slides

Amazon………………………………………………………………………………………….14

Walmart………………………………………………………………………………………….16

SWOT Analysis………………………………………………………………………………….18

Customer Analysis……………………………………………………………………………………….21

Industry Segmentations…………………………………………………………………………..21

Targeting Strategy………………………………………………………………………………..23

Marketing Position……………………………………………………………………………….23

Positioning Map………………………………………………………………………………….24

Customer Motivation…………………………………………………………………………….24

Appendix………………………………………………………………………………....26

Reference List……………………………………………………………………………………………28

Industry Definition

Demand-Side. The grocery industry consists of all companies providing products that satisfy the physiological need for sustenance. A secondary need that the grocery industry satisfies is the need for certain foods because of reasons like dietary restrictions, income, or personal preference for example. Further than that, customers also need ingredients to make their own food.

Supply-Side. The grocery industry that we are analyzing consists of all companies that sell food and drink products on a global scale. The company can sell items other than food products, but they need to offer a large variety of edible products beyond basic necessities. This is because a store that offers just basics like milk and bread don’t have the same bulk-buying and cost leadership strategies because they buy significantly less food. The grocery store can also contain other businesses within it that don’t sell food, or produce some of the food it sells, as long as it also gets premade products from suppliers. The additional items and businesses in the grocery store don’t detract from their statuses as grocery stores, it just means some of the businesses could potentially be classified in other industries as well.

Substitutes. Companies that provide sustenance but create the meal themselves like restaurants or fast food businesses are not included, but can be considered substitutes for grocery products. Convenience stores are not included in the grocery industry because they sell a limited amount of food products. Specialty stores like bakeries and delis are not included in the grocery industry because they don’t have the variety of typical grocery stores, and often produce much of their own products. Another substitute are companies that deliver food or groceries to people’s homes.

Situation Analysis

Industry Structure Analysis.

Risk of Entry by Potential Competitors.

Impacts on Profitability. New competitors are coming in the form of top online retail companies like Amazon developing brick and mortar locations to used as distribution centers for e-commerce orders, and acquiring Whole Foods. The need for a customer-friendly online ordering system with reliable delivery and secure technologies is becoming the must have to avoid the loss of profits from new competitors and is projected to be a growing customer expectation in the future (Singh, 2017). Kroger’s market value has already been hit by Amazon’s acquisition, and they didn’t release a long-term forecast, signaling issues with their future. (Giammona, 2017a).

Strength Conditions. Across the industry the risk of entry by potential new competitors is weak. This is due to in part to large barriers to entry because of capital accumulation and brand names, meaning potential entrants would have to master the industry fast and gain immediate positive brand recognition to survive in the grocery market. Many leading companies have the benefit of fast, affordable distribution systems that can deliver delicate, perishable cargo while avoiding spoilage (Dodson, 2017). Companies like Walmart and Amazon have the large capital requirements needed to make these changes whereas this capital requirement would be astronomical for companies considering joining this industry. From a supply standpoint Walmart’s estimated 21.5% market share of the grocery industry and tendency to buy in bulk gives them a cost advantage from economies of scale, even compared to other well-known grocery stores they have a size advantage (Daniels, 2017).

Walmart has the incumbency advantage of prime locations that cover most of the rural parts of America. This is one advantage, because of Walmart's stores vast geographic placements, that not even well-established brands like Amazon can currently compete with, much less potential new entrants (Dodson, 2017). The new entrant would also have to overcome government regulations that come with the business of selling food. The food and drug administration’s regulations pertaining to sell by dates and cooler temperatures is something Walmart has obviously overcome given their success in the industry. These conditions among many others keep entry into the industry at a low level. Companies that do overcome the boundaries on a small scale could have the potential impact of creating a situation of overcapacity in the industry, do not have the means to be a threat to Walmart the industry leader (Anderson, 2017).

Threat of Substitution.

Impacts on Profitability. Changing customer preferences could hurt profitability in the grocery industry; when, for example, consumers don’t feel like cooking and choose to go out to eat, the grocery stores miss out on their business. There is a price ceiling on what the grocery stores can charge for their products to a certain extent. If they mark up the food items too much it would be cheaper for customers to shop around or order in bulk online, which would hurt profitability.

Strength Conditions. The threat of substitution in the grocery industry is low. The current alternatives to satisfy the need of hunger don’t fare as well in a price to performance tradeoff when looking at feeding an average American family. An average American family is classified as four people, and on average it costs $6,759.00 per year to feed a family of this size (Brandeisky, 2015). Substitutions to obtaining food from grocery stores would be eating out, purchasing items at a farmer’s markets, purchasing meal kit box’s online, or hunting and farming one’s own food.

