OPERATION & QUALITY MANAGEMENT 2

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Application of the total quality management approach in a Spanish retailer: the case of Mercadona Blanco Callejo Miguela; Gutierrez Broncano Santiagoa a Departamento de Economía de la Empresa, Universidad Rey Juan Carlos, Madrid, Spain

Online publication date: 14 December 2010

To cite this Article Miguel, Blanco Callejo and Santiago, Gutierrez Broncano(2010) 'Application of the total quality management approach in a Spanish retailer: the case of Mercadona', Total Quality Management & Business Excellence, 21: 12, 1365 — 1381 To link to this Article: DOI: 10.1080/14783363.2010.530782 URL: http://dx.doi.org/10.1080/14783363.2010.530782

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Application of the total quality management approach in a Spanish retailer: the case of Mercadona

Blanco Callejo Miguel∗ and Gutierrez Broncano Santiago

Departamento de Economı́a de la Empresa, Universidad Rey Juan Carlos, Madrid, Spain

This current article analyses the successful application of the total quality management (TQM) model by a firm in the Spanish commercial distribution sector. The TQM model implies a strategic, proactive and global approach that could prove appropriate in the face of a turbulent and changing environment, such as the one firms are currently experiencing. This article uses case study methodology to analyse the process by which Mercadona has implemented its TQM model, which involves different actions oriented to satisfying the needs of customers, employees, suppliers, society and capital. Applying this model allowed Mercadona to overcome a critical situation that threatened its very survival in the early 1990s, and since then the firm has bounced back to a position of leadership in its sector. Its excellent results and growth have caught the attention of both academics and industry rivals, in Spain and internationally.

Keywords: total quality management model; stakeholders; satisfaction of expectations; success; organisational excellence

Introduction

The case of Mercadona presented here is a good example of how a firm has managed to

implement the total quality management (TQM) model in the commercial distribution

sector. The introduction of this model was a strategic decision taken by the firm’s president

in the early 1990s and, as a consequence, the company has been able to differentiate itself

from its rivals and hence gain considerable competitive advantage. This strategy has posi-

tioned Mercadona as the leading Spanish supermarket chain, as well as the second fastest-

growing food retailer in the world (Deloitte, 2007).

This article describes the successful implementation of the TQM model in Mercadona

and its outcome, which has been a new, remarkable and highly effective way of conceiving

its business. The following section offers a brief theoretical discussion of the comprehen-

sive TQM model and its orientation toward satisfying the wants and needs of the firm’s

stakeholders. Later sections examine the empirical analysis, which uses the case study

methodology. Mercadona’s project under the TQM paradigm, its implications for the

firm’s five components (customers, employees, suppliers, society and capital), and how

the firm tries to satisfy their needs and expectations are described. The article ends with

the main conclusions and implications for managers.

ISSN 1478-3363 print/ISSN 1478-3371 online

# 2010 Taylor & Francis

DOI: 10.1080/14783363.2010.530782

http://www.informaworld.com

∗Corresponding author. Email: [email protected]

Total Quality Management

Vol. 21, No. 12, December 2010, 1365 – 1381

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The total quality management model

The quality management concept has evolved in recent years, at the same time as the

environment has evolved, and business needs to adapt to the changing environment

(Ciampa, 1992; De Jouslin De Noray, 1992; Gehani, 1993; Ivancevich, Lorenzi,

Skinner, & Crosby, 1985; James, 1991; Schonberger, 1992). This evolution in quality

management has led authors to conceive different approaches that share the central

position of the quality concept, but that have progressively become increasingly strategic,

broad and proactive (Camisón, González, & Cruz, 2006). In fact, the concept of quality

management was treated only partially (Deming, 1982; Feigenbaum, 1986; Hunter,

1999; Juran, 1994; O’Dell, 1996; Schein, 1997; Taguchi, 1987) until the arrival of more

global approaches that led to the total quality management (TQM) model in the mid-

1980s and 1990s (Deming, 1986; Sashkin & Kaiser, 1993; Waldman, 1994). This

approach offers quality management a multidimensional content that pursues the total

excellence of the organisation along the firm’s entire value-creation chain (Black &

Porter, 1995; Dean & Bowen, 1994; Dean & Evans, 1994; Deming, 1995; Douglas &

Judge, 2001; Ghobadian & Gallear, 2001; Van Der Wiele, Williams, & Dale, 2000).

Thus, the current TQM model has an interdisciplinary and integrative perspective that

considers technical, physical, human and leadership aspects (Ciampa, 1992) and it is part

of the strategic management of the company (Luchs, 1986). Introducing the model is the

direct responsibility of top management, which assumes a leadership role that is vital for

its successful implementation and for improving the firm’s results (Madu & Kuei, 1993).

