Strategies for Sustained Competitive Advantage
Introduction
Strategic management accords with the demand of the business to establish a long-term approach to sustain a specific goal. It could be an improvement in terms of profitability, service efficiency, market competitiveness, or the combination of one or two more goals. Achieving competitive advantage encompasses consideration of cost and differentiation. Companies are able to establish competitiveness by strengthening the cost superiority where the customers are offered with lower price or with the highest degree of differentiation that in return enables the company to outperform its rivals (Gluck, Kaufman, and Walleck, 1980). The discussion will highlight how strategy and strategic application impact American businesses by examining the strategic position that the company is taking. Kroger’s is an American company engaged in pharmacy and retail business, which recently introduced its strategic plan to boost the business through e-commerce. Kroger’s strategic position will be examined for challenges that the company will be facing in achieving its goals using relevant strategic management models.
Company Description
Kroger’s is a retail company based in Cincinnati, Ohio founded by Bernard Kroger in 1883 (thekrogerco.com, 2015). Currently, it is one of the largest in the world with a family of stores spreading in the entire Untied States. The company is operating a variety of retail brands ranging from grocery, pharmacy, convenience stores, and discount stores in 2,774 locations (thekrogerco.com, 2015). CEO Rodney McMullen heads this empire and his leadership enabled the company to consistently improve its annual revenue. In 2015, the company posted total revenue of $109.8 billion, which is $1 billion higher than the previous year. The company is also trading publicly in the New York Stock exchange under the ticker code KR and the price per share of $38.09. Primarily, Kroger’s is listed in the North American Industry Classification System (NAICS) under code 445110 as a supermarket and other grocery except for its convenience store segment, which is composed of five different brands (Manta.com, N.D.).
Being in the retail business, Kroger’s is competing directly with other large supermarket brands such as Wal-Mart, Albertsons, Target, Trader Joe’s, Kmart, Aldi, and among others. According to the article from the Retail Wire segment of Forbes magazine, the company is leading the supermarket industry in terms of sales owed from its innovative strategy for boosting sales. One of the strategies highlighted in the article is Kroger’s Click-and-Collect, which is the e-commerce component of Kroger’s grocery business. The company announced its plans to offer click list online shopping service to 45% of its stores or roughly in 1,200 locations (Anderson, 2016). Kroger’s objective in rolling out the planned implementation of the click list is to improve the shopping experience banking on the aspect of convenience where the customers can pick their grocery items online and pick them up in the store afterwards (Anderson, 2016).
This new experience is also aimed to boost sales while allowing the customers to shop at the convenience of their home. Presumably, this new strategy is achievable given the growing popularity of online shopping. At the same time, the strategy is sustainable because the technological advancements required in implementing the plan is readily available and innovation in information technology is imminent. Since the company is planning to implement the new concept in almost half of its store locations, the company will need massive amount of resources in order to make it work. This includes management expertise in IT, in-store logistics, communication and connectivity infrastructure, and additional manpower to effectively and efficiently operate the e-commerce segment of the business.
The Competitor
One of the biggest competitors of Kroger is Wal-Mart, which is considered as one of the biggest in the world. Wal-Mart’s revenue surpasses all other companies in the United States with its $485.7 billion in total revenue. It has over two million employees and 11,000 stores in 27 countries (Snyder, 2015). In addition, the company also holds 24.68% of the total market shares in the supermarket industry in the United States. Its current CEO Doug McMillon is facing a tough challenging in leading the 53-year-old company of a tremendous size and create strategies that will sustain the brand’s foothold in the retail market. Wal-Mart stores are engaged in everything retail including groceries, apparel, organic food, electronics, and pharmacy. The real challenge that’s facing Wal-Mart is the stagnant growth in its grocery segment
Although Wal-Mart and Kroger is in the same industry the companies appears to take a different direction when it comes to establishing strategic advantage. From a strategic management standpoint, both companies’ share the same basic model, which is to plan and execute strategies based on the conditions warranted by the consumer demand. For example, Kroger is leveraging on the small store concept to be a brand closer to the neighborhood. At the same time, the company is also implementing innovative strategies such as e-commerce to accord with the changing consumer buying behavior. As with Wal-Mart, the company is also trying to establish a small store footprint in order to be closer to its market. However, on a larger perspective Wal-Mart is on the verge of being surpassed by Kroger as the largest supermarket company not only in the United States, but also worldwide. The current market share of Wal-Mart is 24.68% while Kroger’s share is 22.05% (Kane, 2015). What’s more surprising is that Kroger appears to have greater strength in the grocery sector as compared to Wal-Mart’s dwindling growth in its grocery segment.