While eating out may be a quicker option due to potential home meal preparation times, depending on the restaurant of choice, it comes at a much larger financial cost especially when feeding an entire family (Brandeisky, 2015). On the opposite end of the spectrum, hunting and farming is more time consuming, yet could be less of a financial strain on the household. The lack of a similar substitute is what created this weak threat of substitution. Shopping at a farmer’s market or ordering meal kit boxes online would be more in the ballpark but considering Walmart’s focus is on low-cost leadership even these options would be incredibly expensive to normal Walmart consumers (Cao, 2017). Diverting to any of these alternatives would come with relatively high switching costs whether that be in monetary value or time. If consumers do not have many other options when it comes to low-cost and efficient acquisitions on food because of their location, Walmart does not need to be worried about the weak threat of substitution. If there are other similar grocery stores nearby, Walmart could have issues with customers being brand loyal to the more expensive options, because usually they have to compete with their lower prices.

Bargaining Power of Suppliers.

Impacts on Profitability. If suppliers were more powerful they could raise their prices when there are delivery issues that increase costs. Suppliers shifting costs to the industry or changing the order sizes hurts profitability, but because there are so many suppliers and it’s usually easy for grocery stories to get the same products elsewhere unless it’s a private label, suppliers have weak bargaining power in the grocery industry.

Strength Conditions. The large grocery retailers can obtain discounts by buying in copious quantities. Walmart makes up an estimated 21.5% of the grocery industry, which means they need a lot of suppliers to serve their portion of the market (Daniels, 2017). Having Walmart as a customer can be somewhat of a double-edged sword. Doing business with Walmart gives suppliers little to no say in negotiations. This is because most of Walmart’s grocery products are undifferentiated, therefore they could be produced by many suppliers, and the huge grocery stores will often buy a sizeable portion of the supplier's products. These conditions are some of the reasons suppliers bargaining power is weak. Having the powerhouse retail company that Walmart is as a client can be great when you’re keeping them happy, but catastrophic if they’re expectations are not being fulfilled (Kaye, 2013).

Amazon’s acquisition of Whole Foods is also starting to have ramifications for suppliers in all areas of the grocery industry. Companies are cutting supplier’s margins to stay competitive, and suppliers are struggling to protect their shelf space. Tara Lachapelle speculates that suppliers will have to turn to mergers and acquisitions to gain any power in the changing industry (Lachapelle, 2017).

Bargaining Power of Buyers.

Impacts on Profitability. Buyers are more powerful when they are price sensitive, and may pass on a purchase if they perceive the price to be too high. Buyers are especially influential if they are in the position to demand more quality but they’re unwilling to pay for it, and when they can play competitors against each other. Depending on the city size and proximity of competitors, customers can easily shop around for the best deal. The more bargaining power buyers have, the lower the profitability of an industry.

Strength Conditions. The bargaining power of buyers within the current state of the grocery industry is described nicely by Mark Ryski, the founder of HeadCount Corporation. He said, “There are too many stores selling groceries. At the end of the day, consumers will decide who the winners and losers will be, but until then it will be painful for the grocery retailers and good for the consumers” (Anderson, 2017, para. 5), meaning in this industry the bargaining power of buyers is high.

Generally speaking, grocery products are standard and there is not much differentiation store to store, so customers have low brand loyalty and can be classified as price sensitive in this industry. While historically Walmart has been the low-price leader in the industry, other companies are becoming more competitive by offering lower prices (Heller, 2017). Customers wanting the best deal now have more options to choose from when doing their shopping and with little to no switching cost buyers can use these conditions to play competitors against each other.

Walmart, who must uphold their reputation for low prices, will need to draw customers in with more than just their low-cost leadership. Buyers have the bargaining power to demand more services from the retailer and if that's not met buyers can take their business elsewhere. Walmart has started putting programs in place to retain their customers, including their online ordering and pick-up services (Corkery, 2017). They are also working on new distribution systems with the hopes of lowering their shipping costs for e-commerce orders. These include having employees deliver orders on their way home from work (Bhattarai, 2017). These programs all come as an expense Walmart must incur in order to satisfy their highly powerful consumers, so they will continue to their shopping at Walmart.

Intensity of Rivalry Among Established Firms.

Impacts on Profitability. Price wars between companies hurts the overall profitability of the industry; an example is Walmart’s policy of taking other competitor’s coupons, which takes business from other companies and forces Walmart to lower the price on an item. Rivalry can also be expressed through increased services, which can be costly for individual stores, but in the long run may increase profitability if they add enough customer perceived value. An example of that is how the grocery industry is currently entering a new service and distribution channel of home delivery. Amazon was already gaining share in the grocery market and with their recent acquisition of Whole Foods they are the clear leader in the grocery delivery segment of the industry and therefore a major competitor to Walmart (Singh, 2017). Dick Boer is the chief executive officer of Royal Ahold Delhaize NV, which own more than 2,000 east coast brick and mortar grocery stores, and Mr. Boer estimates by the year 2025 as much as 15% of grocery purchases will be made online (Giammona, 2017b). This is a large amount of business most brick and mortar stores cannot afford to lose.

Strength Conditions. Rivalry in the grocery industry is at an all-time high with companies finding new and innovative ways to get food on consumer’s tables. Since its beginning Walmart has always dominated the low-price leader position, but with companies like Aldi growing rapidly and challenging their status, Walmart has had to make some adjustments recently. Profit margins in the grocery industry are very small. Most retailers only stand to make 1%-2% profit off of items they carry. This small margin causes the pressure to cut prices to fall on the suppliers. In Walmart’s case they needed to minimize prices by percentages reaching all the way up to 15% to remain the low-price leader (Heller, 2017).