Although TQM is a complex and ambiguous phenomena with several distinct formu-

lations and labels (Amsden, Ferratt, & Amsden, 1996; Wicks, 2001) the literature have

looked for some commonalities that distinguish quality improvement methods from

more traditional management practices (Dean & Bowen, 1994; Spencer, 1994; Wicks,

2001). Evans (1992), in a definition accepted in some relevant articles in the literature

(Handfield, Ghosh, & Fawcett, 1998; Larson & Sinha, 1995), defines the TQM model as

a people-focused management system that aims at continual increase of customer satisfac-

tion at continually lower real cost. Total Quality is a total system approach (not a separate

area or programme) and an integral part of high-level strategy; it works horizontally across

functions and departments, involves all employees, top to bottom, and extends backwards

and forwards to include the supply chain and the customer chain. Total Quality stresses

learning and adaptation to continual change as keys to organisational success.

Starting from this definition, there are a set of core values of the TQM model (Hellsten,

1997): orientation toward the external customer, orientation toward stakeholders, internal

cooperation and teamwork, management’s leadership and commitment, process- and

system-based management, orientation toward people or the internal customer, learning,

innovation and continuous improvement, building alliances, and external cooperation

and ethics (Black & Porter, 1996; Camisón et al., 2006; Deming, 1986; Nayebpour &

Koehn, 2003; Pace, 1999; Raiborn & Payne, 1996; Steeples, 1994; Svensson & Wood,

2005; Wicks, 2001). Each of these principles is dealt with by developing different

programmes in which all the firm’s employees participate. The model has three aims: to

create value for all stakeholders; to gain competitive advantages and achieve superior

income to competitors; and to produce a culture, organisation and management style

that fosters commitment, participation and internal cooperation (Camisón et al., 2006).

One of the fundamental aspects of the model is the relationship with the organisation’s

stakeholders, with the objective being to achieve maximum satisfaction of their expec-

tations (Lagrosen, 2001). This approach leads to the implementation of the most advanced

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practices in human resources management, logistics, production, relationship with suppli-

ers and customers, and organisational design. The aim is to permanently stimulate the

commitment, participation and cooperation of all the firm’s stakeholders. In this

respect, total quality is based on two considerations. First, recognition that the firm has

social responsibilities to all its stakeholders – owners, consumers, employees, suppliers

and society (Svensson & Wood, 2005; Vinten, 1998). And second, that top management

needs the leadership skills required to motivate all stakeholders to share its holistic vision

of the social contract and act accordingly (Laszlo, 1998).

In order to verify the application of the TQM model and observe the initiatives put in

place within the framework of this model, this study uses the exploratory case study as its

research methodology. The literature suggests that the choice of research methodology is

contingent on the problems and questions being analysed and the state of development

of the area of knowledge (Eisenhardt, 1989; Pettigrew, 1990; Yin, 1994). Case study meth-

odology is suitable for this study because it fully satisfies Yin’s (1994) premises. Yin rec-

ommends the methodology first, when the researcher aims to test a theory that specifies a

particular set of results in a specific situation, and has identified a firm in this situation. The

case could be a critical test of the theory and of its applicability to the organisation. Second,

if the researcher aims to study some specific characteristics of a rare, extraordinary or

extreme situation in which the organisation finds itself, they can use this methodology to

compare or contrast. Finally, the researcher can use case study methodology to analyse a

situation or organisation that has been studied infrequently and that is unique, and can

then hope to learn something new and important. In this sense, Mercadona seems to be

an outstanding example of TQM implementation, with some specific characteristics that

have made this company virtually unique in the way it has developed the model. This extra-

ordinary situation is justified on the basis of the circumstances that made its adoption and

subsequent development possible, bringing about a profound transformation in the

company and putting it in a privileged position in the retailing sector in Spain.

The case of Mercadona

Mercadona is a family firm dedicated to the commercial distribution of food and hygiene

products. The firm runs large supermarkets (.1000 m 2 ) following a model of local city-

centre stores. The company name, Mercadona SA, appeared in 1977, but the company

actually originated in Cárnicas Roig, a family firm owned by Francisco Roig Ballester

and specialising in carving and selling meat. The firm subsequently evolved into a

chain of eight grocer’s shops, Mercadona (1999 – 2007).

In 1981, one of Francisco’s sons, Juan Roig, now running the firm, built a small com-

mercial chain of various stores, which soon began to grow in size, first in the Valencia

region and then in other areas in Spain. The firm’s expansion coincided with a period

of growth in the commercial distribution sector in Spain, which had various causes, in par-

ticular, the increasing concentration of the population within cities and the entry of women

into the labour market. This growth attracted the attention of the large European distri-

bution chains, which began to enter Spain. The strategy of these large companies was

to open major retail outlets (hypermarkets) and offer low prices in particular products,

accompanied by strong promotions, special offers and discounts that were supported by

aggressive advertising campaigns in the media (Navarro, 2005). The firms achieved low

prices by putting pressure on their suppliers to cut their prices as far as possible. Custo-

mers, attracted by the low prices on some products, also bought other products not on

special offer that yielded high profit margins.

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As a consequence of this strategy, in the 1990s, the food distribution sector became

highly concentrated, and foreign multinationals controlled a large part of the market. Com-

petition from these firms intensified rivalry in the industry, which was now mature, with

strong competition and low margins. Mercadona responded to this highly changeable and

turbulent environment by adopting a similar policy to that of the large hypermarket chains.