Analysis
Out of the many supermarket companies in the United States, Wal-Mart is considered as the biggest competitor for Kroger. One of the aspects that pose a significant threat to Kroger is Wal-Mart’s online shopping segment. However, Wal-Mart’s current priority is not about strengthening its online presence, but to make changes into its small store strategy. In the past two years, Wal-Mart is trying to replicate the small store concept of Dollar General in order to achieve a neighborhood market format, but it was proven too much for Wal-Mart that it began to shutdown 269 small stores. Part of the reasons for the change in strategy is because of the pressure that e-commerce is putting on the retail sector (Mahoney, 2016). As a result, Wal-Mart is pushing its strategic advantage to strengthen its flagship stores. It appears that Kroger is heading to the right direction by sustaining its e-commerce segment of the business, which is different from Wal-Mart’s approach of putting up small stores to compete with the local stores.
Ten years down the road, if Kroger continued its innovation strategy and sustained the demand for online shopping, it will be a surprise if Kroger surpasses Wal-Mart as the world’s largest retail company. On the other hand, Wal-Mart is struggling to find its place in terms of segmentation; there had been efforts to tap into the small store format and even going organic to compete with Whole Foods. However, the company is still in the process of finding its perfect strategy and such struggle reflect on its sales performance as reported in the article by Mahoney (2016) that the retail sector missed the 2015 projections by 3% while the online retail sector have gained 9%. If the Kroger’s success streaks continued and Wal-Mart’s stagnating growth persisted to another two to three years, it will not be surprising that in a span of ten years Kroger will take Wal-Mart’s place as the biggest in the world (Taylor, 2015). Given the foundations set by Kroger in its online retails segment it will also likely to compete with Amazon in the future.
Considering the strategic initiatives of Kroger to establish a sustainable e-commerce segment in its grocery business, it is recommended that they expand the coverage of the online shopping above 45% as initially planned. In addition, Kroger would be able to surpass Wal-Mart’s online shopping function by adding home delivery apart from the pick up option. The company is rolling out its major strategic advantage, but limits the customers to pick up the ordered goods at the store. However, leveraging on the concept of convenience as a strategic advantage can yield better results of the options include home deliver. Although the needed resources for home delivery would enormous, the returns supersede the cost given that the price margin in online purchase is higher than in-store purchase. Furthermore, Wal-Mart is struggling in terms of establishing its neighborhood presence as 260 of its small stores was shut down because of failing to compete with smaller brands. On the other hand, Kroger should use it as an advantage in surpassing Wal-Mart because Kroger have already mastered the small store concept.
In terms of difference in growth rate between the retail online shopping, it appears that both Kroger and Wal-Mart is facing a threat in its retail store segment because of the steady gains in the online shopping sector. This means that both companies should begin to consider a major overhaul in their e-commerce strategies as the change in market behavior favors the online environment. Although Wal-Mart has already established its online presence, Kroger is still in the development stage, which is still subjected to threats by competitors and other major online retailers that are in the online business for quite some time. When it comes to external threats, the only problem that both companies need to consider is combating security risks. In addition, economic instability is another threat that both companies have to endure as the future of retail industry is greatly affected by economic developments locally and internationally.
Conclusion
Strategic advantage is a critical factor that drives the business towards sustainability. If the implemented strategies were found to potentially fail to deliver promising results, the effect towards the business would be severe. Planning and executing strategic plans should consider the factors that create the current conditions of the business, which includes how the competition is outperforming of underperforming. In the case of Kroger, the strategic perspective towards growth is to create an opportunity for the consumers to shop for their home needs without actually going into the store. This strategy was geared towards increasing customer convenience. On the other hand, Kroger should also consider sustaining the highest level of efficiency in order to achieve success in its planned strategy.
References
Anderson, G. (2016). Forbes Welcome. Forbes.com. Retrieved 18 March 2016, from http://www.forbes.com/sites/retailwire/2016/02/16/krogers-click-and-collect-breaks-through/#7b1bf7088ab1
Gluck, F., Kaufman, S., & Walleck, S. (1980). Strategic Management for Competitive Advantage. Harvard Business Review. Retrieved 18 March 2016, from https://hbr.org/1980/07/strategic-management-for-competitive-advantage
Kane, G. (2015). Kroger Plans to Increase Its Market Share - Market Realist. Marketrealist.com. Retrieved 18 March 2016, from http://marketrealist.com/2015/09/kroger-plans-increase-market-share/
Mahoney, S. (2016). Wal-Mart Changes Small-Store Strategy. Mediapost.com. Retrieved 18 March 2016, from http://www.mediapost.com/publications/article/266844/wal-mart-changes-small-store-strategy.html
manta.com,. (2015). The Kroger Co. Manta. Retrieved 18 March 2016, from http://www.manta.com/c/mmccpfp/the-kroger-co
Snyder, B. (2015). 9 Absolutely Astonishing Facts About Walmart. Fortune. Retrieved 18 March 2016, from http://fortune.com/2015/06/06/walmart-facts/
Taylor, K. (2015). One grocery store's incredible success should scare Walmart, Whole Foods, and McDonald's. Business Insider. Retrieved 18 March 2016, from http://www.businessinsider.com/walmart-whole-foods-should-fear-kroger-2015-10
Thekrogerco.com,. (2016). The Kroger Co. - About Kroger. Thekrogerco.com. Retrieved 18 March 2016, from http://www.thekrogerco.com/about-kroger