These strong competitive contenders like Aldi, Lidl, and Target all carry mostly undifferentiated products. Owner of Tony O’s Supermarket and Catering, Tony Orlando broke it down departmentally saying, “all the major dry goods and dairy categories have been priced down to no profits, so unless the store owners know how to provide gourmet deli/bakery and meat departments, they stand no chance of staying in business today” (Anderson, 2017, para. 12). Orlando’s grocery chain is much smaller than the bigger names which means he is already at a cost disadvantage due to economies of scale. Yet differentiating his profitable department items may be easier than it would be for a big-name store who is competing for low-price leadership.

Walmart has made many steps to compete including a process they started working on two years ago where customers make their grocery selections online and then an employee does the shopping. The customer then picks up their already packed groceries at their Walmart store in a fast-food-drive-through fashion. This method has proven to be the most successful of their ideas so far due to their wide variety of geographical locations (Corkery, 2017). Grocery companies are seeking these differentiation approaches because they all aspire to be the leader in the market. These conditions lead to a greater amount of customer service being offered to customers through services like Walmart’s drive-through pick-up services.

Profitability Analysis. The grocery industry as a whole is an 800-billion-dollar industry, so while it is profitable, it is not incredibly attractive because of their very small profit margins (Daniels, 2017). Retailers who specialize in low-cost leadership most commonly see margins of only 1%-2% on the products they sell, Walmart being no exception to this industry norm (Heller, 2017). Retailers who specialize in premium, natural, and minimally processed foods tend to average higher margins of 2.5% or more for the products they sell (Cohan, 2017). In the United States, the revenue of an average supermarket is about 15-20 million dollars. This average has a range of 5-50 million dollars which shows the vast variety of revenues in the industry (Weitz, 2013). This is another reason this industry is not as attractive because while some company’s revenues are impressive others show an incredible struggle to stay afloat in this highly competitive market. This industry is currently evolving with the addition of e-commerce, meaning at this time it is not enough just to be profitable. Companies need large enough profit margins that will enable them to invest money into programs that will launch them into the future of e-commerce.

Retailers find that major categories like dry foods and dairy must be marked down so much to stay competitive that they do not even make a profit and some items even put the company in the negative. Competitive grocery stores really only earn profits from their deli meats and bakery departments (Anderson, 2017). The grocery store focus, whether it be on fresh premium products like Whole Foods, or low-cost leadership like Walmart, will determine what departments are most profitable for each store. Bruce Weitz is the former CEO of King's Supermarkets and says

“Generally, the average supermarket's cutout of total sales breaks down as 50% in grocery (the stuff in the aisles and on displays), 15% in dairy and frozen foods, 10% plus in produce/floral, 10% in meats, 4% in deli and fresh bakery, and the balance in general merchandise/ health and beauty care/ Rx and wine/ liquor and beer (where available by state laws)” (Weitz, 2013, para 2).

Grocery stores rely heavily on the sales of their small percentage of profitable products making up for the shelf space and square footage non-profitable items use up. For competitive reasons it makes sense for them to continue carrying products that have a negative effect on profitability, because those general necessities are what bring customers into the store. Companies hope that the one-stop shopping convenience will have positive effects with the customers also purchasing profitable items as well.

The environment of the grocery industry is changing with industry leaders like Walmart adding online ordering capabilities to their average brick and mortar store fronts. This factor is currently squeezing profit margins as the programs are being designed and tested, but there are estimations circling in the industry that by the year 2025 as large as 15% of grocery purchases will be made online (Giammona, 2017b). Therefore, while the cost of getting these advancements up and running are affecting profits now, they should pay off in future profits for the early adopters choosing to implement them.

Profitability in this industry can be highly affected by factors such as holding costs. Companies like Walmart that sell groceries on a large scale find that deliveries made early or late dip directly into their profits. Walmart’s recent program where suppliers are being punished for deliveries that are not on-time and in-full aims to increase revenue by one billion dollars which would positively impact their profit margins. It is reasonable to believe that other companies that have as much power over their suppliers as Walmart does may start implementing similar rules with fines attached in order to increase their personal profit margins, and increase the overall profit margins of the industry (Boyle, 2017).

The oversaturation of the grocery industry now looks to be headed towards the weeding out of small competitors who do not have the capital to keep up with the grocery industry expanding to e-commerce methods of sales. The elimination of these competitors has the potential to weaken the power of the buyers because they will have fewer companies to play against each other when searching for the best price. That being said, the intense competitive rivalry of the industry leaders could perpetuate the price wars currently impacting the profitability of the industry, and by consequence the industry could continue those negative impacts in the future (Anderson, 2017).