The retailer put downward pressure on its suppliers’ prices and ran intensive advertising

campaigns to promote its special offers every day. But the results were not as good as

expected, since this was the same strategy as the big hypermarket chains. Mercadona

was selling more, but every year its profits declined. 1

This was a very tricky time for Mercadona, which had to face some extremely difficult

situations. Nevertheless, the president ignored tempting offers to buy the company and

stuck firmly to his commitment to remain in the business. Thus, in 1993, Juan Roig

decided to implement a strategy that broke radically with the dynamic of the sector: he

introduced the TQM model. This initiative translated into a new commercial strategy sum-

marised in a simple slogan ‘Siempre Precios Bajos’ (SPB, which translates as ‘Always

Low Prices’). While its competitors continued with their massive daily advertising cam-

paigns in the media, Mercadona immediately stopped all its advertising spending. Merca-

dona cancelled all its special offers and made a commitment to its customers always to sell

at the same price, and to its suppliers to remain loyal to them and maintain stable prices for

years (Caparrós & Biot, 2006). This was quite a turnaround, as suppliers had previously

seen Mercadona as one of the toughest negotiators. The firm’s main objective was to

protect itself in the midst of all this turbulence and implement an unusual and original

model, novel in the commercial distribution sector: price, supplier and employee stability

to achieve permanent customers.

The results immediately after adopting the new model were not very promising:

although the firm managed to practically double its sales from four years before, its

profits were less than half. But the president stuck by his decision and firmly maintained

the strategy based on the new management model. In 1995, its performance improved, and

Mercadona soon entered a spectacular and unstoppable process of growth, which was

mainly organic. Mercadona supermarkets spread out throughout the whole country like

an olive oil spill. The company is now one of the most profitable and widely distributed

supermarket chains in the Spanish market. Mercadona currently employs more than

60,000 workers, runs more than 1100 supermarkets dotted practically all over the

country, and earned a net profit of E336m in the last accounting year (Mercadona,

1999 – 2007). Moreover, in recent years, Mercadona has maintained a rate of new super-

market openings of nearly 100 per year (Figure 1). The growth rate in its sales of

.25% per year in the second half of this period makes Mercadona the 14th fastest-

growing retailer in the world, and the second fastest-growing food distributor in the

world, after the American commercial distribution giant Wal-Mart (Deloitte, 2007).

Mercadona’s management firmly believes that adopting and maintaining the TQM

model has been critical in allowing the firm to achieve this rate of growth and these spec-

tacular economic results. Through this approach, management has impressed on the firm a

clear orientation to satisfy the needs and expectations of all its stakeholders. On the basis

of this approach, Mercadona has defined five components in the firm: customers, employ-

ees, suppliers, society and capital. All are equally important, but in that sequential order,

Mercadona (1999 – 2007).

Mercadona’s TQM model starts from a universal premise: ‘to be satisfied, first you have

to satisfy everyone else’ (Mercadona, 1999 – 2007). Thus, in the first place, Mercadona

orients its entire business model towards the complete satisfaction of its customers,

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which the firm considers so important that internally it calls them its ‘bosses’. In the same

sense, the management is convinced that the workers – who are the people who have to

satisfy the customers in the stores – must, in turn, be satisfied. This is why the firm has estab-

lished its own way of managing its employees, implementing policies that seek to encourage

their self-realisation through job security and stability, training, internal promotion and

improvements in their quality of life. It is the suppliers’ products that have to maximally

satisfy the firm’s customers, so Mercadona has established a relationship with its suppliers

based on trust, cooperation, mutual collaboration and stability. Society is the medium

through which the firm carries out its activities, so Mercadona feels involved with and

ethically committed to its protection and development. Finally, by satisfying the needs of

its customers, employees, suppliers and society, Mercadona contributes to satisfying the

expectations of the fifth component of its model, capital (Figure 2).

Despite its apparent simplicity, applying the TQM model is neither simple nor easy. In

fact, one of the main difficulties is to introduce and develop programmes and tools that allow

the firm to satisfy each and every one of its diverse components, and at the same time, ensure

that the components perceive that the firm is satisfying their needs so the firm transmits the

image of a responsible and committed company. In any case, with this powerful model,

Mercadona has gained competitive advantages over its rivals, has been able to globally

orient its strategy and organisational culture and has had adopted a coherent decision-

making tool. So, any initiative proposed in the company must first be evaluated for its

compliance with the model. The firm adopts and implements proposals only when their

consequences are satisfactory to all five components, otherwise it rejects them.

Orientation toward customer satisfaction

One of the fundamental cornerstones of the TQM model is its orientation toward satisfying

customer needs. This is why Mercadona puts the customer in a privileged position and

carries out a large number of activities and initiatives to be able to care for its customers,

strengthen their loyalty and help them generate the maximum possible value from doing

their shopping in Mercadona stores (Figure 3).

Figure 1. Evolution in the number of Mercadona supermarkets 1996 – 2006. Source: Mercadona Annual Reports.

