1.Problem Statement and Objectives
Implementation of Wal-Mart’s supply chain and success in India (in partnership with Bharati)
What is the significance of the problem in terms of strategic marketing to the firm?
* Cold chains [distribution chains for perishable items], warehousing and logistics infrastructure issues to be faced by Wal-Mart in India.
* Competition by Indian small-scale retailers: Cultural differences in Indian retail way and the wall-mart way, while unorganized small-scale retailers in India build a long lasting relationship with their customer, Wall-Mart’s relationship is mainly transactional.
* Lack of skilled employees, inadequate quality control and a variation in policy regimes across different states in India is a significant challenge Wal-mart would have to face.
Core competence of Wal-Mart:
Wal-Mart, due to its efficient logistic system and the ability to capitalize on every cost saving opportunity has provided them with a competitive edge over their competitors. The core competence of Wal-Mart is providing low priced products due to its excellent supply chain management including the following 3 sub points:
* Procurement and distribution: Minimizing reducing purchasing cost through procuring directly from the manufacturers and eliminating the intermediaries. Further, with strategically located warehouses at different geographical locations and each one ensuring a constant flow of goods through the use of technologies such as RFID makes it economical and cuts down the overall cost of operating the warehouses.
* Logistics management: Wal-Mart has its own transportation system. Having more than 7000 company owned trucks for its distribution purpose enables the shipping procedure within a short span of time. This provides a competitive edge over the competitors. Further Wal-Mart entertains a “pull strategy” in its supply chain. Wherever the demand for a product arises, the stocks are pulled from the manufacturers. * Inventory management: Wal-Mart makes use of various IT systems such as Bar-coding & RFID technologies that provides them with a competitive edge in managing inventories.
Wal-Mart brand image globally exists indirectly because of its well-managed supply chain. Thus in order to operate in India, Wal-Mart is required to replicate the same standard of its overall operation.
Core competence of Bharti: * Bharti has 152.5 million customers and it is very well known and established brand in India. Bharti can attract its existing customers to Wall-Mart Bharti outlets.
* Bharti is present in large part of India and Bharti’s presence would help the joint venture in scaling up the operation quickly.
* Bharti has built a huge network of suppliers, business partner across the length and breadth of India, this network can be very useful for Wall-Mart Bharti join venture.
* Collective brand power of Wall-Mart and Bharti will be a formidable combination.
* Bharati is known for its sales and promotion strategies
Identify and discuss current products, price, promotion/positioning, distribution (store formats) strategy and target markets/segments in detail. Products: Walmart is a multinational retailer; in short it has every product or a brand that a person could see in his day-to-day life.
Products available at stores: * Electronics & office products, * Movies, music & books, * Home, furniture & patio, * Apparel, shoes & jewelry, * Baby & kids care products, * Toys and video games related products * Sports and fitness related products as well as * Gifts, crafts * Pharmacy * Health & beauty and * Grocery products & pet Price * Extremely low priced – “always Low priced” * Lower priced than other retailers 10-15%
Promotion * Word of mouth * In-store promotional activities, which includes sales promotions through product bundling and its pricing strategies. * The pricing strategies adopted by Wal-Mart like “Everyday low prices”, “value of the day” increases the sales turnover. * The online store uses strategies to pull customer by attractive slogans like ‘Grab it before it’s done’ which pushes customer to take a purchase decision immediately before the deals get expired.
Positioned as a low priced retailer
Distribution strategy (store formats): has 9 different retail store format * Restaurants * Cash-and-carry stores * Membership warehouse clubs * Apparel stores * Soft discount stores * Bodegas (small markets), * Supercenters * Food and drug stores * General merchandise stores
Target markets/segments: * Wal-Mart's targeted demographic includes families and individuals with modest incomes- lower, middle class people. * Wal-Mart shoppers are typically interested in in the value and price of the products offered, and less interested in product branding.
SWOT-WALMART Strength: * Wal-Mart is world’s largest corporation and it enjoys high status and recognition, its status and recognition would help Wal-Mart in dealing effectively with locals in India- Brand name * Its distribution center and logistics capabilities are key strengths adding unmatched value to its entire value chain. * It has immense buying power when dealing with Suppliers. * Wal-Mart’s focused strategy for human resource management will allow the company to hire and retain the needed workers in India.
