FIAne – 020220A – GCro - P0
Competitive Strategy
Geoff Crossley
CEO, Eurocash Food Service & Gas Stations
Group Director, Investor Relations
October 2009, Poznan
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FIAne – 020220A – GCro - P1
Objectives today
 Give you a brief introduction to Eurocash
 Share a personal view of the changing context we strategize in
 Sum up the teachings of Prof.M. Porter of Harvard Business School
 Illustrate how to apply basic concepts
 Get some interaction with you
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FIAne – 020220A – GCro - P2
Eurocash – Market leader consolidating a fragmented sector
7,0
Eurocash Group sales and market share evolution
6,5*
20%
18%
6,0
16%
4,7
PLN bn
5,0
14%
12%
3,8
4,0
8,7%
3,0
6,9%
1,0
1,5
2,6%
1,3
2,3%
1,7
6%
2,8%
4%
2%
0,0
0%
2003
2004
2005
Eurocash Group pro-forma sales
2006
2007
 Relatively limited credit exposure
 Central head office synergies
 Experienced management team
2008
Share in wholesale FMCG market
Wholesale market – key players (2008)
Other
60,3%
 Self-financing, net cash position
10%
8%
6,0%
2,0
EUROCASH GROUP
Eurocash Group
8,7%
Strategies in place to be leader in :
Makro-FMCG
(C&C)*
6,2%
Emperia**
6,0%
CEDC (A)
5,3%
Selgros (C&C)
3,9%
Ruch (T)***E
3,5%
Source: Rzeczpospolita 500, Polityk a 500, GfK Polonia, company data, own estimates
* Makro FMCG turnover estimated at app. 60% of Makro total
** Emperia - wholesale sales only; *** Ruch: non-press FMCG;
C&C – Cash&Carry; D: Direct delivery; T: Tobacco; A: Alcohol; E: estimated data
Lekkerland (T) E
Kolporter (T) E
3,6%
2,5%
 C&C in small/medium cities
 Franchise systems, nationwide
 Impulse and Convenience for
Traditional Shops and Gas Stations
 Food Service and HoReCa
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FIAne – 020220A – GCro - P3
Outlook for 2009
„Our strong balance sheet allows us to look at 2009 as a year of opportunity,
when weaker market participants will face real challenges”
Luis Amaral CEO
Cost & price leadership
Sources of future growth
Strict cost control and
focus on productivity gains
LFL and market share growth
Low CAPEX
Cash&Carry: 6-8 new stores p.a.
Low exposure to credit sales
Delikatesy Centrum: 80+ new
franchise stores (new regions)
No debt – cash + unutilized
credit lines available
McLane: more sales to gas stations
development of food service
Stable earnings and focus on cash
(negative working capital)
KDWT: growing non-tobacco impulse
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FIAne – 020220A – GCro - P4
Phases in recent memory of working life
The changing context for Strategy formulation
Postwar to 60s
Business Context
•General growth
•Common Market
•Job was for life
70s, Oil-shock
80s
00s?
• Discontinuity
• Uk led privatisations
• Different impact
• Defeat of unions
depending on energyintensity of industry
• Collapse of Soviet Union
• Europe 92 open borders
• EU enlargement, Euro
• Oil at 9 USD
• Financial deregulation
• Portfolio Planning
• First use of Pc..
• Resource allocation • Outsourcing
• Productivity thru
People
• Arrival of Private
Equity in Europe
• Globalisation, emerging mkts
• Start of Venture Capital in EU • ?????
• Technology-based productivity
growth
• Cost cutting
• Operational excellence
Business trends
•Diversify
•Divisionalize
90s
• Securitisation
• Leverage
• Bubbles
• Oil at 140 $
• Crashes
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FIAne – 020220A – GCro - P5
XXI st Century Competitive Context
Decreasing Scale
effects
Falling barriers to
competition
Supremacy of
Knowledge Assets &
Skills
Company
More exigent
customers & microsegmentation
Technological
Progress
Compression of Time
and Space
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FIAne – 020220A – GCro - P6
Europe in the Era of Total Competition
Porter’s Themes :
1.
Distinguishing Strategy from Operational Effectiveness
2.
Shaping Industry Structure
3.
Choosing a Distinctive Competitive Position
4.
Positioning and the Value Chain
5.
Trade-offs
6.
Continuity in execution
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Determinants of Company Performance
Operational
Effectiveness
• Functional (e.g., marketing, production) excellence
• Eliminating waste and achieving greater output from existing resources
• Stimulating continuous organisational improvement
• Executing closer to the productivity frontier
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FIAne – 020220A – GCro - P8
Determinants of Company Performance
Operational
Effectiveness
Strategy
• Creating a unique
•
and sustainable
competitive position
Transforming or
redefining competition
in the industry
– Improving operational effectiveness preoccupies companies a
lot of the time
– ..but Companies must shift their attention to strategy to secure
long-run success
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FIAne – 020220A – GCro - P9
Competitive Strategy
– The central goal of a firm is superior long-term return on investment
– The fundamental unit of strategic analysis is the industry
– Company performance results from two distinct causes
Industry
Structure
Relative Position
Within the
Industry
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FIAne – 020220A – GCro - P10
Determinants of long term sector profitability
Slowdown, Wholesale consolidation
Rivalry of Category specialists,
Regional and Full-range players,
Bargaining Power,
Suppliers
Threat of subtitute
Products/services
Rivalry between
existing competitors
Tobacco and beer/ strong
alcohol producers
Threat of new
entrants
Petrol Convenience Stores
• High Street outlets with location
• Fast Food outlets
• Supplier direct delivery
• Outsourced Chain Operators
Bargaining power
of Oil Cos
Use of Bid
dynamics and
contractual
service penalties
Emperia
LogPol
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FIAne – 020220A – GCro - P11
Positioning and Segmentation
Customer Group
(Needs,
Accessibility)
Value Chain
(Activities)
Positioning is the simultaneous choice of
 which group of customers to serve,
which array of product varieties to offer, and
the particular mix of value (price and non-price) to deliver
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FIAne – 020220A – GCro - P12
Actionable segmentation: basic principles
Clients
Occasions
Dimension A?
Consumers