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For Mercadona, the customers are at the centre of its activity, because its very survival

depends on their decision to shop in Mercadona supermarkets or elsewhere. Thus, the firm

calls anyone who shops in its stores ‘boss’. Under this premise, the whole organisation is

focused on providing an excellent service to its customers. This conception places the

customer at the top of the firm’s inverted organisational pyramid, and the function of

the leader and the rest of the organisation is to serve the customer.

Given the customer’s privileged position, Mercadona’s philosophy is to continually

increase the ‘value for the customer’ by maintaining its ‘Always Low Prices’ policy

and eliminating special offers, promotions and temporary discounts. But the philosophy

not only focuses on prices. All the firm’s actions are oriented toward satisfying all the cus-

tomer’s specifications, whether known or potential future expectations. In order to find

these out, Mercadona maintains a constant and direct dialogue with its ‘bosses’, carrying

out activities to collect information, opinions and needs from its customers: meetings with

neighbours in neighbourhoods where new stores are being opened, monographic courses

on product lines, open days, blind tests, a free customer service hotline and suggestion

boxes in supermarkets. 2

These operations require considerable economic investment

Figure 2. Mercadona’s TQM model. Source: authors, based on Mercadona Annual Reports.

Figure 3. Orientation toward customer satisfaction in Mercadona. Source: authors.

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from Mercadona, but the firm considers this form of contact more appropriate than big

advertising campaigns in the media, which are extremely expensive and collect little infor-

mation from customers. Mercadona learns directly about its customers’ tastes, the products

habitual customers need and future trends in different lines of consumption. The firm then

tries to anticipate their future needs through innovation, R&D and product-improvement

programmes. 3

On the basis of the information collected and distributed, Mercadona carries out

actions to increase value for customers. The aim is to give customers the chance to

carry out all their shopping under the principles of ‘maximum quality, maximum range,

maximum service, minimum cost and minimum time – always’. With regard to quality,

the retailer stresses the nutritional quality of its more than 9000 products. 4

But quality

also involves convenience, speed, comprehensiveness of service and product variety.

Product variety – the maximum range – does not mean offering a large number of

brands, but rather all the products that satisfy all the customer’s needs in food, hygiene,

cleaning and pet food. Moreover, Mercadona aims to become a ‘prescriber’: choosing

and recommending products for their quality and minimum price. Mercadona guarantees

the life and name principles for those products, guaranteeing the origin and date of packa-

ging of the products, as well as the same name on products of the same quality. For this, the

firm has designed a relationship system with the suppliers of its own-brand products. 5

This

reduces customer insecurity, strengthens customers’ loyalty to recommended products and

generates trust. With regard to service quality, Mercadona makes shopping as convenient

as possible: payment by credit card, loyalty card, online or telephone shopping, home

delivery and free parking for customers. Moreover, the firm improves the convenience

of the store by using a very functional design, what Mercadona calls ‘atmosphered

sections’. 6

The stores have air-conditioning, shelves are restocked outside opening

hours, products come in various packaging formats according to customers’ needs and

the firm aims to minimise the time customers spend shopping.

The result of this policy has been spectacular growth in the firm’s sales: turnover has

increased more than nine-fold in the past decade, with an average annual growth of 21.3%

(Figure 4). Importantly, this growth is not only down to new store openings: the company

has also increased its same-store sales considerably. 7

Orientation toward employee commitment

For Mercadona, the orientation toward their employees is another cornerstone of the TQM

model. The premise is that quality is made by people, and all organisation members need

to be conscious of quality. 8

The firm needs to achieve the commitment, involvement and/ or participation of its workers by incorporating certain values that translate into concrete

practices in human resources management (Figure 5).

With regard to staff selection, Mercadona looks for people who fit in a quality environ-

ment. Candidates must be at least secondary-school graduates, and the selection process

involves cultural knowledge and psycho-technical tests, interviews and group dynamics.

Employees’ training begins as soon as they join the firm with the so-called ‘Reception

Programme’. Before they start work, all employees receive nine-weeks, full-time training

on the TQM model, which aims to inculcate the firm’s culture. To aid learning, the firm

gives all its workers manuals outlining the main ideas of the model, plus practical exer-

cises that are subsequently evaluated in exams and written tests. After taking up their

posts, workers receive very varied training during their time in the firm, including

courses on how to use new technologies, task specialisation in the supermarket, leadership,

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and occupational safety and health. 9

The training programmes are taught by staff members

and evaluated internally. Moreover, they often take place in the supermarkets themselves,

all of which have specially designed training rooms. The aim of the training policy is to

develop employees’ skills, and the policy is accompanied by an internal promotion

policy that facilitates employees’ identification with Mercadona. In fact, all the firm’s

senior managers started at the bottom.

Mercadona has designed a simple and complete compensation policy aimed at

strengthening its link with its workers and favouring their identification with the

project. Part of each employee’s compensation is fixed, and the other part is variable, satis-

fying the equity principle: ‘for equal responsibility, equal pay’. The fixed component has

only four bands, and is based on three criteria: experience, responsibility and performance.