Environmental Analysis. The current environment of the retail grocery industry is affected by many macro environmental factors that are very important for managers to recognize to stay relevant as the environment changes over time. Adapting to factors such as changes in government laws and regulations is one thing the industry must keep up with. The effects that government's policies have on the industry could be both positive and negative. The government offers loans and subsidiaries to companies to help them grow more rapidly but also imposes regulations that dramatically increase costs and put companies at risk (Hermes, 2014).

Technology is another macro environmental factor which plays a key role in the industry. Advancements such as grocery sales via e-commerce technology helps companies to sell more products to a different type of market. Technological advancements in production lines can also cut costs on products and give companies a cost advantage or help to create and develop new products which can differentiate their company (Mack, n.d.).

The grocery industry also sees fluctuation because of the state of the economy. Economic stability corresponds to higher consumer incomes, which lead to sales increase. However, a less stable and riskier economy leads to consumer uncertainty, which correlates with decrease in sales and prices. One beneficial result about the grocery industry is that when times become more difficult economically for consumers, they tend to spend their money at the grocery store instead of on more expensive substitutes, like eating out at restaurants (Mack, n.d.).

The trend of ordering online and having items delivered to your house started in other retail industries but is making its way into the grocery industry. Developing innovative technologies in order to combat issues of spoilage and other problems have been in the works among companies (Giammona, 2017b). Another trend that has been seen in the industry for a couple years now is the health and wellness trend. There has been a larger focus on companies offering organic and less processed foods. Natural foods grocery stores have begun to pop up and take over parts of the market share, as well as in existing grocery stores like Walmart, which is expanding their selections to cater to the new consumer want (Hartman, 2015).

The key success factors in this industry are low-cost leadership, and early adoption of new trends. For example, Walmart retains the largest percentage of the market share by far because of their ability to do both of those things. They have been the low-cost leader almost since the beginning of their existence and while they are now seeing competition from some German brands like Aldi, they are combating those threats and remain at the top (Heller, 2017). Adopting new trends is something that is necessary for any company in any industry to do in order to stay relevant to their consumers’ wants and needs. Walmart was not the company to start a delivery system for grocery items, but since the idea was introduced to the industry they have jumped on board, creating systems which allow them to fulfill those desires of their customers (Corkery, 2017).

Competitive Analysis

Target. Target is a major competitor for Walmart, especially as they try to capitalize on their grocery segment. Even though they only have about 2.7% of the market share, they still have several strengths that set them apart from their competitors. First, they have recently made the decision to raise their minimum wage. While most of the grocery stores in the United States follow the federally determined minimum wage, Target has determined their own. They have set their wage at $11 an hour and have plans to raise it to $15 by the end of 2020 ("Target raises minimum," 2017). Target is also known for investing more in its employees than other stores, which makes the employees happier and provide better customer service. Their employees have significant chances of being promoted to leadership roles which encourages a positive environment and their tuition reimbursement program is a perk that attracts many millennials.

Along with caring for their employees, Target also has a wide variety of organic groceries, which is something that Walmart lacks. With the upward trend in health-conscious behaviors, Target has a major advantage with their organic and fresh foods strategy (“Wellness,” 2017). One final strength that Target possesses is that it has a wide variety of products other than groceries, making it more of a one stop shop like Walmart. Living fast paced lives leaves customers hardly any time to make multiple stops at different stores to get all the things people need. Stores like Walmart and Target have catered to their needs by providing groceries, electronics, toys, toiletries, and other departments people might need in one location (Pasquarelli, 2017). This also means that Target is not relying solely on its grocery game for their profits; it has many other places where it can bring in revenue.

Even though Target is doing a lot of things right, they do have some weaknesses. Target tends to be thought of as a more expensive Walmart which is harmful to their reputation. Most of the time, their prices are about the same as Walmart's and they are trying to get rid of this generalization about their prices. Another weakness is that Target is not as known for their grocery section. However, grocery made up 22% of their revenue in 2016, which was more than apparel, home-furnishings, and hardlines, which shows an improvement from past years (Halzack, 2017). A final weakness for Target is that its presence online is nothing compared to Amazon and Walmart. If Target is going to keep up with its competition, it will need to revamp its online game. It will need to focus more on groceries being available online to remain competitive with recent changes in the industry.

Based on an analysis of Target's strategy, it is apparent that they utilize an integrated cost leadership and differentiation strategy. They maintain low prices while offering a shopping environment that is much different than their competitors. Their "Expect More, Pay Less" motto brings this strategy to life. They do this by promoting their brands such as Up & Up, Market Pantry, and Archer Farms. These brands all provide a higher class feel than Walmart's Great Value brand while still being affordable. Target uses a challenger warfare strategy by coming up with creative advertisements and making more bold statements with their advertising and products. They have been using their new "Target Run" advertising campaign as well as making bold decisions about business relationships thanks to their new Chief Marketing Officer, Rick Gomez. Their decisions and tactics are constantly keeping Walmart on its toes (Pasquarelli, 2017). Target has used the diversification strategy to try to gain market share in the grocery industry by offering a wider variety of grocery products in its stores. It focuses mainly on health-conscious people which makes them a threat to Walmart and other grocers.

