|
|
|
|
|
safeway
|
|
|
EXECUTIVE SUMMARY Safeway was competing in imperfect competition. Because of the structure of monopolistic competition Safeway had to look for new and improving ways to be able to compete with new chains. Another challenge for the firm was its old and outdated stores that needed major renovations. Because of negative financial situation Safeway was not in a position to be able to remodel all of its stores. My recommendation would be to start with most profitable stores in urban areas where the competition is the highest and then to move to less profitable stores. Safeway was highly unionized and it didn’t have enough room to squeeze out enough cost savings to offset the higher cost/wage structure. To compete with nonunion shops, it had to either trim labor cost or jobs. In my opinion, Safeway’s management was not persuasive enough when it came to negotiations with unions, and because of that had to close many more stores than were planning. In the pre-LBO stage management was able to realize that changes are needed to be part of the best in the industry; however, in my opinion, the strategy that was used was not completely appropriate. Instead, of selling some stores right away, I would recommend first to take a closer look at the reasons why the stores were not performing to the standards; then I would have the real estate to be appraised before making sale. In my opinion Safeway’s management did a good job looking into different options before selecting LBO as its final decision. When it comes to selling assets I disagree with the management and it sales of the U.K. division. My criteria for selling assets would include wage premium, higher cost structure, age of stores, difference between market and book value of assets. BODY OF ANALYSIS Economic Structure From the economic structure Safeway Inc, competed in imperfect competition. Monopolistic competition combines the features of a competitive market structure (many small buyers and sellers, similar cost, no significant entry/exit cost, no information costs) with product differentiation. In this model all firms compete equally for all consumers. Safeway was an example of monopolistic competition; it was one of many existing with many new potential entrant stores. It had very similar or sometimes even identical cost of products as its competitors. In 1980s it was not easy to be a part of monopolistic competition. With low entry barriers competition was increasing rapidly. To keep its customers Safeway had to look for new ways to improve consumer service. In 1980, Safeway’s strategy revolved around superior quality, superior selection, superior service, and competitive prices. The four pillars strategy was good before 1980 but was not enough in 1980’s, with increasing numbers of new chains and new stores coming to the market Safeway had to reevaluate its current situation. In my opinion, Safeway’s management was not aggressive enough and was too afraid to make radical changes. With its long tradition Safeway already had high number of customers but too keep them coming back Safeway’s management job was to look for new product and service innovation. Of course, there are always some consumers that shop at this same store for years and are afraid of trying new products; however, it is people’s nature to be able to expand and to see “the world”, for them it is very easy to change their shopping habits especially if they could find better selection of products and better price somewhere else. Market trends that were affecting Safeway in 1980 were de-unionization, store modernization and increased competition from regional chains. Many of Safeway’s stores were old and outdated. Incorporation was not able to upgrade all of its 2600 stores and management’s role was to decide which stores should have been updated with new equipment and technology. Because of changes in the work force location of stores was also very important. Before 1980 many more women were stay home mothers who had time to drive to their favorite grocery store. With many more women going to work in corporate world in 1980’s their priorities and habits had change. Many people were shopping on their way home. It was important for Safeway to be able to focus on stores location and starts any innovations with stores with the highest number of customers. In my opinion, first they should have upgraded most profitable stores in high urban areas where the competition was the highest, then focus on stores that are profitable and have a good future. I would not have touch stores in the country with small number of customers until the last to make sure that the firm is not wasting its money on something that was not needed. Instead of remodeling it could have been much more profitable to sell the real estate. Another market trend that affected Safeway at that time was increasing number of new stores that were non-unionized which help them reduce labor cost and higher additional employees to increase customer’s service.
|
|
|
|
Still Can't Find What Your Looking For? Then Try a Essay Search!
|