The variable component depends on the company and each individual supermarket

Figure 4. Evolution Mercadona sales 1995 – 2007 (E000). Source: authors, based on Mercadona Annual Reports.

Figure 5. Mercadona’s human resources policy. Source: authors.

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meeting their objectives. In any case, Mercadona pays wages above the sector average, and

the firm consequently demands more commitment from its workers in exchange. The

evaluation of the performance and quality that the employee shows in their work,

which is carried out by the employee’s immediate superior, is determinant in pay rises

and promotions. It is significant that the majority of Mercadona’s employees earn

bonuses for meeting objectives. 10

However, jobs are designed broadly, which enhances both the firm’s flexibility and the

workers’ employability. Each worker knows half an hour in advance what their function

will be that day, and this depends on variables such as the number of customers, restocking

needs and staff available in the store. The firm has tried to standardise different types of

timetable through its ‘standard timetable’ programme. All timetables have the same start

and finish times regardless of the day of the week, and staff members have a maximum

number of hours work per week. Mercadona workers also have a concentrated working

day. In other words, they do not work the split shifts – with a long lunch break from 2

to 5 o’clock – that are typical in Spanish stores. This programme also allows workers to

know their timetables one month in advance and hence be able to plan their vacations.

Mercadona also aims to reconcile its employees’ working and personal lives as far as

possible through stability programmes, additional services and benefits, as well as

protect its workers to the maximum. In a sector where temporary contracts are the norm,

all of Mercadona’s staff have stable, indefinite-duration contracts. Moreover, Mercadona

continually tries to improve its employees’ working conditions. The firm offers free kinder-

gartens in its logistics centres, pays for one month extra maternity leave, does not open its

supermarkets on Sundays and has a policy allowing workers to work in the supermarket

closest to their homes. Finally, Mercadona also carries out preventive and corrective activi-

ties in the area of occupational safety and health through a culture of internal prevention that

measures and actively combats accidents and illnesses. 11

In addition, all the firm’s employ-

ees have life insurance. Mercadona pays employees 100% of their wages if they are inca-

pacitated, and the firm has measures in place to help the family if a company worker dies.

With all these actions included in a comprehensive human resources policy and in the

framework of its TQM model, Mercadona has managed to considerably reduce its employee

turnover and absenteeism figures, which are traditionally very high in the sector. At the same

time, the firm has also raised its workers’ productivity levels considerably, and consequently

its own results. Figure 6 shows the upward trend in sales per employee.

Orientation toward cooperation with suppliers

Incorporating the principle of external cooperation into the TQM value system involves

extending cooperation beyond company limits. Mercadona puts this into practice with

its suppliers in a special way. Mercadona’s relationship with its suppliers seeks

cooperation, stability in the relationship, mutual benefits and the sharing of training and

information to improve all the business processes (Figure 7).

The starting point is the adoption of a model of ‘process management and analysis’.

Mercadona studies and analyses these processes from when the products leave the supplier

to when they reach the customer. The central idea is that any inefficiency in the production

process will eventually reach the end-customer. The aim is to iron out inefficiencies, and to

try to extend cooperation to the whole value chain and even reach the suppliers’ suppliers.

Mercadona believes that in order to optimise process management it is necessary to

generate a relationship of mutual trust with its suppliers. This relationship starts from

the premise that the continuity of the supplier – Mercadona relationship is in the hands

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of the end-customer. The supplier will continue to supply Mercadona if it can respond to

and satisfy customer needs. Thus, the supplier becomes a fundamental element for satisfy-

ing the customer, and according to Mercadona’s philosophy, the supplier must also be sat-

isfied with its relationship with Mercadona, generating synergies between both parties.

Mercadona’s suppliers share certain generic characteristics: they are partners, capitalists

and focused on adding value for the customer. They are partners because the firm estab-

lishes a relationship with Mercadona in which both parties share the objective of fully

satisfying the customer. They are capitalists because the supplier risks capital in an

attempt to earn profits. And what is most important, the firm must be focused on the cus-

tomer. It must be able to offer value thanks to its expertise in its area of activity: carrying

out R&D and innovation, and knowing the raw materials, processes and procedures of its

particular business.

Given the generic characteristics of its suppliers, Mercadona distinguishes between

four categories of supplier: classic, ‘al coll’, intermediaries and what the firm calls ‘inter-

suppliers’. Mercadona maintains a conventional contractual relationship with classic sup-

pliers, which supply products and services that the customers demand mainly as a result of

Figure 6. Evolution sales-to-employees ratio 1995 – 2006 (E000). Source: authors, based on Mercadona Annual Reports.

Figure 7. Orientation toward cooperation with suppliers. Source: authors.

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these companies’ marketing. ‘Al coll’ is a Valencian expression that means roughly

‘around the neck’. ‘Al coll’ suppliers are producers that have difficulty finding a market

for their products. Mercadona acquires their products, and these firms’ very survival

depends on their sales in this supermarket chain. Working with Mercadona allows these

firms to stay in business, and hence avoid exits that would have traumatic effects on the

workforce. Intermediaries are agents operating between the supplier and Mercadona.