Amazon. Amazon may not be known for groceries yet, but it's going to be. Amazon poses some serious threats to Walmart, even though it doesn’t have a great share of the grocery market on its own. In 2016, Amazon held 0.19% of the market share in the industry, but that is expected to rise (Berk, 2017). Despite their small share of the grocery market, Amazon has some major strengths. First, they obviously capitalize on the online trends because they are available solely online, which is huge to millennials. While there had previously been only two pure play e-tailers: Amazon and Overstock, Walmart is slowly gaining on the online market space (Versaw, 2017). Along with having the best online presence when compared to Walmart and Target, Amazon has acquired Whole Foods, which previously owned 1.4% of the grocery market. This is going to make a huge impact on the grocery industry. With millennials ranging from 17 to about 35 years old, there has been an increase in shopping online as well as ordering groceries online. Stores like Walmart, Hy-Vee, and Schnucks are offering to do the shopping for you and having the items ready to pick up whenever you need them (Peterson, 2017). Finally, Amazon’s wide array of products makes it very easy for people to get a lot of what they need online, and have it delivered to their door steps. While Walmart offers a physical location, and has a great online presence, Amazon has a much wider selection of products.

Amazon also has some weaknesses that need to be improved upon if they want to be a major grocery competitor. First, people born before millennials are not as concerned with shopping online, which makes Amazon's lack of physical locations a major weakness. Amazon is working on this, but so far, Amazon has been missing out on a major share of the grocery industry because of this. Also, the issue that older people might not trust groceries that they can buy online. Some older generations would not be used to this and would be more likely to question it, when they can just go to the physical store down the street. Another factor that ties into that is that it's not always about convenience, people do enjoy the experiences they have at grocery stores. They want to go to a physical store, see associates, and get the help they might need (Skrovan, 2017).

Based on an analysis of Amazon's generic strategy, Amazon utilizes the hybrid of cost leadership and differentiation strategy. Their main goal is to offer a low price to their customers. They try to minimize operational costs by using advanced computing systems and networking technologies. Amazon strives to improve their information technology to build a competitive advantage in e-commerce (Smithson, 2017b). They invest in R&D heavily to help IT performance, and they often strive to minimize prices. An example of Amazon’s diversification is their Kindle, which succeeded in the e-reader industry by offering an enormous array of titles and making them easily downloadable (Kim and Mauborgne, 2015). Not only do they operate as a bookstore, Amazon is a general retailer, TV show producer, and music seller to name a few. Amazon has been successful so far implementing the hybrid strategy; they have grown to be a bigger overall retailer than Walmart (Page, 2015). One thing that sets Amazon apart from its competitors is that it bases its marketing and segmentation strategy on individual customer’s purchasing behavior, which helps transition occasional buyers into long-term value (Bhasin, 2017).

Walmart.

Generic Strategy. When it comes to Walmart, they have 21.5% of the $800 billion grocery industry market share (Daniels, 2017). In order to obtain this large chunk of the market, they are utilizing a low-cost strategy. Companies that employ low-cost leadership strategies have one main focus: keeping the cost of the goods and services they provide low. Walmart's slogan, "everyday low prices," emphasizes this strategy. This strategy is supposed to keep out competitors because others won't be able to match Walmart’s economies of scale. This also helps reduce the threat of new entrants because they will have difficulty raising the same level of capital. Walmart uses its huge distribution network to buy in bulk and keep costs down, which means it is using the production orientation. They have very standardized products and they only innovate their distribution system.

The low-cost strategy is mainly meant to protect companies by preventing competitors from bringing prices down any further than the next most efficient competitor. Walmart has been successful with it so far, they can handle price wars like their decision to accept competitor’s coupons. In terms of suppliers, Walmart’s low-cost strategy is a huge advantage because they buy so much.

While this strategy has worked in the past, with the recent changes in the industry Walmart will have to work harder to maintain its leadership position. Amazon is raising its grocery market share, so Walmart will need to boost its online presence even more than it already has (Peterson, 2017). This low-cost strategy has been very successful for the company in the past, however with the increasingly digital culture, there may need to be some improvements with online presence and its products as well. This will help it keep up with its more technologically advanced competitors.

Marketing Warfare. Walmart's marketing warfare strategy is market leader. It owns the largest individual share of the grocery industry and leads the way with its pricing practices and distribution coverage. Walmart's goal is to expand the total market, defend the share it already owns, and expand its own share of the grocery market. They are expanding the market by being available online as well as in store. Walmart is defending its shares by offering lower prices than its competitors. They are also "running a new price-comparison test in at least 1,200 U.S. stores and squeezing packaged goods suppliers in a bid to close a pricing gap” with Aldi and Kroger ("Wal-Mart launches new front in US," 2017, para. 1). By doing this they are trying to expand their market share by stealing some from competitors like Kroger.

