Super Selectos: Winning The War Against Multinationals?

Super Selectos Name Institution Due Date Super Selectos Table of Contents TOC \o "1-3" \h \z \u Executive Summary PAGEREF _Toc11389674 \h 2Case Profile and Case Analysis Purpose PAGEREF _Toc11389675 \h 3External Environment Analysis PAGEREF _Toc11389676 \h 3Economic PAGEREF _Toc11389677 \h 4Political and Legal PAGEREF _Toc11389678 \h 7Socio-Cultural PAGEREF _Toc11389679 \h 8Industry Analysis PAGEREF _Toc11389680 \h 9Competition in the Industry PAGEREF _Toc11389681 \h 10The threat of New Entrants PAGEREF _Toc11389682 \h 11Power of Suppliers PAGEREF _Toc11389683 \h 11Power of Consumers PAGEREF _Toc11389684 \h 12Substitute Products PAGEREF _Toc11389685 \h 12Competitor Analysis PAGEREF _Toc11389686 \h 13Internal environmental analysis PAGEREF _Toc11389687 \h 13Employees PAGEREF _Toc11389688 \h 13Organizational organization PAGEREF _Toc11389689 \h 14Organizational culture PAGEREF _Toc11389690 \h 14IT infrastructure PAGEREF _Toc11389691 \h 14Problems identification PAGEREF _Toc11389692 \h 16Highly volatile supply chain PAGEREF _Toc11389693 \h 16Poverty PAGEREF _Toc11389694 \h 16Stiff Competition PAGEREF _Toc11389695 \h 17Unfavorable government policies PAGEREF _Toc11389696 \h 17Strategy formulation PAGEREF _Toc11389697 \h 18Strategic alternatives PAGEREF _Toc11389698 \h 18Expand to rural areas PAGEREF _Toc11389699 \h 18Invest in artificial intelligence PAGEREF _Toc11389700 \h 18Negotiate with suppliers PAGEREF _Toc11389701 \h 19Alternative evaluation PAGEREF _Toc11389702 \h 20Alternative selection PAGEREF _Toc11389703 \h 21Strategic alternative implementation and action plan PAGEREF _Toc11389704 \h 21Conclusions PAGEREF _Toc11389705 \h 22References PAGEREF _Toc11389706 \h 23 Executive Summary For Super Selectos, news of Walmart entering the Salvadoran retail market meant that it had to find ways to not only remain a worthy competitor but also maintain or increase its profitability. Walmart is by far the largest retailer in the world. However, its entry into the Salvadoran retail market offered Super Selectos the opportunity to enhance its operations and to innovate some more. Super Selectos continues to enjoy the largest retail market share, and this is because of the expansion strategies the firm adopted which saw its stores continue to increase in number and spread to all the departments of the country. Different factors affect the operations of Super Selectos. One of them is the slow economic growth of the Salvadoran economy, whose growth has not exceeded 3 percent in the last five years. The political climate, coupled with the fact that the country’s government glorifies corruption, continues to affect the operations of businesses in the country greatly. Poverty is also a major problem in the country. As per statistics from 2015, the average household income for the people of El Salvador is US$ 538.70. However, the monthly cost of living is estimated to be US$ 590. The disparity in the numbers above shows that it can be problematic for a supermarket chain like Super Selectos to achieve its desired financial targets. Even though Super Selectos is the leading supermarket chain, there is still room for improvement. Different strategies can be employed to help propel Super Selectos’ position. Some of the strategies include expansion to the rural areas which are yet to be fully exploited. Super Selectos can also look to invest in artificial intelligence to help enhance activities like data analytics. Negotiation with suppliers can also help to lower the price of products. Case Profile and Case Analysis Purpose Super Selectos is one of the main supermarket chains in El Salvador. It considers itself 100% Salvadoran, and this endears it to the customers who continue to shop in the 99 stores in all the 14 departments of El Salvador. Super Selectos employs more than 7,000 employees and thus is able to support a significant percentage of the country’s population. With 70 years of experience, Super Selectos has endeared itself to Salvadorans, and it remains to be seen how far they can go. The purpose of this case analysis is to help outline how Super Selectos managed to outduel Walmart. Walmart is indeed a major retailer in the world with a great reputation. However, after setting up shop in El Salvador, the 100% Salvadoran supermarket, Super Selectos, has continually made it difficult for Walmart to exert its will upon the Salvadoran retail market. This is thus an analysis of how Super Selectos, with all the external and internal challenges, has managed to not only stay afloat but ahead of Walmart. External Environment Analysis Countries said to be in the developing class have a lot of room for growth. However, a majority of these countries often have a lot of issues which make it difficult for the private sector to grow. The retail market of many countries is flooded by a lot of small companies and a few big ones who often control the market. In the Salvadoran retail market, there are two major retail companies that have cemented their place. These two include Super Selectos and Walmart Mexico y Centroamerica. Super Selectos has worked hard to try and make sure it maintains leadership in the Salvadoran retail market. The environment in which Super Selectos operates in, as are always all environments, is unpredictable. However, like all companies, Super Selectos has to find ways to remain relevant to the people of El Salvador. Over the past few years, the company has adopted several changes which have ensured that it continues to maintain its leadership in the Salvadoran retail market. Its expansion strategy, coupled with the fact that the company markets itself as the ideal Salvadoran supermarket have helped it to outduel Walmart. This section, however, seeks to showcase the environment within which Super Selectos operates. Below is a general outlook of the economic, political, and socio-cultural dimension that could affect or influence the activities of Super