The alpha case study

Another homework ..let me know if you can help ..this is last homework to my course.

Case Study---Alpha

Rationale:

Thiscase isdesigned to reinforce some ofthe issuessurrounding the use ofthe‘Change’materialsthat are discussed in thisweek’slecture. Youwill also need to drawonmaterialsfromthe earlierlectures.

Aswithmostcase studies,there is notenough definitive informationto answerthequestions,so youwill need tomake,and justify,a number ofassumptions.

Awinning formula

Alphawas one ofthefirst companiesin theUSA toinvestinlarge, edge-of-town superstores,with amplefreecar

parking,sellingfood andrelated products.

Alphawas createdinthelate1950sas asubsidiaryofamajorpubliclyquoted retailgroup.Itstartedbusinessby openingastring ofverylarge discount storesinconvertedmill andwarehouse premises.Inthe earlydays shopperswereofferedalimitedrangeofvery competitivelypriced products.

WhenAlphawentpublic in 1981it was thefourthlargestfoodretailer intheUS,sellingan ever-wideningrangeoffoodandnon-foodproducts. Itssuccesscontinuedto bebased onhighvolume,lowmargins andgoodvalue formoney(under theslogan of

‘Alphaprice.’)

Achangeof strategy:thepursuit ofhighermargins

In1984Alphabegantoshifttowardsanewstrategyfocusedonraisingmargins.A rangeofnewinitiatives involvedseeking efficienciestoreducecostsandintroducing more high-margin productssuchas preparedfoodsandawider rangeofnon-fooditems.

There was alsoadrive to expandinthenorthandthenorth-east oftheUSA,where customers hadgreater spendingpower:

·    Thisexpansionpolicy was slowtogetoff the ground,partlybecauseplanning permissionsfor largeretaildevelopmentswere moredifficultto secure inthe north,wherethe price oflandwas significantlyhigher and manyofthebestsiteswere alreadybeingdevelopedbycompetitors.

·    Saleswere lower thananticipatedbecauseAlpha’s value-for-money imageanditsrelatively austere storelayoutstendedtobeunattractive to relatively wealthy northern customers whowere usedtoshoppinginmoreup-marketstores. Alpha attemptedto brighten upsome ofitsstoresand furtherdistanceitselffromits‘pile-them-highandsell-them-cheap’ imagebutthis didnotgenerate theanticipatedcontribution tooperatingprofits.

·    Another(related) problemwas thatlong-standingcustomers inthesouthoftheunited States (where thecompanyhadinitiallybuiltits business)appearedtobeconfused by whatAlphawas beginningto offerthem andmanyswitched theirallegiance tonewcut-priceretailers whowere more focusedonofferingvalue for money.

Diversification

Towardstheend ofthe1980s senior managementbegantoconsider thepossibility thatsaturationmightlimitfuture growthinfoodretailing,andthedecisionwas taken todiversifyinto non-foods.Some ofthemostnotableacquisitions included:

·    1986- BetaDepartmentStores(with over sixtyprimecitycenter ‘high- street’ sites)

·    1987- DeltaRetailers(agroupwitha number ofwell-knowncarpet, softfurnishings,andfurniture brands).Unfortunatelythis acquisitiondidnotmaketheanticipatedcontributionto profitabilitybecause

recessionaryandcompetitive pressuresin the early1990s ledtoheavydiscounting.The furniture businessfairedworst andwas soldin1990.Whiletherecessionhit thecarpetretail businessit continuedto makemodestprofitsandby1991 hadimprovedtothepointwhere itwas decidedtoexpand thissideofthebusiness.

·    1989- Alphamergedwith theZeta Furnituregroup.Thismerger,one ofthebiggestinUSretailingup tothatpoint,was another disappointment.Alpha-Zetaattributedthepoor performancetoone-off problems,such asanewrange ofkitchens thatfailedtosell.Itwas anticipatedthatthe problemswouldbeshort-lived butperformance failedto pickupas expected.

·    1992- Alphalaunched‘Alphadrive’,acar-retailingbusinessatsitesadjacentto5 ofitssuperstores,with theintentionofrollingit outtoabout70percentof allsites.

Refocusing on the corebusiness

Followingthemerger withZeta,Alpha-Zeta’ssharessignificantlyunder-performed. In1992thecompanysurprisedthemarketwitha major change ofstrategy.Insteadofcontinuingwith the policyofdiversificationitdecidedtorefocusonthe Alpha superstores.