Growth Strategies. Walmart uses the market development growth strategy. This is apparent through their attempts to create more of an online presence for the company by selling the same existing products to a new online market. The introduction of Walmart's Pickup Today is an example of how they are trying to reach a larger number of customers with the same products that they offer in stores. In terms of consolidation, Walmart uses a retrenchment strategy through their trial and error techniques. They try certain things out and if it works, they continue to use it and if it does not, they scrap it. They get rid of things that seem to weaken their business. Regarding stability, Walmart uses the pause/proceed with caution strategy. They are the market leader meaning that there is not necessarily a need for major changes all the time. Walmart tends to make decisions only after assessing the market.

SWOT Analysis.

Strengths. The strengths in Walmart’s business strategy include having an efficient supply chain, having an international presence, and promoting its everyday low prices (EDLP). Walmart's supply chain has over 150 efficient distribution centers worldwide that provide supplies and inventory to each of its stores. They have thousands of transportation vehicles, trailers, and drivers. They also have disaster centers for natural disasters. Another aspect where Walmart excels is in the international area. The company has a presence in 28 different countries, and according to their website, provides consumers in all different areas with access to their everyday low prices. This allows more diverse sets of people to shop while enjoying the comfort of knowing that their shopping needs can be affordably met. This plays to Walmart's advantage when comparing them to their competitors. Not all stores can say that they operate in such a vast quantity of locations. Along with the multinational aspect of Walmart's stores, they also have an advantage when it comes to their EDLP model. Walmart offers a wide variety of products and places an emphasis on keeping their prices low. Offering low prices is possible because of the number of stores that Walmart has. They can spread their overhead costs over many items and many locations. These strengths are what gives Walmart a competitive edge against rivals within the retail industry.

Weaknesses. With strengths come weaknesses and Walmart is not free of faults. A few of the company’s weaknesses include: recent store closings, small profit margins, and the ease in which their business model can be copied. The store closings are due to the recent increase in online shopping. Many would rather order online and either have their items shipped to their front door or order it and pick it up than wandering aimlessly through the aisles of a large store. Walmart must find a happy medium between online shopping and using the resources it already has in place. The company has begun to address this by deciding to close some of their physical plant stores. The company planned to close over 260 stores in the summer of 2016 ("Thinking Outside the Box," 2016). This would be a weakness because of the lost customers who would only use the physical stores. Lastly, Walmart’s low profit margins can be explained by their cost leadership strategy, and Nathaniel Smithson of the Panmore Institute recommends they "minimize profit margins and rely more on sales volume. The cost leadership strategy also makes Walmart’s business model easy to copy. The firm does not have significant competitive differentiators, except for its business size" (Smithson, 2017a, para. 5). Walmart’s narrow profit margins and easily imitable business model are weaknesses that the company is currently facing. These weaknesses are significant to the company and could stand to be improved.

Opportunities. Opportunities for Walmart and its competitors include: the expansion of online shopping, the potential to expand their business in developing countries, and the improvement of human resources. Online shopping provides many opportunities for companies to expand, particularly with respect to the international sector. Additionally, expanding into developing countries would allow for a more diverse range of consumers as well as products. Lastly, human resources greatly impact the success of a business, according to Smithson, "the opportunities on HR practices directly relate to the criticisms on the company’s employment practices" (Smithson, 2017a, para. 7). Many of the opportunities that Walmart faces could help them grow and expand as a company. Should Walmart determine strategic methods to capitalize on these opportunities, they have the potential to create even greater revenue and success.

Threats. Threats can be detrimental not only to individual companies themselves, but also to whole industries. There are several threats that Walmart and its competitors face including aggressive competition, trends in more health-conscious consumers, and small-scale, individual online selling. Aggressive competition can be both positive and negative. As discussed previously, competition forces companies to innovate and develop new ways to do business best; in contrast, competition can also force companies out of business because of cost competition and a loss of customers. When analyzing changing lifestyle trends, its impact can be both beneficial and harmful to companies within the retail industry as well. Health-conscious consumers’ needs could be detrimental to the goods that Walmart already carries, such as junk food and sodas. It could also force Walmart to reevaluate the brands and goods that it carries. The reason this is a threat is that Walmart's primary goal as a retailer is not to sell solely health foods and items, but rather to provide a wide variety of numerous types of goods. As a result, Walmart does not carry nearly as many health goods as retailers who specialize in health products and target health-conscious consumers. Finally, small-scale and individual online selling can be detrimental to Walmart because with the use of the Internet, "small sellers or individuals can bypass Walmart and use their own websites to sell products to online consumers" (Smithson, 2017a, para. 9). Small businesses and individuals who sell online have an advantage over Walmart when it comes to being able to customize items to tailor what the customers want. Walmart, because of its lofty overhead costs, cannot tailor its products to precisely meet the needs of its customers.

Customer Analysis

Industry Segmentations. Some key market segmentations strategies are geographic, demographic, psychographic segments, and behavioral segments. Companies divide their customers and target them accordingly. How the company distinguishes themselves and who they chose to target for their advertising determines their position in the market.

