1. Kinyatti Maina
Strategic Management
Case Study
Kroger Company
MissionStatement
Kroger Mission Statement is to be a leader in the distribution and merchandising of food, health,
personal care, general merchandise, and related consumable products and services. The objective
is the responsibility to shareholder, associates, customers, supplier and the communities they
serve.
Industry Analysis-Rating scale is -3 to 3 (3 is the most attractive)
Economic Characteristics
What is the size of the supermarket industry?
The supermarket industry is very large with few major plays. There many brands of
supermarkets with the top bland controlling most of the markets. Rating: -1
What is the growth rate of this market?
The growth rate is high in this kind of markets, the majority of the top supercenters have a huge
markets shares. Kroger has grown as a supermarket chains, its growth has come from acquiring
other smaller supermarkets and convenience store. Rating: -2
How many rivals in the industry and how large or how small?
There are thousands of rivals in the supermarkets/supercenter industry; there are small and large
supermarkets. The large supermarkets dominate the markets; these leaders are likely to rise due
to divesting underperforming business. Rating: -2
What is the scope of competitive rivalry?
2. The competitive rivalryisveryintense,Krogerhasfew maincompetitors.Ithasto compete withmajor
retailersuchas Wal-Martand Mash. It alsohas to compete againstmajordrug chainsthat are entering
the industry. Rating: -2
What is the industry pace of change of innovation?
The pace of change is very low; they cannot do something different that other supercenter can’t
duplicate. They might be able to produce a new product under their brand that will give them an
advantage. Rating: -1
What is the size of consumers large or small?
The size of the consumer is very lager. It has a market capital of 12.33 billion. This put them as
the leader in retail grocery compared to their competitor. There is a huge number of consumer
and will continue as long as the population grows. Rating: 1
Economic Factors Attractiveness rating- total score of factor 1
Porter’s 5 forces
How strong is the rivalry among competitors?
The rivalry among competitors is very strong, mostly against the major firm such as Wal-Mart,
Safeway and Ahold USA. These are the top competitors in this industry competing with Kroger.
Wal-Mart is the number on retailer in the United States, they compete on low price. Rating: -3
What is the availability of substitutes?
The availability of substitutes is on the higher level, the customer can buy products form similar
stores. The substitutes include local supermarkets or grocery store and pop &mom stores. This
small store can replace the larger one customer can find the product they are looking for and
maybe even cheaper prices. Rating: -3
Do the buyers have much power?
3. No the buys do not have purchasing power. The price the Kroger set is the price the buy must
pay, they can’t ask for prices to be lowered or how a product can be produced to meet customer
needs or demand. Rating: -1
Do the suppliers have much power?
No the supplier do not have power over how the products are going to promoted or the price that
Kroger is going to put on that certain product. Rating: 0
Is there potential for new entrants?
Yes, there are new entry in this market place but they newcomer are very small. There is a
majority of customers might want to stick with the brand their familiar to. The larger retailers are
competing on acquiring the market share by margin with smaller retailer or large one as well in
the market place. Rating 0
Competitive Attractiveness Rating= Total Score 5, 5 Total Rating 1
Driving Forces
Emerging new markets, there are not too many retails opening up in this market. The numbers of
supermarkets are growing as long there is a demand in the retail industry. The only new market
Kroger can enter is the drug markets place where they can open up a separate brand of pharmacy.
Rating -1
Health care, it has opened up pharmacy at its supermarket and it provides all natural food at its
grocery store. People are looking for healthier food or food products that are safe to eat. Their
plan is to sale fresh product.
Rating: 2
Cost control, Kroger new strategy is to reduce the operating cost, administrative cost to achieve
greater economic of scale and to reinvest in its core business to increase sales and market shares.
It also plans to narrow the retail price gap with major discounters which will widen prices
advantage over old-fashioned supermarkets competitor. Rating 1
Productivity, Kroger has a method to improve labor productivity, lower products costs, energy
conservation and administrative efficiencies. It wants to differentiate itself by offering
convenient shopping experience to its customer, such as pharmacy and high-quality outstanding
private label products. Rating: 1
Driving Forces Rating- Total Score of 4,4 Forces 1
4. Long Term Industry Attractiveness Summary- The retail, grocery store industry many attractive
potential, as long there is demand for grocery and retail products. This market will continue to
grow. The Kroger company growth will keep increasing even though the buy do not have much
power. This is an attractive industry.
Competitive Analysis
Strategic Map:
Low Price High
Kroger, retail and grocery product are on the high end. The prices depend on the product that the
customer wants but mostly it will be more expensive.
Wal-Mart is a low cost retail store. It compete on price, it is known to have the cheapest price
around. It targets low income families and mid class family. It forces to sale it product in volume
not on high prices.
Safeway, prices are in the middle they are not to high but not too low.