The retailer believes that these intermediaries do not add value, are unnecessary and

only increase the cost of the product to the customer, so it tries to avoid them.

Finally, the so-called ‘intersuppliers’ are Mercadona’s fourth category of supplier.

These firms share Mercadona’s TQM-based management philosophy, and their relation-

ship with Mercadona is long-term and indefinite, with a willingness to undertake activities

jointly. Mercadona’s management is committed to the growth, development and sustain-

ability of its ‘intersuppliers’, and the firm dedicates substantial resources to joint research

and product improvement, which help improve these firms’ competitiveness and their

chances of satisfying customer needs. The intersuppliers products are exclusively for Mer-

cadona and take on the ‘totaller’ philosophy, that is, to be prescribers of products that

satisfy all the needs of the customers – the ‘bosses’. They should offer customers rec-

ommended products that figure among Mercadona’s store brands that have the highest

possible quality at the lowest possible price. These suppliers must satisfy some require-

ments in order to obtain the ‘intersuppliers’ status. First, the company owners must

have ‘passion’ for what they are doing, that is, they have to be proactive, innovative

and completely involved in their business. They must also have the economic resources

necessary to carry out their business goals as well as the management ability to develop

them. Second, Mercadona sought companies with stability on the stock market, as they

transmit security to the relationship. Furthermore, they must be companies that have an

open-minded attitude with respect to information and indicators coming from customers

and the market in order to provide solutions to meet customers’ demands. The candidates

must also be willing to introduce the TQM model in their organisations and seek to satisfy

all of its components, which include the study and modification of every aspect with the

aim of improvement, guaranteeing nutritional and environmental safety, and willingness

to be audited by Mercadona to verify the degree to which they fulfil the model’s require-

ments. Finally, Mercadona requires the exclusive manufacturing of some products as a

result of the relationship of mutual trust and cooperation between both companies.

The process by which a firm becomes one of Mercadona’s ‘intersuppliers’, which is

one of the most innovative and original aspects that Mercadona has contributed to the

TQM model, is long and complex, and consists of three stages. In the preliminary or

approach stage, candidate firms must occupy a position of leadership and have a consoli-

dated and reliable production system. In the second stage, the firm and Mercadona estab-

lish a relationship in which they share all information – a true partnership. In the third

stage, the supplier must produce in response to customer needs and starting from their

expectations and demands. This is why Mercadona shares the information it obtains

from its customers through various mechanisms with its suppliers, and works with them

in projects to produce new products.

This is when the relationship fits perfectly with Mercadona’s management philosophy,

which is to try to become a ‘prescriber’ of products for all its customer’s shopping. For

this, Mercadona must use the information obtained to inform its ‘intersuppliers’ of custo-

mer needs, and the two firms must jointly develop products and services, apply the TQM

model in a coordinated way and use the value – effort model to measure each other’s value

generation.

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Orientation toward society

Analysing the impact of the firm’s actions on its social environment is also a defining

aspect of firms with a management model based on total quality. Mercadona runs a

large number of initiatives seeking social advances in various aspects: education and

research; improvement and care for the natural environment; programmes to help

people with health problems and disadvantaged people; revitalisation of trade in urban

areas; participation in sectorial associations of commercial distribution; and finally, cre-

ation of wealth and jobs in the Spanish agro-food sector.

In education, Mercadona participates in initiatives linking university studies with

business activity, fundamentally in the region of Valencia, and runs research programmes

in the agro-food field. To care for and improve the natural environment, the firm has

adopted the principle of behaving responsibly toward the environment. The firm runs

waste-recycling programmes, studies waste treatment, implements measures and global

solutions aiming to minimise the environmental impact of its activities, seeks mechanisms

that achieve maximum energy efficiency, and optimises merchandise distribution systems

both nationally and in the cities. 12

With regard to Mercadona’s assistance for social groups with health problems and dis-

advantaged people, the supermarket chain sells special gluten-free products for customers

with coeliac disease, and sugar-free products for diabetics, thereby helping these groups

with their shopping. The firm has also signed agreements with public institutions to

promote joint measures aimed at helping victims of domestic violence find employment,

and professional and social training programmes for young people with social problems

and difficulties entering the labour market. Mercadona has also contributed visibly to

revitalising and re-energising local city-centre trade, for this, the firm has restored and

relaunched traditional Spanish indoor markets situated in the city centre, putting a super-

market inside.

Mercadona participates in sectorial and wealth-generating associations such as the

Spanish Association of Supermarkets (ASEDAS) and the Spanish Association of

Commercial Codification (AECOC), which work in favour of the development of the

commercial distribution sector. With regard to wealth creation, it is interesting to note

the retailer’s important and growing contribution to Spain’s GDP, 13

its leadership in

the generation of stable employment in Spain, and its substantial investment in the

Spanish agro-food industry. 14

Finally, the most notable of Mercadona’s characteristics is that the company is not

content with just implementing initiatives that show its commitment and responsibility

to society. The firm also strives to measure the impact of these policies. With this

purpose, in 2002, Mercadona voluntarily commissioned an ethics audit from an indepen-

dent association. This resulted in a highly satisfactory assessment of the firm’s compliance

with the requisite ethical standards, and according to the management this should serve as

a reference for the development of the firm’s corporate social responsibility policy. 15

Moreover, in another external study from an independent, international organisation –

the report on corporate reputation that the Reputation Institute publishes annually –

Mercadona has the fourth best corporate reputation in the world, behind only Lego,

Ikea and Barilla (Reputation Institute, 2007).

