Case study Answers

Question 1: Analyze Albertsons using the value chain and competitive forces models

1.1. Value chain analysis for Albertsons

Two pronged approach by the CEO and president of Larry Johnston show an intension by
Albertsons to address cost leadership and Competitive differentiation: the approaches by
Albertsons is to keeping costs down and making shopping experience more compelling.
From this, one can understand what lies behind this successful brand. While the importance
of keeping prices low is not lost to Albertsons the value of better and easier customer
experience has not been neglected.
1.1.1. Albertson’s Primary Activities
a. Inbound Logistics

Even though not as enormous as Walmart’s, Albertsons value chain is of a significant

size. Albertsons is working to reduce costs in its supply chain to offer more competitive
prices. Distribution centers have been consolidated with web technology used for
shipping coordination which reduces billing and invoicing costs. Moreover, through the
efforts of the company’s CTO Bob Dunst Albertsons had already added electronic data
interchange (EDI) capabilities to enable better processing of transactions with suppliers..

However, the store sales information sharing mechanism provided to suppliers which
Walmart has capitalized on has not been successfully duplicated. What Albertsons have
in this regard is no way near that of Walmart. If one cannot add value to suppliers by
providing up-to-date information to improve efficiency the prices one gets will not be
lower meaning the retail prices for the products would be higher or the company would
have to sell at a lower profit margin.

b. Operations

Although not an explicit objective of Albertsons, in pursuit of the self-service/checkout

stores model seems to reduce the number of employees their stores might need giving the
company an advantageous cut in costs.
 c. Outbound Logistics

Consolidated distribution centers are of value here also as they provide better organized
inventory management.

d. Marketing and Sales

Through the use of loyalty cards Albertsons would promote new deals and options to
customers. Moreover, customers can request and be alerted for items they would not find
in typical stores or Walmart through the loyalty card system. These however is
overwhelming to people who just want to buy eggs and milk. Walmart often keeps the
whole technological aspects in the background so as not to overwhelm customers.

e. Service

The big bet Albertsons are making on is that of an advanced self-service store solution
which starts at home based on internet and GPS. People can choose items they want to
buy online and once they get to the store they would just pick their items and scan them
with scanning units they would exchange as they enter the store. There the scanning unit
would guide them through the store more efficiently. All this is supposed to speed up the
process of shopping. In addition through the loyalty cards people can provide information
regarding allergies which can be used to warn them when they buy items with allergens.

1.1.2. Albertson Supporting Activities

a. Research and Investment
Heavy investment, upto 500 million USD, has been made on information technology
solutions and infrastructure upgrade. This is the big push by Albertsons leaders to
ensure a more advanced information systems based distribution and service system.
This is a page from Walmart’s book yet Albertsons have added some modifications
with more intent into creating a hassle free customer self-service as well as web based
support for customers to choose items they plan to buy along with a gps based
guidance to stores near them. They seem to be planning stores of the future.
 b. Human resource

At the corporate level, Albertsons has created a team with major experience and brain
power picking top people. However, employees in stores seem under motivated as the
self-service checkout would mean cut in personnel.

1.2. Competitive forces analysis for Albertsons

1.2.1. Bargaining power of buyers (customers at retail store)
a. Bargaining power of customers
Currently the supermarket or retail store competition is high which makes buyers have a
reasonably high power. Tech savvy customers and those in suburban areas might be those
Albertsons have better position at.
b. Switching barriers for the demand side

Defecting of customers is a common occurrence in the retailer industry. This can happen
due to prices mainly. The retail industry is saturated in the US where Albertsons stores
are based in. as such switching barrier of customers is quite low.

c. Value proposition for customers:

The credo of Albertsons “make life easier for our customers” implies one of the key
value propositions of the company. To make the shopping experience of customers
simpler and faster is a path Albertsons is taking in addition to the industry standard of
providing low priced products from different suppliers. The self-service checkout model
is the manifestation of this aiming to remove the waiting in queue out of the retail service
equation. This would mean faster checkout. In addition to this through the loyalty card
model of serving customers they propose to identify declared allergies by customers and
warn them when they choose items with such allergens. Other than that, having items that
are not easy to find in other stores is also part of Albertsons value proposition to
customers.

d. Buyer information availability

 These days, through the advent of platform businesses that compare prices for customers
online it would be logical to expect buyers to have enough information about price of
items in different store.

1.2.2. Bargaining power of suppliers (Albertsons suppliers)

a. Bargaining power of supply side

While Albertsons do command a significant bargaining power over the supply side given
their size, their suppliers would be more subdued by Wal-Mart. Having a shelf space in
big brand retailers is still a prestige for suppliers which means the bargaining power of
supply side is offset by the value placed on such a prestige.

b. Switching costs of the supply side:

It would be a little disappointing for suppliers not to have a shelf space at a known brand
retail store but in the race of the giant retailers of the US, it is the case that those with
more stores are the ones that matter for suppliers and in geographical distribution
Walmart is leading as it is even the only store at the city which Albertsons call their
headquarter.

c. Value proposition for supply side

The value proposition for the supply side does not compare as great as that of Walmart
who promises to provide sales information every 15 minutes to help suppliers in their
strive for efficiency which would save them a lot of cost. Albertson can only promise to
give suppliers access to store aisle/shelf space but such value is the case for the other
retailers as well.