* Its effective inventory management gives cost advantage to sustain its Every Day Low Price Strategy. * As majority of target customers are price conscious in India its low price & customer focus would help Wal-Mart to build loyalty.
Weakness: * The supply chain model that Wal-Mart has developed is suited best for developed economy; it may not be efficient in county like India. * Wal-Mart traditionally has huge span of control but such huge span of control may not work in Indian context. * India is far more diverse country than any other country that Wal-Mart has operated so far. * Wal-Mart has not been very successful in internationalization; it failed in Germany and South Korea.
Opportunities: * Access to largest retail market worth $590 billion with only 2% of organized retail. * One of the fastest growing economies with growing middle class. * Wal-Mart can diversify from large super centers to local mall based sites.
Threats: * Wal-Mart is not the only global company eyeing for Indian retail market; competitors like METRO, Shop Rite have already arrived. * Local companies like Big Bazar, Spencer and Reliance Fresh know India retail market better than Wal-Mart * Diverse consumer behavior due to cultural diversity of India.
* Analyze financial information including: Net Profit, ROA, ROE, Leverage, Asset Turn, Gross Margin and Operating Expenses with at least a 5 year trend etc. in table format using percent or ratio comparisons and discuss in detail.
| | | | | | | | 2008| 2009| 2010| 2011| 2012| Growth per year| Net sales| 3,78,799| 4,05,607| 4,08,214| 4,21,849| 4,46,950| 3.4%| Cost of Revenue| 2,86,515| 3,06,158| 3,04,657| 3,15,287| 3,35,127| 3.2%| Gross Margin| 92,284| 99,449| 1,03,557| 1,06,562| 1,11,823| 3.9%| Operating Expenses| 70,288| 76,651| 79,607| 81,020| 85,265| 3.9%| Net Profit| 12,731| 13,400| 14,335| 16,389| 15,699| 4.3%| | | | | | | |
| 2002 Ratio| 2003 Ratio| 2004 Ratio| 2005 Ratio| 2006 Ratio| | Gross Profit Margin| 24%| 25%| 25%| 25%| 25%| |
Expense Ratio| 19%| 19%| 20%| 19%| 19%| | Net Profit Margin| 3%| 3%| 4%| 4%| 4%| | Asset Turnover| 2.32| 2.48| 2.39| 2.34| 2.31| | | | | | | | | | 2002| 2003| 2004| 2005| 2006| | Total Assets| 1,63,514| 1,63,429| 1,70,706| 1,80,663| 1,93,406| 3.4%| Net Worth| 64,608| 65,285| 70,749| 68,542| 71,315| 2.0%| | | | | | | | | 2002 Ratio| 2003 Ratio| 2004 Ratio| 2005 Ratio| 2006 Ratio| | Asset Turnover| 2.32| 2.48| 2.39| 2.34| 2.31| | ROA| 8%| 8%| 8%| 9%| 8%| | Financial Leverage| 2.53| 2.50| 2.41| 2.64| 2.71| | ROE| 20%| 21%| 20%| 24%| 22%| |
* Revenue: The growth of sales has been 3.4% per year for the 5 year trend, where as cost of revenue has been 3.2% with the gross margin as 3.9% year over year which is good. * Cost of goods sold: The growth of net operating expense has also been constant with 3.9% year over year. * Net profit: Wal-mart has been exercising a growth of 4.3% per year on net profit which very good and depicts a constant growth in profitability.
* Gross profit margin: Wal-mart is able to maintain a constant gross profit margin with 25% every year which shows the company as a very stable company. * Expense ratio: The expense ratio too has been at 19% each year for the 5 year trend. * Net Profit Margin: The net profit margin has increased by 1% in 2010 and seems to be constant at 4% by then. * Asset turnover ratio:
* Evaluate no more than 2 alternatives that would possibly solve the problem explaining your reasons for these options with the advantages and disadvantages. * Include marketing “growth strategies” to 1) promote/communicate, price and/or offer 2) new products or identify a 3) new target market in terms of profit outlook (e.g. high) and competitive threat (e.g. low). * Provide financial and current update since time of case in both written paper and oral presentation.