RETAIL SUPERMARKET INDUSTRY

Strategy Development in the Global Food Retail Supermarket Industry



Strategy Development in the Global Food Retail Supermarket Industry

Question 1

Strategic Alliances, Merger and Acquisition (M&A) activity

Throughout the 1990s, the corporate scene of the American retail food industry was increasingly transformed by the aggregated impacts of mainly three forces: the unwinding of the financial reengineering of the late 1990s, the supercenter-driven metamorphosis of Wal-Mart from purely general merchandise to leading food retailer, and the shifting antitrust regulation interpretations of the Federal Trade Commission (FTC). Retail FDI into the U.S. market by European retailers played an important role in that transformation. In particular, as the U.S. industry moved through successive waves of regional consolidation, European retailers Ahold, Delhaize, and Sainsbury was a significant force in the transformation of U.S. East Coast markets. Indeed, at one point at the end of the 1990s, retail chains owned by those three firms dominated a large swath of markets stretching from Maine to Georgia, and Ahold was poised to fill an important gap in that coverage via acquisition-based entry into the metropolitan New York/New Jersey market (Diewert, 2010, 07).

The late 1990s proved, however, to be the high-water mark of that wave of retail FDI. Regulatory tightening by the FTC, followed—as financial-market conditions shifted in the early 2000s—by an increasingly contested relationship between the expansionary ambitions of certain European retailers and their suppliers of finance, saw Ahold and Sainsbury retrench from their U.S. positions. In the case of Sainsbury, competitive pressures and an eroding home-market share caused the firm to bow to increasing financial-market pressures demanding a “core-market focus” and to sell its painstakingly built, and solidly profitable, chain of more than 200 Shaw's/Star Market stores in the Boston/New England market. Meanwhile, Ahold's U.S. market expansion succumbed to rather more dramatic financial events. Increasing financial-market worries cantered on the firm's highly leveraged global expansion and ability to control its widely spread international operations, progressively reduced both its equity valuation and capacity to raise new capital. These events were followed, in 2003, by the revelation of financial irregularities that were quickly revealed to involve fraud, and one of Europe's largest corporate finance scandals ensued. The upshot was that Ahold was forced to divest large parts of its international operations, including its perceived “non-core” U.S. retail chains and food service operations, in an attempt to protect the “crown jewel” elements of its global portfolio (Hausman, 2007, 177).

Threat of New Entrants and Substitutes

Threat of new entrants

The market or segment is not attractive depending on whether entry barriers are easy or not to cross by new participants who can come up with new resources and capabilities to seize market share.

Threat of entry of substitute products

A market or segment is unattractive if there are actual or potential substitutes. The situation is compounded if the substitutes are more technologically advanced or may enter lower prices by reducing profit margins of the corporation and industry.

Bargaining power of suppliers and buyers.

Bargaining power of suppliers

A market or market segment will ...