Since geographic segmentation is based on the location of the customers and where you are serving them, the grocery industry is very sensitive to geographic segmentation. Grocery stores carry unconventional products depending on their location, for example coastal areas tend to have an abundance of seafood in stock (Kokemuller, n.d.). The time of the year will also affect the food that a grocer will stock. Some fruits and vegetables may only be available during certain seasons, or they will be priced higher when they are out of season. Customers are often no longer relying solely on one retailer if alternatives are available, so the proximity of other competitors also impact what and how much customers will purchase from any particular store (Skrovan, 2017).

Demographics have changed significantly since the beginning of big grocery stores; in the past it was usually the housewife who was expected to be doing the grocery shopping for the household. Now there is a trend of “co-shopping” among all the family members (Skrovan, 2017). Retailers need to provide differing products and arrange them to appeal to more consumers. The income level of grocery shoppers is important to keep in mind while choosing a market to go after. Grocery stores like Walmart and Aldi and other cheaper grocers focus on buying in bulk and offering generic products to keep prices low. Higher end grocery stores such as Whole Foods or Trader Joe’s cater more specifically to the customers with more disposable income to spend on higher quality products. Age plays a strong role in the placement of products in the grocery store. Items in grocery stores that targeted for children are most often put on the “kids’ shelf” so they can see it (“The psychology,” 2013, para. 12), because children nowadays have much more impact on their parent’s buying decisions than they used to.

In terms of psychographic segmentations, customers can be impacted by their lifestyles, social class, and individual personalities. There is currently a big push for organic food and healthy food options. Some customers are seeking upscale, non-GMO ingredients and classier stores to buy them from, also called “values-oriented shopping” (Skrovan, 2017, para. 32). Social class exists outside of income; customers may be unwilling to shop at a grocery store with generic products because of their perceived image of themselves (“The psychology,” 2013). Lastly for personalities, stores like Hy-Vee cater to customers with friendly personalities who would like assistance from the numerous available employees with “helpful smiles” (“About Hy-Vee”).

Grocery stores often arrange products based on customer behaviors. Customers have habits when it comes to purchasing; for example, staple items like milk, bread, and eggs are often strategically placed in the back of the store to increase the chances of them picking up something else along the way (“The psychology,” 2013). Holidays or special occasions can also influence a customer’s habits. Holiday-specific food items will begin to be bought with more frequency, like turkey around Thanksgiving time and hams around Christmas. Customers will also be more prone to “clip coupons, watch for sales, pay with cash and be realistic regarding spending patterns” (Bickle, 2015). The growing trend of online shopping is also impacting grocery stores and forcing them to adapt to consumer preferences.

Targeting Strategy. Targeting strategies in marketing are the ways that the grocery stores market to their customers in the defined marketing segmentations. Walmart uses a multi-segmented strategy to reach out to as many customers and segments as possible. However, Walmart pays special attention to Generation X and Millennials, “due to the strategic importance of achieving the loyalty of young consumers for long-term perspectives.” (Dudovskiy, 2016, para. 3) Walmart uses their promise of low prices to help lure in younger consumers because they are more likely to be price sensitive. Walmart also integrates their social media marketing into the rest of their marketing strategy. Having the young, lower income segments becoming loyal to Walmart will in the long run give Walmart a base of older and hopefully higher income consumers (Dudoyskiy, 2016). Walmart’s low prices, convenient locations, and ads all work together to also target the other segments that they might not reach through the social media targeting. Walmart is still able to pull in consumers from the different segments through these traditional means, and don’t seem to be missing any segments significantly.

Marketing Position. Walmart defines itself from competitors with low prices and offering a variety of products at various locations. Their generic positioning statement would be: to customers around the world who are near Walmart and in need of sustenance, Walmart is a grocery store that often offers the cheapest products and a wide selection of items. They are using value positioning strategy by offering the same products as other grocery stores for less, and the competition positioning strategy by matching competitor’s coupons.

Positioning Map. Creating a positioning map using high quality vs low quality and high price vs low price axes, Walmart strives to exist in the low price and high quality zone. While Walmart may be top “seller of everything from laundry detergent to underwear,” they have “stumbled badly when it comes to higher-end merchandise” (Barbaro, 2007, para. 5) A potential issue is that Walmart’s low prices will be perceived as low quality by the customers. Even though Walmart may not have low quality, customer’s perceptions could put them in the low price and low quality position. Aldi, Whole Foods, and Hy-Vee are examples of companies within the grocery industry that are in the other 3 potential positions on the map, but the grocery industry as a whole compared to substitutes is low price and high quality (when compared to the fast food industry) or low quality (when compared to organic, non-hormonal farms or expensive restaurants).