Orientation toward value creation on capital

The company’s TQM model also has repercussions at the level of economic – financial

results and value creation for its owners. Mercadona is a family firm that is not listed on

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the stock exchange. Its stock ownership is highly concentrated: the majority of the

ownership and control is in the hands of the company’s president, Juan Roig, and his family.

The president argues that under the TQM model it is also ‘fair’ to satisfy the needs of

the company’s final component, the capital, in other words, those people and organisations

that invest their money in the firm and hence provide economic resources. This means that

Mercadona also has a clear orientation toward profit maximisation, as a means of satisfy-

ing its stockholders’ needs and desires (Caparrós & Biot, 2006). The company’s manage-

ment model has the aim of offering its stockholders various advantages that they will

regard as valuable, such as profitability, stability, security and minimum risk in their

investment. In line with this position, the firm’s economic performance can be classed

as spectacular. The company’s net profits have increased more than 14-fold in the past

10 years, reaching E336m in 2007. Figure 8 shows the evolution in both gross and net

profits after the company introduced its TQM model.

With regard to the distribution of its profits, the firm reinvests a large part of them, thereby

favouring firm growth. This has allowed the firm to grow organically and carry out a specta-

cular expansion strategy, opening new supermarkets, warehouses and logistics centres

throughout Spain in recent years. Figure 9 shows the evolution in the firm’s equity and

investments. This is the result of a careful policy of profit distribution, allowing the firm to

strengthen and increase its equity and multiply the investments that enable growth and

expansion. This has ensured that the TQM model has had positive and multiplicative effects.

The evolution in the firm’s main economic indicators clearly reflects, in the words of

the management, the ‘idealness’ of the TQM model (Caparrós & Biot, 2006), and is the

result of satisfying the other four components of the model: customers, employees, suppli-

ers and society. Continuing the current policy, as well as improving and consolidating the

TQM model, should ensure the future viability of the project, confirm the trend in

improved results, and increase the value of stockholders’ capital.

Conclusions and managerial implications

The case presented here shows that the TQM approach has oriented Mercadona’s manage-

ment model and helped the firm to achieve spectacular economic results and a profitable

Figure 8. Evolution in Mercadona’s gross/net profits 1995 – 2006 (Em). Source: authors, based on Mercadona Annual Reports.

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and healthy growth over the past decade. The key aspect of the model is the high consider-

ation awarded to its five components, as well as the orientation of the whole company

toward satisfying their needs and expectations.

The case of Mercadona shows that the decision to orient the company’s entire manage-

ment toward satisfying customer needs was correct. But the case also shows that the

company cannot achieve an optimal management of customer needs without also satisfy-

ing the needs of the firm’s other stakeholders. Thus, Mercadona’s human resource man-

agement implements initiatives that strengthen employees’ commitment to and

involvement in the firm’s project. The firm has installed a policy of cooperation, trust

and mutual collaboration in its supplier management, which ensures that the products

on the supermarket shelves match customers’ requirements and specifications more

closely. Nor does the firm ignore the social context in which it operates. This can be

seen both quantitatively in terms of the creation of wealth and value, and qualitatively

in terms of its ethical and environmental commitment with Spanish society. Finally,

with regard to capital, the economic results of the model are spectacular and have

catapulted the company to a position of leadership among Spanish supermarket chains

and a competitive advantage that its rivals will find difficult to match. In fact, its compe-

titors are currently reacting by imitating its management model and copying some of its

initiatives and policies.

In any case, the above describes an outstanding example of the successful application

of the TQM model in the highly competitive, mature commercial distribution sector.

Reading about this experience should encourage managers to implement this model in

other sectors of activity, although clearly, and as the literature observes, firms will need

to make certain adjustments to the actions and policies depending on their particular

industry (Wicks, 2001) and geographical area (Lagrosen, 2002). Proof of the feasibility

of introducing this model in other industries and sectors comes from the fact that the

model has spread to some of Mercadona’s intersuppliers. Indeed, some of these have

achieved even better results and growth rates than the supermarket chain itself.

Finally, Mercadona’s management model, thanks both to its feedback mechanisms and

its great capacity to adapt to environmental changes, is considered a valid model capable

of guaranteeing the future stability of the firm, even if Mercadona does currently face two

Figure 9. Evolution in Mercadona’s equity and investments (Em). Source: authors, based on Mercadona Annual Reports.

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important challenges for the future. The first is the feasibility of implementing the model

outside Spain – the company is currently considering embarking on international expan-

sion, although the details of this project are still incomplete. Second, Mercadona is a

family firm, and so faces the challenge of steering the succession and ensuring the

firm’s continuity over successive generations. How Mercadona responds to these and

other challenges that arise will determine the viability of this promising company in the

future.

