BUAD 497 Strategic Management Session 3 Walmart Agenda Mini case discussion of Trader Joe s ALDI WalMart case discussion Positioning theory application Emergence of WalMart IN CLASS CASE EXERCISE TRADER JOE S and ALDI Trader Joe s ALDI Exercise Recap Q1 What is TJ s ALDI s overall strategy What activities support this What tradeoffs have they made Are they on a lonely place on the productivity frontier Is this position sustainable Why Q2 Thoughts on the Ben Jerry s deal Q3 Online Groceries Why has ALDI embraced online delivery while TJ has not How does this relate to their strategic position Trader Joe s ALDI Exercise Recap Both stores Have small geographic footprints Have limited offerings less product depth Carry primarily private label store brands Offer quality products at reasonable prices Trader Joe s differentiation Unique products festive atmosphere taste testing both corporate in store perceived higher end new items ALDI low cost Staple products no frills limited customer service perceived value but not high end A Lonely Place on the Frontier Trader Joe s and ALDI have both arguably found a lonely place on the productivity frontier The choices each firm has made offers a unique value proposition and the interlocking activities make it tough for rivals to occupy the position Plotting firms and thinking about why this position on the frontier is lonely is a useful exercise Trader Joe s ALDI high d e r e v i l e d e u l a v r e y u b e c i r p n o N low high Relative cost position low A Lonely Place on the Frontier Fast Forward Industry Dynamics Lifecycle Change Case takeaway Both Trader Joe s and ALDI deliver quality products at reasonable low prices BUT their strategies are remarkably different While both TJ and ALDI focus on limited offerings and small stores TJ focuses on unique products higher end and a festive experience new items rotation test panels ALDI cuts costs at all costs carts staff shelving etc The activities for each firm fit extremely well this provides some form of insulation from competition Investment can also create constraints TJ has invested in experiences and people not technology ALDI has invested in suppliers and logistics These choices have implications for ability to offer online shopping note Amazon Fresh Positioning Approach to Strategy Establish a clear position by asking the question Where should we be and where Strategic logic should we not be Strategic Steps Identify a potentially attractive market position think types of positioning Locate a defensible position Fortify and defend Sustainability of Advantage A unique position where trade offs make it difficult or impossible for competition to imitate potentially because it erodes value creation in other areas Tightly integrated and reinforcing activity system supports core position Works best in industries with slower change and in well structured and established markets e g the dynamics of grocery have been fairly stable Potential risk or challenge Can sometimes be tough to alter the position when conditions change e g online groceries Source Eisenhardt Sull 2001 WALMART CASE Reflections on WalMart The fact that a formula business like Walmart could have gotten to that size it blows my mind Say the guy was down in the Southeast doing very well Now why wasn t there some guy who owned a few retail stores up in the Northwest saying Holy smokes this guy has a formula I m going to just take his bloody formula hire three or four of his guys and pay them big bucks And when he comes here he ll find he ain t gonna get economies of scale because we have already done it Why didn t somebody just do that It s an amazing thing Bill Gates 1994 How successful is WalMart If you bought 100 WalMart common shares at it s IPO in 1970 for 16 50 share how much do you think that would that be worth today 1970 WalMart IPO 300 000 common shares 16 50 per share Date 1970 May 1971 March 1972 August 1975 November 1980 June 1982 June1983 September 1985 June 1987 June 1990 February 1993 March 1993 Number of shares 100 200 400 800 1 600 3 200 6 400 12 800 25 600 51 200 102 400 204 800 Cost per Share 16 50 8 25 4 13 2 06 1 03 0 52 0 225 0 1275 0 0625 0 03125 0 01563 0 0078125 Type 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1 Price when split 47 00 47 50 23 00 50 00 49 88 81 63 49 75 66 63 62 50 63 63 89 75 Walmart has had 11 two for one stock splits since its IPO If you bought 100 WalMart common shares at it s IPO in 1970 for 16 50 share how much do you think that would that be worth today 27M Why is WalMart so successful Q Is the success attributable to the attractive industry in which WalMart competes Q What is WalMart s strategic position What are the sources of WalMart s competitive advantage What are some early choices WalMart made in terms of trade offs Q Is WalMart able to drive down its costs when compared to its competitors If so how Analysis of WalMart s Relative Costs Walmart Direct Competitors Difference Note 1993 data 100 75 1 100 72 8 0 2 3 24 9 27 2 2 3 10 0 10 4 0 4 Ex 6 Ex 6 Ex 6 Plug Plug Sales COGS Inbound logistics Shrinkage costs Gross Margin Advertising Rental Info System Payroll Misc Op Expenses Other Income Income Analysis of WalMart s Relative Costs Walmart Direct Competitors Difference Note 1993 data Sales COGS Inbound logistics Shrinkage costs Gross Margin Advertising Rental Info System Payroll Misc Op Expenses Other Income Income 100 75 1 3 7 1 7 24 9 1 5 3 0 1 5 10 0 2 1 18 1 0 7 7 5 100 72 8 4 8 2 0 27 2 2 1 3 3 1 3 10 4 7 5 24 6 1 3 3 9 0 2 3 1 1 0 3 2 3 0 6 0 3 0 2 0 4 5 4 6 5 0 6 3 6 Ex 6 Ex 6 p 7 p 9 Ex 6 p 4 p 5 p 8 Plug Plug Ex 6 Ex 6 Ex 6 Analysis of WalMart s Relative Costs Walmart Direct Competitors Difference Note 1993 data Sales COGS Inbound logistics Shrinkage costs Gross Margin Advertising Rental Info System Payroll Misc Op Expenses Other Income Income 100 75 1 3 7 1 7 24 9 1 5 3 0 1 5 10 0 2 1 18 1 0 7 7 5 100 72 8 4 8 2 0 27 2 2 1 3 3 1 3 10 4 7 5 24 6 1 3 3 9 0 2 3 1 1 0 3 2 3 0 6 0 3 0 2 …