Selectos. Economic Operating in El Salvador comes with its challenges. First of all, El Salvador is the “smallest country in Central America” with a “population of 6.4 million (2017)” (World Bank, 2019). The article continues to say that it is “one of the most densely populated countries, ranking in the 83rd percentile worldwide in terms of population density.” El Salvador has struggled economically in the last two decades, and “annual GDP growth has exceeded 3 percent only twice since 2000 and averaged just 2.3 percent in the last five years.” Compared to the other countries in Central America, this growth ranks the lowest, and this greatly affects businesses in the region, including the retail market. The image below shows the economic growth of the country. A close inspection of the curve reveals the sad state of the economy, which continues to experience spurts of growth, which are then followed by slow rates of growth that greatly affect the country’s economy. https://tradingeconomics.com/el-salvador/gdp-growth-annual Even though El Salvador has been experiencing slow growth, compared to a majority of the developing nations, it has one of the lowest interest rates. Currently, as shown in the image below, the country’s interest rate is at 4.24 percent. Aside from the above, the inflation rates in El Salvador are also quite low at 0.8 percent as of May 2019. These numbers indicate that consumers can still be able to afford products. With interest rates and inflation rates low, consumers are thus able to afford products being sold in outlets like Super Selectos. The images shown below help to showcase the inflation and interest rates of the country. Interest rate: https://tradingeconomics.com/el-salvador/interest-rate Inflation rate: https://tradingeconomics.com/el-salvador/inflation-cpi Thus far, the economy has not hampered the activities of Super Selectos as it continues to soar locally, albeit at the threat of being dethroned by Walmart. It should also be noted that El Salvador continues to benefit greatly from “inflows of workers remittances, totaling US$5.4 billion in 2018” (World Bank). This figure equals to 21.3% of the country’s GDP. So, El Salvador continues to find ways to exceed expectations and still grow, albeit slowly. Political and Legal The political climate in El Salvador remains one of the most hostile in the world. Currently, the country boasts of the highest homicide rates in the world. Criminal gangs rule the streets and make life quite unbearable for the people of El Salvador. According to the Human Rights Watch 2018 report, gangs “exercise territorial control and extort residents in municipalities throughout the country. They forcibly recruit children and subject some women, girls, and lesbian, gay, bisexual, and transgender (LGBT) individuals to sexual slavery.” The gangs are quite dangerous and exercise their power over government officials, journalists, citizens, highly ranked individuals, and anyone who tries to resist or fight them. In such a country, a private company like Super Selectos has to act with a lot of care so as not to cause friction or anger the gangs. The government has also been involved in issues to do with corruption and other abuses which could easily interfere with the business climate in the country. Without a responsible and accountable government, it is indeed impossible for a country to sustain development at the highest level. For a company like Super Selectos, the government is a key player whose decisions directly influence the company’s success and/or failures. A 2017 article from Export.gov notes that “political polarization, inconsistent and burdensome commercial regulations, an ineffective judicial system and widespread violent crime undermine El Salvador’s investment climate.” A government’s consistency greatly influences investment in a country. However, it is crucial to note that the Salvadoran government has been working to ensure that it improves it makes its environment conducive for businesses. In 2014, for example, the then president of El Salvador, Salvador Sanchez Ceren, together with his counterparts from Guatemala and Honduras came up with the Alliance for Prosperity in the Northern Triangle. Export.gov (2017) reports that “the plan involves joint efforts to promote economic integration in the Northern Triangle of Central America; to invest in human capital; to provide greater opportunities to all citizens; to ensure more accountable, transparent, and effective public institutions; and to guarantee a safe and secure environment for their people.” The promotion of economic integration between these three countries could indeed be helpful to Super Selectos. On the one hand, Super Selectos could decide to expand to Honduras and Guatemala because economic integration could mean non-tariff restrictions as well as the complete abolition of tariffs. Politically and legally, Super Selectos has indeed been greatly impacted by the actions and lack thereof of the government. Socio-Cultural These factors mainly involve the state of the people, what they believe in, and their status as well as how these things could impact the activities of Super Selectos. The demographics of the people of El Salvador is of great importance to the success and/or failure of Super Selectos. As already indicated, El Salvador is not a rich country, and because of consistent corruption and impunity, a significant percentage of the country’s population continues to languish in poverty. The image shown below provides a clear picture of how the country continually neglects its people, and this often rubs off on retail giants like Super Selectos. In 2015, the Pan American Health Organization reported that the “national average monthly household income in 2015 was US$ 538.70 (1.1% greater than in 2011).” However, there was a big disparity between the rural and urban areas with the former being US$ 373.90 and the latter being US$ 630.10. With such numbers, it is indeed impossible to feed a