The Alpha-Zetamerger endedwitha managementbuy-outofZeta(although Alpha thenboughta25percentstakein thisnewcompany). Alphadrive andmost ofthe Betadepartmentstoresbusiness were alsodisposed of anditwas intendedto disposeofthe carpets business.However, followingthecollapse ofthe equity market,itprovedimpossible toobtaintheanticipated profitfromthesaleofDelta Carpets,sothebusiness was retained(andlater expandedwith theacquisitionof GammaCarpets in1995).

In order to developthecore business it was decidedtoinvestupto2.5 billion$ over aperiodof 42months. Mostwas earmarkedfor acceleratingtheopening ofnew stores,especiallyin theNorth,butthere were alsootherdemands.Alphahadlaggedbehinditscompetitors ina numberof areas:

1.  Own-label products:Themaincompetitors toAlphainthesupermarket sector hadallinvestedheavilyinown-label products(thatofferedhighermargins andbetter valuetocustomers) whereas Alphahadonlystartedto introducethem inthemid-1990s,andona muchsmaller scale.

2.  Computerized point-of-sale(POS)equipment:Competitorshadinvestedheavilyin technologythatimprovedstock control and providedbetter customer service atcheck-outs.

3.  Centralized distributionnetworks:Thecompetitionhad alsodeveloped centralized distributionnetworks forfreshfoods thatpushed downcosts,enabledstorestoreceivefewer ‘JIT’deliveries fromvehicles carryingfull loadsandreducedtherequirementfor store relatedwarehousingspace.

4.  Store refurbishment: Alphahadneglectedmanyofitsstores,whichwerebeginningtolook very tired andinurgentneedofrefurbishing.

Alpharecognized the needfor investmentinalltheseareas.

Aleap forwardthat contributedtoamajor debtproblem

In1997aconsortiumthatwas planningtobuyanother largeUSsupermarket groupagreed that,iftheirbidwas successful, theywouldsellsixty-twosuperstores to

Alphafor$2 billion.This was seen asaveryattractive proposition.It offered Alpha thepossibilityofmakingupfor lost groundandregainingits oldposition asthefourth largestUSfoodretailer. It also promised todoublethenumber ofAlphastoresinthe NorthofUSandcontributeand extra2billion$ tosales.Alphaboughtthestoresin September 1997.

Alpha’sperformancefollowingthe purchase ofthenewstoreswas poor.Profits weredown andAlpha’s25% stakeinZetacontributedaloss. TheDelta-Gammacarpetsbusinesswas alsointrouble.Alphahadnetdebts ofover 2billion$fromtheend of

1997.Alpha’s shareprice begantoslidecomparedwithmajor competitors andin August1998it droppeda further30percent.Theannouncement ofanissueof new shares toraisecapital attheend ofthemonthledto anothermassivefallinthe shareprice.

The appointmentofTom Stafford

TomStaffordwas offeredtherole ofCEOinOctober 1998andtookuphisappointmentinDecember. Bythetimehe arrived thecompany was fastrunningoutofcash.

Hefoundacompanythatwas bureaucratic,hierarchical andhighly centralized. Therewas alargeheadquarters stafflocatedinthenewcustom-buildAlphaHouse. Directors hadlittlecontactwith theirsubordinates.Theculture was risk averse. Peopleatalllevels appeared tobeintimidated bytheir bossesand toldthem what theythoughtthey wantedtohear.Theyalsoseemedreluctantto take anyinitiatives thatwouldcallattention tothemselves.Moralewas low.

The tradingdepartmentwas dominant.Buyers,locatedatAlphahouse,determinedwhatthestoreswouldsellbuttheyhadlittlecontactwithstoremanagers. Thenew CEOhadconcernsaboutboththequalityof managementand theapparentunwillingness,throughouttheorganization,tomakebest useofthetalentthat existed.

Storemanagersfelt ignoredandfounditimpossibleto haveanymeaningful inputto thinkingatAlphahouse.Therewere also problems withinstores.Vertical communicationwas poor andcustomers were notvalued.

Question:Ifyou hadbeenTom StaffordinDecember 1998,whatwould have beenyour strategyfor change,and howwouldyou have implemented it?

From Alpha case study: Question is

Question:Ifyou hadbeenTom StaffordinDecember 1998,whatwould have beenyour strategyfor change,and howwouldyou have implemented it?