Customer Motivation. The focus group that was conducted consisted of two separate groups. The first group consisted of 6 college students between the ages of 21 and 23. The second group consisted of 9 non-student consumers between the ages of 28 to 37. Both groups had an even split of male/female with the non-student consumers having one extra male in the group. These two groups were chosen because they represent two very common groups of people who shop at Walmart and other grocery stores. Both focus groups’ participants live in the Kirksville area. They were asked the following questions:

1. What items can you recall purchasing or using from Walmart? What grocery stores have you shopped at?

1. When at Walmart do you buy specific brands each time? Why or Why not?

1. Why do you use the selected Walmart brands?

1. What elements of shopping at Walmart do you value most?

1. Do you prefer Walmart over other shopping areas? Why or why not?

1. What changes are occurring in your motivation to shop?

1. Are you ever unhappy while shopping at Walmart? If so what are you unhappy about?

The student focus group’s primary reason for shopping at the Kirksville Walmart is the convenience and price. The main items the students purchase at Walmart are groceries, hygiene products, and entertainment items. Many students enjoyed purchasing ice cream from Walmart’s grocery department. Shampoo, medicine, and other cleaning products such as bleach or laundry detergent were also high on the list of the products bought at Walmart. Three students stated that they would also impulsively buy entertainment items that they would see in Walmart like movies, onesies, and art supplies were impulse bought frequently from these participants. The Great Value Walmart brand was very popular for the price among the students.

There was also a very common belief that grocery shopping at Walmart has become more common with them since the Aldi has been closed for remodeling. All six of the participants stated that they prefer shopping at Aldi for their groceries over Walmart. The participants all also prefer shopping at other places for their items when they are not in Kirksville but because Walmart is one of the only stores in Kirksville they’re forced to shop there. Students did enjoy the convenience of Walmart but do not feel the customer service is high at Walmart. Another issue that students had were that the items are constantly moved around in Walmart and that there are not enough check out aisles open. The student’s motivations to shop are mainly focused on the need for items quickly. They usually decide to go to Walmart only when they are completely out of a product that they need from Walmart. Examples given were items like milk, chips, or toothpaste.

For the non-student focus group, when asked about purchasing from Walmart they did not mention grocery products as their main purchases. This focus group preferred Hy-Vee for their grocery shopping or while it was open, Aldi. Walmart was mainly used for household items like cleaning products, diapers, and pet supplies. If these focus group members did buy groceries from Walmart they mostly bought the Great Value brand items because of their price. Like the student focus group, Walmart products were bought during times of necessity when a product was needed in the most convenient way. Three of these focus group participants have children and thus buy cheap play clothes from Walmart. The parents also would buy Great Value macaroni and Great Value snacks more often than the non-parents. Overall these participants also preferred shopping elsewhere but due to Walmart being one of the main stores in Kirksville they are forced to shop there. Since they are already forced to shop there, they would rather not make an extra stop at Hy-Vee for groceries if they were already out shopping. However, if they were going on a pure grocery shopping errand they would prefer to shop at Hy-Vee or Aldi. Some of the downsides to Walmart that this group perceived was the poor and impersonal customer service. These participants would prefer shopping elsewhere, but location forced Walmart to be one of their main shopping areas.

Overall the student focus group was much more likely to go to Walmart to buy groceries. The adult focus group more often shops at Walmart for items that aren’t groceries and goes elsewhere for groceries. The adult participants who have more income prefer spending their grocery money at Hy-Vee. When the adult participants do purchase groceries from Walmart it is usually because they were at Walmart already and do not feel like making a second stop.  Both groups like the convenience and price on the products that Walmart offers. Both groups also complained about the customer service that Walmart has offered. The groups also are restricted to the Kirksville area and because of this they feel forced to shop at Walmart. The focus groups shop at Walmart more out of convenience and necessity than brand loyalty or the shopping experience of Walmart.

Appendix

· “I am usually there looking for a one-time purchase” - adult

· “It is the cheapest place to find cat food and kitty litter” - adult

· “It is nice that is 24/7, especially with children when either I or my husband need to run out for diapers or emergency medicine” - adult

· “People working there aren’t very nice and don’t help me or seem to avoid me if I’m with my kids” - adult

· “My kids know which brands they like and don’t like; and I know which brands I trust to use around the house” - adult

· “It isn’t as good but it is a lot cheaper” - student about grocery items

· “One-stop shop is probably the thing I like the most” - student

· “Unhappy in Walmart, really because we just don’t have an alternate option in Kirksville, but back home (Kansas City) I can go wherever I want” - student

· “Not a fan of the environment and how workers have historically been treated” - student

· “I buy video games from Walmart, it’s the only place in town to get the newer games” - student

· “I buy things differently in college, I buy things now because they are cheap” - student

Reference List

About Hy-Vee. (n.d.). Hy-Vee. Retrieved October 23, 2017, from www.hy-vee.com/company/about-hy-vee/default.aspx

Anderson, G. (2017, August 11). Why grocery chains continue to expand in an overstored landscape. Forbes. Retrieved from https://www.forbes.com/sites/retailwire/2017/08/11/why-grocery-chains-continue-to-expand-in-an-overstored-landscape/#11b9e22d31b5

Barbaro, M. (2007, May 29). Is Wal-Mart too cheap for its own good? The New York Times. Retrieved from www.nytimes.com/2007/05/30/business/media/30walmart.html

Wal-Mart launches new front in US price war, targets Aldi in grocery aisle. (2017, February 27). CNBC. Retrieved from https://www.cnbc.com/2017/02/27/wal-mart-launches-new-front-in-us-price-war-targets-aldi-in-grocery-aisle.html