra Lokesh Merugupala Sudarshan R
KEY STATISTICS ON WAL-MART Founder Sam Walton & Family – owns 48% of Wal- Mart Headquartered at Bentonville , Arkansas , US Total No. of Stores – 8500 Stores Stores in US – more than 5000 Outside US – more than 3000 Stores in 15 Countries Total Employees – 2.2 Million Total Sales – 446 billion Net Income – 15 billion
INTRO CONTD. Worlds 3rd largest public corporation It operates in Mexico as Walmex, in the United Kingdom as Asda, in Japan as Seiyu, and in India as Best Price. United Kingdom, South America and China are highly successful, whereas ventures in Germany and South Korea were unsuccessful.
WAL-MART SUBSIDIARIES Wal-Mart Stores Division US Wal-Mart Discount Store Wal-Mart Supercenter Wal-Mart Neighborhood Market Sam’s Club Wal-Mart International Private Labels (Sam’s Choice , Great Value , Equate ,Smart Price)
WAL-MART’S GROWTH IN LAST 25 YRS Diversified into Food & Grocery , Private Labels and online store. Wal-Mart online is the e-commerce website. Has started selling online Music and Movies.
SOME INTERESTING FIGURES First Store opened at Rogers , AR in 1962 World’s largest Private Employer , fourth only to China’s Army ,NHS of UK, and Indian Railways. Wal-Mart sells 20% of retail grocery in US and 45% of total Toys sold in US. Its bigger than Europe’s Carrefour , Tesco & Metro AG combined.
WAL-MART INTERNATIONAL Present in 14 countries Walmax in Mexico ASDA in UK The Seiyu Co. Ltd in Japan Wholly owned subsidiaries in Argentina , Brazil , Canada ,Puerto Rico
WAL-MART – MARKET SHARE / COMPETITORSWal-Mart is three times big than its nearest competitor Carrefour
OPPORTUNITIES IN INDIA India’s retail trade is estimated at $206 billion & growing at 5% annually. Only 3% of market organized – shopping malls. India as fastest growing sourcing market. India’s vast market for food retailing. Cold chain - Refrigerated distribution of fruits n vegetables. Can add value to customers by means of low price and wide range of merchandise.
PRESENT SCENARIO Wal-Mart joint venture with Bharti 15 large wholesale outlets over the next seven years Govt. of U.P forced several top retailers to shut shop after local Kirana stores triggered unrest. Other foreign retailers : Carrefour – Wadias, Debenhams - Future group ICRIER study – 12 million stores
LATEST DEVELOPMENTS FDI approval has changed the equation. President Scott Press has announced that they will open their stores in the coming 12-18 months in Indian states that are allowing FDI in Multi- brand retail. Location of stores still not yet decided, however partnership with Bharti to continue. 50,000 temporary staff to be recruited for the holiday season in multi-brand retail..
Anxiety in small traders that Wal-Mart offering various products at very cheap rates. They will have no option but to close down. Anxiety in general trading community that Wal- Mart outsource most of its products. However, government regulations such as mandatory 30% sourcing from local suppliers is expected to somewhat ease the scenario.
MARKET EFFICIENCY OF WALMART MAJOR COMPETITORSAllocativeEfficiencyTechnicalEfficiencyThere can be economy only where there is efficiency - BenjaminDisraeli
ALLOCATIVE EFFICIENCY OFWALMART Goods and services should be produced only if their Marginal Benefit (MB) >= Marginal Cost (MC) Competitive markets produce where the demand curve intersects the supply curve (MB = MC) For example, if a consumer expects to get $7 of MB from the 31st unit of a good, then he/she will be willing to pay anything up to $7 to get it Hence, Wal-Mart produces the output that the consumers would prefer Efficiency of a practically flawless nature may be reached naturally in the struggle for bread. ..... author
WALMART – VARIOUS PHASESQ1 Wal-Mart forego potential gainsQ1 to Q0 MB that exceeds their MC (Surplus Value)Q2 Wal-Mart’s surplus decreases, because of high costs
TECHNICAL EFFICIENCY OFWALMART Wal-Mart targets to produce Q0 units in the least-cost way Wal-Marts top 100 suppliers attached special Radio Frequency Identification (RFID) microchips to cases of products that they ship to Wal-Mart warehouses Wal-Mart supplier Dan River, is complied with Wal- Marts Internet communication system in, using software from Web Methods Uses iSoft Corporations Commerce Suite (relatively unknown & inexpensive software)
PRICING STRATEGY Highly competitive pricing strategy. At places where Walmart and Kmart stores were located next to each other, Wal-Mart prices - 1% lower. Where Wal-Mart, Kmart and Target are located within 4-6 miles of each other, Wal-Marts average prices- 10.4% and 7.6% lower respectively. In remote locations where there was low competition from discount stores- 6% higher than usual.
PRICING STRATEGY CONTD. Changed its slogan from “Always the low price- Always” in the 1990s to low price “Every day every Where” in 2011 Overall, Wal-Marts prices have been 2.2.% lower than Kmart, 3.7% lower than Target and 21.4% lower than large retailers such as Caldor and Bardlees. Focus on minimalistic distribution and operations in order to ensure that each product has the lowest possible price. Concept of “Bait and Hook pricing strategy”- extremely low prices coupled with moderate price increases not very successful as consumers moved elsewhere. Constantly evolving low cost strategy.
COST LEADERSHIP STRATEGY- HOW? Efficient supply chain management Efficient because almost all product data can be tracked to and from the manufacturer, warehouse, and the store shelf. Saves Wal-Mart several million dollars as it can prevent losses from faulty product management. Efficiency in operations and distribution strategies Opens stores outside of large cities and within 200 miles of existing stores. By bunching stores together in small areas, distribution costs are below average. Seeks to meet different customers’ needs with four main distinct retail options; these include discount stores, supercenters, Sam’s Clubs, and neighbourhood markets
COST LEADERSHIP STRATEGY- HOW?CONTD. Bargaining power Wal-Mart buys its products at rock-bottom prices, exchanges high purchase volumes for low cost while passing the savings onto its customers. The bargaining power of suppliers is weak. Many suppliers even give in to Wal-Marts pressure because they depend on the discount retailer for the majority of their sales The bargaining power of buyers is also weak because there is a very broad base of customers and a significant demand for low prices.
COST LEADERSHIP CONTD. Extensive use of technology Information of quantity orders transmitted via satellite to Wal-Mart HQ or to supplier distribution centers. Constant tracking of inventory by store managers and computerized systems help reduce inventory holding costs. Cross docking Products transferred directly from in-bound vehicles to store-bound vehicles, enabling goods to be delivered continuously to warehouses and thus eliminating inventory holding costs at this level.
PROS AND CONS OF LOW COSTLEADERSHIP PROS Drives costs down, so in the end consumer benefits as low prices makes it affordable for all income groups. Increases market share. Provides a great opportunity for the company to leverage the economies of scale coupled with the ruthless cost cutting measures .More the competitive space it occupies – which also means that more competitors eliminated – more effective are economies of scale and as a result the costs are driven still lower. CONS Credibility Discounts Perception of Quality