Walmart low cost leadership group8


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Walmart low cost leadership group8

  1. 1. LOW COST LEADERSHIP OF WALMARTPresented by Rohith Castelino Advait Bhobe Anshu Lakra Lokesh Merugupala Sudarshan R
  2. 2. 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
  3. 3. 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.
  4. 4. 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)
  5. 5. 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.
  6. 6. 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.
  7. 7. 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
  8. 8. WAL-MART – MARKET SHARE / COMPETITORSWal-Mart is three times big than its nearest competitor Carrefour
  10. 10. 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.
  11. 11. 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
  12. 12. 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..
  13. 13.  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.
  14. 14. MARKET EFFICIENCY OF WALMART MAJOR COMPETITORSAllocativeEfficiencyTechnicalEfficiencyThere can be economy only where there is efficiency - BenjaminDisraeli
  15. 15. 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
  16. 16. 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
  17. 17. 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)
  18. 18. 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.
  19. 19. 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.
  20. 20. 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
  21. 21. 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.
  22. 22. 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.
  24. 24. 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
  25. 25. THANK YOU…