family or to continually sustain one and frequent a store like Super Selectos. With regards to the above, Mackey (2017) from Equal Times reports that “the estimated monthly cost of living is about US$ 590,” a figure that is above the average income of a household. However, the government has been trying to help improve the situation by increasing the country’s minimum wage. In her article, Mackey (2017) notes that the government revised the salaries of maquila or free-trade manufacturing. She reports that since the beginning of the year 2017, “the salaries of maquila workers have increased by nearly 40 percent, from US$ 211 to US$295 per month.” Other sectors, including but not limited to coffee and cotton also saw improvements in the minimum wage. However, and as is always the case, the private sector decided to fight back. Business lobbies have been at their best and have been “issuing legal challenges,” factories have been “firing workers, and other businesses” have threatened “to relocate to countries with cheaper labour costs” (Mackey). However, in spite of the above, El Salvador is indeed making strides towards an economy where people can support themselves. This directly impacts businesses like Super Selectos, which could post improved sales in the future. Industry Analysis In this section, the analysis will be based on Porter’s Five Forces model. This model helps to identify and outline the competitive forces of an industry. Through this model, the strengths and weaknesses of an industry are revealed, and one is able to understand how an industry responds to the changes in the economy of a country. The model includes five elements, and these include Competition, the threat of new entrants, the power of suppliers, the power of consumers, and the threat of substitute products. Below is an elucidation of each of these elements and how each impacts the activities and profitability of Super Selectos. Competition in the Industry In the Salvadoran retail market, competition is quite high. The retail sector in El Salvador continues to grow, and this often means more room for growth for the retail companies. Super Selectos and Walmart Mexico y Centroamerica are the two dominant players in El Salvador. Competition between these two has become intense as each seeks to outduel the other. Currently, the 2018 USDA Foreign Agricultural Service report indicates that Super Selectos and Walmart have 99 and 97 stores, respectively. Super Selectos is still the dominant player in the Salvadoran market, but competition from the local retail businesses as well as Walmart continues to increase. Aside from these two, there is also PriceSmart El Salvador, which has its headquarters in San Diego, California. Currently, PriceSmart has two stores in El Salvador, and it is also slowly making and finding its way in the Salvadoran retail market. These three giants are battling it out against other small players, which include “open-air markets, corner-stores, and convenience stores at gas stations” (USDA, 2018). Open-air markets are quite common around the world and offer customers fresh groceries at very affordable prices. While in an open-air market, one can get vegetables, meat, fruits, and poultry, among other products. However, with the threat of gang violence in El Salvador, these markets only attract people with low incomes. Convenient stores have also exploited the gaps in the retail market as well. Currently, they offer more products, including meals and other drinks which attract customers as well. Finally, the USDA report indicates that the number of corner-stores in the Salvadoran retail market is “estimated to be around 70,000 across the country.” The article continues to note that “lower-income consumers are their main customers, and small packages are preferred.” So, it is indeed quite difficult to succeed in the Salvadoran market without a proper strategy to offset the competition. The threat of New Entrants In an industry where three giants have cemented their place, it seems incredibly difficult for new entrants to cause any damage. Super Selectos, for example, has been in existent for 70 years. The supermarket chain considers itself 100% Salvadoran and often rides on this attribute as it seeks to expand to other parts of the country. Super Selectos employs 7,500 employees and “have a wide range of more than 40,000 products.” Currently, “an approximate range of 5,000 brands is offered to customers” (Super Selectos, 2017). As one of the giants, Super Selectos has indeed made itself indispensable in the Salvadoran retail market. Another giant by the name of Walmart entered the scenery of Central America in 2005 and has already become the second largest supermarket chain in El Salvador. These two rule the markets. However, there is also PriceSmart, which in spite having two stores, has made a name for itself with estimated annual sales of over 150 million dollars. With the market already dominated by these three major players, it is indeed difficult for new entrants to make their way up successfully. However, giants like Walmart have shown that they can force their way into any market, and thus, it remains to be seen whether the place of the top three will be threatened in the near future. Power of Suppliers Suppliers often have a lot of power, and their decisions could directly impact the operations of a supermarket chain like Super Selectos. In their website, Super Selectos notes that they have “4,894 active suppliers, 4,026 of them are local and 868 foreigners.” These suppliers have helped the supermarket chain to develop and diversify its brands. For suppliers, the fewer the number, the bigger the impact they can have on the operations of a supermarket chain. However, as the numbers indicate, Super Selectos has many suppliers, and even though each of the suppliers wields power over the company, the large number of suppliers shows that Super Selectos cannot be held hostage by a single supplier. Switching from one su...