Needs
Geographical areas
Services
Competitors
Dimension B?
Products




Transactions
Channels

Chosen dimensions must be exhaustive
– Demographics
– Situational
 Requires intuition to map primary dimensions
– Behavioural

Must produce differentiated segments that are actionable
– Recognizable clients groups
– Needs versus observable discriminating characteristics


Facilitates understanding of needs, how to serve
Allows segments prioritisation
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FIAne – 020220A – GCro - P13
Positioning and Segmentation
Customer Types / Purchase
Occasions
Competitor B
Competitor A
Product /
Service
Varieties
Competitor C
•Positioning choices show in the particular configuration of activities adopted
•Essence of strategic positioning: making choices that are different from those of rivals
•Competition occurs primarily in the areas of overlap
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FIAne – 020220A – GCro - P14
Positioning and the Value Chain
Firm Infrastructure
(e.g. Financing, Planning, Investor Relations)
Human Resource Management
Support
Activities
(e.g. Recruiting, Training, Compensation System)
Technology Development
(e.g. Product Design, Testing, Process Design, Market Research, Material Research)
M
a
Procurement
(e.g. Raw Materials, Advertising Space, Health Services)
r
g
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
After-Sales
Service
(e.g. Data
Collection,
Material
Storage,
Customer
Access)
(e.g.
Component
Moulding,
Branch
Operations,
Underwriting)
(e..g. Order
Processing,
Warehousing,
Report
Preparation)
(e.g. Sales,
Proposal
Writing,
Advertising,
Trade Shows)
(e.g. Installation,
Customer
Support, Repair)
i
n
Primary Activities
– Companies are collections of discrete activities, in which competitive advantage resides
– Discrete activities are often complementary
– Positioning choices are reflected in an internally consistent configuration of activities
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FIAne – 020220A – GCro - P15
Positioning and Competitive advantage - Eurocash service to Petrol Chains
Positioning choice:
 which group of clients to serve?
 which range of products to offer?
 what mix of Value(price/non-price)
Lower Cost
Competitive
Advantage
Groups of
clients,Needs,
Value Chain
(Activities))
Buying Power
Logistic cost
Service level
All in one truck
E-invoice
Error reduction
• Are Petrol Chains interested only in
minimised Bid Prices ? (other factors
only “Nice to have”) ?
• Are factors reducing Total cost for the
Client relevant? Is “Lowest Total Cost” a
relevant Strategy for the Wholesaler?
• Is there scope for a Value-Added Service
Strategy, (implying a price premium) ?
Differentiation
(Non-Price Value )
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FIAne – 020220A – GCro - P16
Positioning and the Value Chain
Eurocash Petrol Stations service
Long term advantage
depends on the
complementarity of
multiple activities that
exceed specific skills or
resources
Firm Infrastructure
Human Resource Management
Support
Activitie
s
Technology Development
Procurement
Inbound
Logistics
Marketing
& Sales
Operations
AfterOutbound
Sales
Logistics
Service
M
a
r
g
i
n
Primary Activities
McLane’s particular mix
– Hi volume in common producers gives buying power
– Full-range means bigger drop and greater Warehouse
throughput
– Multi-temp allows consolidation of chilled and frozen volume
with ambient
– Common, hi volume skus means better use of space and capex
– Use of technology to make life simple ties the client
– Multi-client back-office dilutes cost to serve
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FIAne – 020220A – GCro - P17
Positioning - IKEA, Sweden
Customer Group
(Needs, Accessibility)
IKEA focuses on young, price sensitive,
first-time buyers
Value Chain
(Activities)
– Low-priced, modular, ready-toassemble designs
– In-house design of all products
– Wide range of styles in huge
warehouse stores
– Self-selection / Large inventories
– Extensive information in the form
of catalogues, do-it-yourself
videos, explanatory ticketing, and
assembly references
– Long hours of operation
– Suburban locations with large
parking lots
– Self-transport
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FIAne – 020220A – GCro - P18
Complementarities at IKEA
Customer Behaviour
Staff Productivity
Limited Sales
Staffing
High traffic store layout
designed for impulse
purchasing
Explanatory catalogues, informative
labelling and displays
Suburban locations with
large parking lots
Self-selection from
warehouse; self-assembly
Increased variety with ease
of manufacturing
Ample inventory
on site
Low Manufacturing Cost
Modular designs
Ease of transport and
assembly
Most items in
inventory
Self-transport by
customers
Modular Kit Concept
‘Knock-down’ kit
packaging
More impulse
buying
In-house design
focused on cost of
