A strategy for survival.
The primary strengths of the super warehouse store are relatively clear. They include aggressive pricing strategies with operating efficiencies and economies brought by high sales volumes. Strong perishables programs, superior store facilities, emphasis on labor productivity and aggressive procurement also contribute to the success of these operations.
Still, the super warehouse store has shown some weaknesses. And there is a nagging concern about the ability of these large outlets to produce the necessary return on investment. Consumer research shows that many shoppers are "turned off" by the sheer size of the stores and the relatively long checkout lines. Other customers find they must shop elsewhere to round out their shopping needs.
Nonetheless, the super warehouse stores are capable of capturing a signficant share of business in many markets. To compete against these stores, a retailer's response should probably be dictated by the situation in his market.
One tool that can be helpful in selecting a response is the competitive strategy matrix; (See Illustration.)
While there are many factors that must be considered in selecting a strategy, such as a competitor's own positioning in the market and the strength of individual competitors, the matrix helps to identify a broader range of workable options.
Company Position covers the relative share of market held by a particular company. A dominant company holds either the highest or second-highest market share, while secondary companies include all those ranking third or lower.
Market Structure refers to the total share of market held by the top three or four retailers in a market. If this share is relatively high, 60% or more, the market is considered to be concentrated. If the market share is less than 60%, the market is considered fragmented.
Let's now review the situation and the strategies available to retailers who find themselves in each of these situations.
1. A dominant retailer in a concentrated market--Retailers in this position are faced with the prospect of losing a significant amount of business to the new super warehouse store because there are relatively few other sources from which the business can be obtained.
In this situation, a dominant retailer must realize that there is a segment of customers that is probably best served by the super warehouse store and must decide whether it makes sense for him to try to serve that segment. If the answer is "yes," he could open his own super warehouse store. This option also allows the operator to contain the growth of other super warehouse stores in that market.
2. A dominant operator in a fragmented market--In this case, a dominant operator would generally lose a smaller portion of his business to the super warehouse store because a larger portion of the business in the market is in the hands of other, smaller operators. The dominant operator may therefore choose to ignore the consumer segment that is attracted to the super warehouse store and concentrate on customers who are attracted to other types of retail food outlets. Since the dominant operator has already demonstrated his strengths in competing for this large segment of the market, he should be able to at least maintain his share with this strategy.
3. A secondary operator in a concentrated market--The impact on this operator will depend in large measure on his position in the market. (In this case, it is assumed that many of the weaker operators have already withdrawn from this market and that all those remaining are relatively strong.) The price-oriented secondary operator can expect to lose a significant amount of business because his position in the market will be "upstaged" by the super warehouse store. By contrast, the service or "variety-oriented" operator will lose some business, but this loss should be considerably smaller than that experienced by his price-oriented counterpart.
In this scenario, the best market position seems to be a non-price niche that may involve some type of "trading up" or an emphasis on convenience. These are some of the areas where the super warehouse store fails to satisfy customers.
4. A secondary operator in a fragmented market--In this case, the impact is determined by whether the secondary operator is serving a distinct market niche and whether that niche is, in fact defensible. The undifferentiated operator in this setting will be much more vulnerable.
Some secondary operators could consider developing a non-price niche similar to the one described in situation number 3. For other operators, it will make sense to develop a strong price reputation to serve price-oriented shoppers who feel the super warehouse store is far too in-convenient to shop. This can be effective but it's important to emphasize that a retailer must avoid using a first or second generation warehouse store to compete directly with a third generation operation--the super warehouse store.
Retailers must remember that even though the super warehouse stores are strong and worthy competitors in many markets, there will always be profitable and significant customer segments whose needs are not best served by these stores. Operators who recognize this opportunity and try to exploit it should have much more success in the future than those who simply strive to compete head-to-head for the same market. Super warehouse stores are tough competitors, but it is improbable that they will be able to capture much more than a 20% share in any given market. It is among this "unserved" 80% that the opportunities really exist to successfully compete in the super warehouse store environment.
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|Author:||Bishop, Willard R., Jr.|
|Date:||Nov 1, 1984|
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