Notes

1. In 1990, with a turnover of E763m, Mercadona’s profits were just under E15m. A year later its turnover rose to E877m, but its profits fell to under E6m (Navarro, 2005).

2. In 2006, Mercadona used direct communication in 180,000 encounters. This type of action enabled the firm to directly reach more than 1.9 million households. Mercadona has a custo- mer-service department consisting of more than 90 employees, and the firm responded to 580,000 customer consultations in 2006 and 1 million in 2007. Each complaint is perceived as an ‘opportunity’, and the employees are obliged to respond to the customers (Mercadona, 1999 – 2007).

3. Some of the firm’s recent initiatives include substituting its meat displays and butchers cutting the meat for the hygienic, modern system of displays of meat portions vacuum packed in plastic trays, introducing pioneering products such as skinless sausage, frozen vegetables on trays ready to be heated in the microwave, and shampoos and hand soaps that do not need water, packaging pastries individually, and removing staples in infusion bags. In 2007, the firm introduced 2000 new products onto its shelves (Mercadona, 1999 – 2007).

4. Mercadona’s quality department works with its suppliers to guarantee the nutritional quality of all the firm’s food products. In recent years, the firm has introduced more fibre-rich foods and green products, substituted saturated fat with sunflower oil, introduced low-salt products, started food traceability programmes with its suppliers, and signed collaboration agreements with cer- tification specialists and the Spanish Ministry of Health and Consumer Affairs to encourage healthy consumption habits and improve the population’s nutrition (Mercadona, 1999 – 2007).

5. Mercadona’s own brands are Hacendado (food), Bosque Verde (cleaning products), Deliplus (hygiene products) and Compy (pet food). These products are endorsed by both Mercadona and the ‘intersuppliers’, and their quality, traceability and food safety is guaranteed at the lowest possible price (Mercadona, 1999 – 2007).

6. Each section has its own particular atmosphere depending on its marketing requeriments. 7. During the last three years, same-store sales have increased by an annual average of around 8%

(Mercadona, 1999 – 2007). 8. Mercadona currently has more than 60,000 employees (compared with 12,100 in 1996). More

than 67% are women, and the average age is �30 years, Mercadona (1999 – 2007). 9. Training investment amounted to E23.3m in 2002, E30.5m in 2003, E34.5m in 2004, E41m in

2005, E59m in 2006 and E72m in 2007 (E1200 per employee). In 2007, the firm gave more than 4.5 million hours of training (Mercadona, 1999 – 2007).

10. Bonuses totalled E25m in 2001, E52m in 2002, E64m in 2003, E81m in 2004, and E104m in 2005. In 2006, Mercadona had foreseen a bonus of E124m, but its net profits of E242m meant the firm distributed an extra E43m. Each worker earned a bonus of between E1500 and E3000 (Mercadona, 1999 – 2007).

11. The Prevention Service consists of 70 high-level specialists who work on safety, industrial hygiene, occupational medicine and ergonomics, and applied psycho-sociology. This team par- ticipates in purchasing tools and machinery, studies jobs and trains workers in occupational safety and health. Mercadona invested E12.2m in occupational safety and health in 2006 and E13m in 2007 (Mercadona, 1999 – 2007).

12. Mercadona has commissioned RENFE, which runs the Spanish railway network, to transport products and merchandise nationally. With regard to the logistics system in cities, the firm has implemented the Urban Merchandise Transport (TUM) system in more than 150 towns. In this system, products are unloaded to supermarkets in the early morning from large, silent articulated lorries. This system cuts noise pollution, traffic congestion and the negative

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impact on the environment: the reduction in CO2 emissions is equivalent to 30,000 cars. In addition, the firm saves 22,900 litres of diesel daily, and the security of the process has also improved (Mercadona, 1999 – 2007).

13. Mercadona’s contribution to Spanish GDP was E960m in 2002, E1233m in 2003, E1471m in 2004, E1756m in 2005, E2140m in 2006 and E2516m in 2007 (Mercadona, 1999 – 2007).

14. According to Spanish National Statistics Institute (INE) data, the total investment in the Spanish agro-food industry was E3642m in 2006. In the same year, the total investment of Mercadona ‘intersuppliers’, the vast majority of which are in this sector, was E700m according to Mercadona data. This represents approximately a fifth of the total investment (Mercadona, 1999 – 2007).

15. The ethics audit, commissioned from the Spanish Foundation for Business Ethics (ÉTNOR), aimed to provide a reliable picture of the perception that the five components have about the firm. ÉTNOR carried out 2000 contacts consisting of personal interviews and telephone questionnaires. Respondents were asked about how they felt they had been treated in relation to the following aspects: integrity, credibility, fairness, dialog, transparency, dignity, legality, corporate citizenship, environment and responsibility. Mercadona was awarded 4.31 points out of 5 for its ethical standards. The firm committed itself to repeat the audit every three years (ÉTNOR, 2003; Mercadona, 1999 – 2007).

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