manufacturing
Ample year-round
stocking
Increased likelihood of
follow-on purchase
100% sourcing
from long-term
suppliers
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FIAne – 020220A – GCro - P19
Positioning Tradeoffs - IKEA, Sweden
IKEA
Typical Furniture Retailer
•
Low-priced, modular, ready-toassemble designs - no custom
options
•
Higher priced, fully assembled products
- some customization of fabrics, colours,
finishes
•
Centralised, in-house design of all
products
•
Furniture purchase and merchandising
only
•
Furniture design and manufacture
driven by cost
•
Primary design and manufacturing focus
on image / style / materials
•
Wide range of styles in huge
warehouse stores
•
Medium sized furniture showrooms
•
Self-selection / Large inventories
•
Low inventories / order placement
typical
•
Suburban locations with large
parking lots
•
Urban / suburban locations
•
Extensive information in the form of
catalogues, do-it-yourself videos,
explanatory ticketing, and assembly
references
•
Product information provided by store
sales personnel
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FIAne – 020220A – GCro - P20
Complementarities and Competitive Advantage
– The presence of complementarities make competitive advantage far
more sustainable than advantages arising from discrete activities or
“competencies”
• Rivals must match a whole array of activities and the way they are
integrated
• Complementarities amplify the competitive penalty of small shortfalls in
matching individual activities
• Achieving complementarities is difficult organisationally
– Strong complementarities also elevate the tradeoffs between positions
– Complementarities also allow organisational structure and management
process to be better aligned with strategy
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FIAne – 020220A – GCro - P21
Why Companies Fail to Choose Strategies
Economic
– The need to choose is not understood
• Operational effectiveness is confused with strategy
• Better productivity creates the illusion that the best of all worlds is possible
– Choice appears to constrain sales growth
– Choice limits flexibility
Organisational
– Stalemate between factions / functions within the organisation who are
championing different objectives
– Organisational incentives punish choices but tolerate mediocrity (if the
competitors are doing it . . .)
– Denying tradeoffs is seen as motivating greater organisational improvement
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FIAne – 020220A – GCro - P22
Strategic Mindsets
Strategy is a race to
one ideal position
Key success factors
or core capabilities
determine the winner
Strategy is the creation
of a different position
where competitors are
unable or unwilling
to compete
Long-run advantage
depends on
complementarities
across many activities
that transcend (and give
value to) discrete
capabilities or resources
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FIAne – 020220A – GCro - P23
Strategic Continuity and Continuous Improvement
– Strategic continuity over sustained periods contributes strongly to sustainable
competitive advantage
• Reinforces identity with customers and channels
• Builds truly unique capabilities and skills
• Sharpens understanding of tradeoffs
• Fosters strengthening of complementarities
• Facilitates improvements in operational effectiveness
– Strategic continuity must be combined with continuous improvement in
implementation
– There is often a tension between achieving sustainable advantage and
maintaining the flexibility to respond to any structural change
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FIAne – 020220A – GCro - P24
Fundamental Errors in Competitive Strategy-M. Porter
– Operational effectiveness instead of strategy
– Ignoring or only reacting to industry structure
– “Best of all worlds” instead of tradeoffs
– Competencies instead of strategies
– Flexibility instead of continuity
– Sloppy, incoherent implementation
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FIAne – 020220A – GCro - P25
Final Words of advice
Watch macro-economic game-changers: build your own memory for later déjà vu
moments
–
Use of Debt, health of Balance sheet,
–
Relative interest rates, Exchange rate swings
–
Opening of Trade Barriers
–
Drivers of the price of Oil... Etc
Watch for the Herd instinct of managers

All Rush into new markets, then overcapacity results, and withdrawal

Blind copy of their home business model, not adapting to new country

Corporatist , not entrepreneurial

Prone to buzzwords and fads- form your own view.

Nothing stays the same: When in doubt, steer with your Values and a simple
check-list
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FIAne – 020220A – GCro - P26
Thank you for your attention!
www.eurocash.com.pl
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