Change the terms of combat

news: Change the terms of combat

Changing the terms of combat is one of the main tenets of a winning business strategy and the market’s reaction to Wal-Mart is a fine example of this.

Since it opened its first Super Centres in 1988, Wal-Mart, the largest retailer in the world, has been expanding its activities from non-foods (lights, clothes, toys, etc.) to the food area (fresh food, dried goods, drinks, etc.).

In both areas, Wal-Mart relies on having the best price (that is, the lowest in the market). The large quantities they order allow for scale economies and the premises and staff add up to a low-fixed cost. The contracts with suppliers (who are penalised if the same item is found to be cheaper in another point of sale), the daily computerised stock control and the weekly global meetings (among regional managers) do the rest.

Cheapest for non-foods, cheapest for foods – this is the main guideline of Wal-Mart’s strategy.

How do American food chains act now that they have to face Wal-Mart? Do they try to fight it with price and win the battle of costs? Or do they try to be even better when Wal-Mart is already excellent?

Not at all. On the contrary, they choose to compete in everything unconnected with cost or price, that is, two things: quality and/or delivery. As far as quality is concerned, there are several aspects (variety, speciality, service, decoration, etc. – each one being a niche). The same is true of delivery (timetable, speed, etc.).

For some examples look at:

Kroger’s: sells itself on decoration by creating a pleasant environment to shop. It offers excellent service, with customer attendance and car or home delivery, and it pays special attention to three sections: wines (it stocks more that 2,500 brands); fresh food (especially in delicatessen and fruit) and offers hundreds of types of flowers.

Albertson’s: concentrate on ethnic food: Mexican (where the tortillas are cooked in front of the customer); Middle Eastern (Israeli, Lebanese), German and Northern European, Chinese, Diet, Vegetarian (from eggsto vegetables and organic cereals).

Central Market: offers 24 hour-delivery to hotels, restaurants, cafeterias and the so-called night market (bars and night clubs), a stock management service (helping companies to manage their stocks), private entities credit card and home delivery.

In short, Wal-Mart chose its way of fighting (price). Its competition does not accept that it must fight on this battlefield and chose another one – quality of delivery (in its various aspects).

The competition positions itself as anti Wal-Mart by opting for a carefully chosen ‘class audience’ against a ‘mass audience’, leaving Wal-Mart to win the price war. This means that it can win something else, where, due to its incompatibility with low price, Wal-Mart cannot win. Wal-Mart’s competition is using what Drucker defined as the essence of strategy – applying scarce resources to the largest opportunities.