5. Key Success Factors: (Grade on the left-weighted grade on the right)
Factor Wt. Kroger Safeway Wal-Mart
Prices 3 4 12 3 9 2 6
Marketing
Capacity
3 3 9 2 6 4 12
Services 2 4 8 3 6 3 6
Number of store 3 2 6 1 3 3 9
Safety of
product
3 3 9 2 6 2 6
Total 44 30 39
Competitive Analysis Summary- Kroger is clear the leader with Wal-Mart not that far behind.
It has become a leader due to its banner of brands; it has reach out to different markets. It offers
customer the advantage of no-stop shopping experience.
6. SWOT Analysis
Strength
A high-quality asset that holds leading
markets share and fast growing metro
areas
Broad geographic diversity and
multiple retail formats
A successful track record of competing
against supercenters
Industry leading corporate brand
products
Weakness
Quality Control Lapse
It obtains a substantial portion of its
merchandise from suppliers that it has
limiter control over
unionized workforce puts it at a
competitive disadvantage when
compared with its peers Wal-Mart
it has faced a relatively long list of legal
issues
Opportunity
It also continues to develop its private
brands as a strategic asset.
decreasing its dependence on national
brands
increased promotions of its own
products to14,000 brands
Strategic Expansion Plans
expansion plan which entails store
relocations and store remodeling and
new store openings
Increase capital
$1.8 billion in 2007 to $2.1 in 2009
Threats
Increasing Labor Costs
326,000 employees are covered by
collective labor agreements
local unions and several different
international unions
increase in benefits and wages
High Debt Burden
a drop of 60.5% in the US Consumer
Confidence Index
8. Gross Margin
2008 2009 2010
23.38% 23.23% 22.29%
Gross Margin Ratio: The margin ratio has been increasing since 2008-09. It took a small
downward curve in 2010; this is due to a slowdown in the economy. The margin is very high
which make it a leader in this industry.
21.6
21.8
22
22.2
22.4
22.6
22.8
23
23.2
23.4
23.6
2008 2009 2010
Gross Margin
Gross Margin
9. Profit Margin
2008 2009 2010
648/70.24 717/76 532/76.73
9.1% 9.4% 6.9%
Profitability:
Kroger has had a good deal of profitability from 2008-09, It was the highest in 09 and the
decrease in 2010. This company is attractive to the investor because it has shown that it can keep
a stayed profit margin.
0
1
2
3
4
5
6
7
8
9
10
208 2009 2010
Profitibilty
Profitibilty
10. Current Ratio
2008 2009 2010
7,114/8,689 7,206/7,629 7,450/7,714
8% 9% 9%
Current Ratio & Quick Ratio
The company has stayed above 8 percent; in 2009 it reached 9 percent. This means that the
company has enough money to pay back its debt.
7.4
7.6
7.8
8
8.2
8.4
8.6
8.8
9
9.2
2008 2009 2010
CurrentRatio
CurrentRatio
11. Total Debt to Asset Ratio
2008 2009 2010
8,689/22,299 7,629/23,211 7,714/23,093
.38% .32% .33%
Total Debt to Asset Ratio:
This is an unattractive trend for the company. In all of the three year it has below 1percent. This
will make it hard for the company to get loans. The investors will have a hard time deciding
either to invest in this company or not.
0.29
0.3
0.31
0.32
0.33
0.34
0.35
0.36
0.37
0.38
0.39
2008 2009 2010
Debt to Asset
Debt to Asset
12. Return on Assets
2008 2009 2010
1,827/22,299 1,966/23,211 589/23,093
.08% .08% .02%
Return on Assets:
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
2008 2009 2010
Return on Assets
Return on Assets
13. Corporate Strategy Recommendations:
Should we remain concentrated, or diversify?
Kroger should remain diversify, in their present strategy as a long term. The industry is attractive
there more buyer in the market place. Since Kroger is one of the leading retail/grocery stores in
the US and a major competitor in the industry.
Feasible? According to Kroger financial, SWOT analysis and the grow of the company this is
feasible
Functional:
Marketing Kroger retail store and grocery store are located down south and the west. It would
increase the company growth if they were to be brought up north, in areas like New York and
Boston. The company also has to increase the level of advertisement.
Operations- Kroger is stores are in 32 states, the new operation will be to expand to other states.
By expanding, this will bring in more revenue and a stayed growth. Also to increase the size of
the department stores and the same time keep the cost at a lower level.
Finance-
How you plan to Finance? The way we are going to finance this operation is by using the profits
to fund the project. Another way we can finance is to find investors, who are willing to invest in
the new strategy.
Reactions by competitors
The competitors may not like this move and they may also try to expand in the new locations.
They might expand as well too or try to enter the new market place before we do.
Counter reaction
14. We also want to one step ahead of the competition; we want to do a research early before
entering certain markets to make sure that we have an advantage of the market share.