1.2.3. Threat of new entrants

The entry barrier for superstores/retail industry in the US is quite steep. Hence threat of new
entrants is low. However, experienced foreign based retail industry giants might enter the market
through acquisition of existing lower ranked retail firms in the US. Hence, following up news of
Asian or European retail giants would be sensible.
1.2.4. Threat of alternative services (ecommerce)

The rise and availability of online accessible and delivery integrated e-commerce solutions
through platform businesses is a major threat for retailers all over the world. This is especially
true for the US. Amazon and similar companies are capitalizing on such approaches. In addition
to this suppliers are nowadays selling products through their own websites which means they set
the low price in addition to taking the chunk of share

1.2.5. Rivalry among existing Competitors

The rivalry in the retail industry is almost cutthroat. Given the elasticity of the demand side
making a small change in price would end up getting customers to defect to other brands if theirs
is lower. Moreover, getting there first is very important as most of the small towns in the US can
only support one giant store and opening second would not be worth it. In addition the biggest is
given the most leeway by suppliers in terms of price bargains as such being the biggest is all
most of the retailers think about and invest heavily upon.

Question 2: What role do information systems play in Albertsons’ business

strategy? How do systems provide value for Albertsons?

Information systems seems to be at the core of Albertsons’ business strategy as it is on which the
company made half a billion dollar investment. The role Information plays in Albertsons’
business strategy is multilayered. On the corporate level access to aggregated information
regarding operations and overall value chain pricing analysis for better decisions is pivotal in
driving the company to be a better competitor to Wal-Mart and other retail giants. On the
distribution centers level information systems play a key role in better coordination of shipments
and keeping low inventories. This can be demonstrated through their use of web based
technology for keeping track of shipments. Moreover, efficiency and cost reduction in their
invoicing and billing activities are also benefits reaped from using information systems. Last but
not least, in stores the self-checkout systems help make the experience of their customers much
faster when shopping which happens to be their primary value proposition. In addition through
their loyalty card system they can get customers to easily browse through the products available
in store via internet.
Systems provide value for Albertsons by either cutting costs when compared to the old ways of
doing things, or by providing a unique advantage such as insights into what pricing and volume
sales thread off to make and how to stack inventory based on sales information. In addition to
this, the self-checkout model which can only be realized through extensive use of information
systems helps cut the cost of personnel as it removes cashiers from the equation.

Question 3: Compare Albertsons to Wal-Mart in terms of business strategy, current

success and future success.

Albertsons vs Wal Mart in Business Strategy

The strategy by Albertsons is to make use of information technology to cut costs and create a
faster simpler shopping experience. Moreover, the company is betting on the great minds of the
retail industry for its management so as to create a solution for improving its profit margin.

Walmart on the other hand is making headway in acquiring availability in more places even
through smaller stores where the big ones are far from ideal location. Moreover, it is providing
value for suppliers which helps in getting suppliers to keep their prices lower for Walmart.

Current Success

Albertsons gets 1.4cents per dollar it spends while Walmart gets a wapping .0.3 cents on every
dollar spent. Albertsons is currently ranking in third place in terms of groceries while Walmart is
at the top. Albertsons have better success in suburban areas while Walmart is more into small
towns.

Future Success

Albertsons may get more value for its self-checkout stores as technology trends are pushing
customers to be more tech savvy. With further improvement and modification to its information
technology endeavors Albertsons will eventually succeed in closing the profit margin gap to that
of Walmart as the analysis tools currently put in place will eventually help Albertsons get to keep
inventories as low as Walmarts and provide suppliers similar information in a more uptodate
manner.

Meanwhile, Walmart would probably expand its presence outside US and have more access to
international customers. Albertsons is not as intense on this as Walmart.
Business Strategy Items Albertsons Wal-Mart
Strategy
Components
Business Strategy Current Future Business Current Future
Success Success Strategy Success Success
Unique Customers to serve More tech savvy Suburban Youth Everyone Small
value customers areas and towns
proposition young
couple
Needs to meet Grocery,
pharmaceuticals
Pricing Very Much
low(discount) lower(disc
ount)
Additional Value
propositon
for
suppliers
by
providing
sales
informatio
n every 15
minutes
Tailored Activities Suppliers Suppliers
value chain ->distributions ->distributio
Centers->Stores ns Centers-
>Stores
Competitive
Advantage
Set of choices

Strategic Keep
tradeoff technology
in the
 backgroun
d. Do not
overwhelm
customers.
(Walmart
is testing
the self-
checkout
model
though)
Fit across
value chain
Continuity

Question 4: Which management, organization and technology factors hinder Albertsons from
achieving the goals of its business strategy? Which Management, organization and technology
factors help Albertsons achieve its goals?

A. Management and organizational factors

The major factor that hinders a key objective from being achieved is how employees unionized
and strongly oppose the self-checkout store model Albertsons is pursuing. This model seems to
remove the need for employees and is creating a discontent which in addition to the opposition
movement, demotivates employees from doing the best job they can. Moreover, the publicity in
itself is a smear on the brand.

B. Technology factors

The main challenge here comes from customers who are not necessarily tech savvy and often
find foreground technology (self-checkouts, scanning barcodes for items, going online to prepare
their cart) overwhelming. Hence, convincing folks living in small towns to use these would be a
challenge.

In advent of platform businesses that help compare prices of products and e-commerce
alternatives are also challenges that would hinder not just Albertsons but all retailers.
Question 5: Do you think Albertsons’ Business strategy will work? Why or Why not?

The three key points in the business strategy of Albertsons are high caliber management team,
heavy investment in information technology both in the background and foreground of business
operations, a new value proposition for customers through self-checkout store with speedy
checkout times and other additional benefits through loyalty card based information. These are
supposedly going to help the company beat Walmart as the number one retailer or at least lessen
the profit margin difference. This however, does not consider the presence challenge as Walmart
is present in more areas than Albertsons. In addition given the saturation of the US market the
strategy has not considered pursuing areas outside US. As such the Albertsons business strategy
might not fully be successful. A few changes might come as a result of the distribution centers
which integrate information systems. Other than that suburban areas where the company is more
successful will probably adopt the self-checkout models for store although nationwide it would
be doubtful.