San Beda College College of Arts and Sciences Department of Legal Management
STRATEGIC MANAGEMENT PAPER On
Submitted to: Prof. Ric Palo, CPA, MBA
Submitted by: SANTOS, Arantxa Stefi L.
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TABLE OF CONTENTS Executive Summary I.
Introduction
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II.
Research Design and Methodology 1. Research Design 2. Scope and Limitation
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III.
External Analysis 1. Economic Performance and Forecast 2. Economic, Political-Legal, and Governmental Aspects
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3. Social/Cultural Aspects 4. Technological Advances IV.
Industry and Competitor Analysis 1. Industry and Market Segments Market Segments and Trends Pricing Advertising and Promotion Buyer’s and Consumer’s Profile 2. Porter’s Five Forces of Competitive Analysis 3. Competitive Profile Matrix 4. Strategic Issues based on External Factors 5. External Factor Evaluation Matrix
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V.
Company Analysis 1. Internal Environment Analysis 2. Internal Factor Evaluation Matrix
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Strategy Formulation 1. SWOT Matrix 2. SPACE Matrix 3. Internal-External Matrix
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VI.
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4. GRAND Strategy Matrix 5. Summary of Strategies 6. Quantitative Strategic Planning Matrix VII.
Objectives and Recommendations 1. Current Vision Statement 2. Proposed Vision Statement 3. Current Mission Statement 4. Proposed Vision Statement 5. Financial Objectives 6. Strategical Objectives 7. Recommended Strategies 8. Financial Projections
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VIII.
Appendices 1. Puregold Financial Statements
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STRATEGIC MANAGEMENT PAPER EXECUTIVE SUMMARY Puregold is the second leading hypermarket in the Philippines. The company is in a very competitive position. This paper reflects that the company’s portfolio is above average and near to outstanding. The top competitors of the company are also studied in this paper to further envision the strategies and objectives to be drafted for the constant growth of the company. The company’s vision and mission is very commendable and a proposal for change is herein established to hopefully help in developing the company
I. INTRODUCTION
Background of the Company
Puregold Price Club, Inc. is a chain of supermarkets which offers a wide variety of general merchandise and a full-service supermarket with wholesale. Unlike other Puregold stores, Puregold Price Club offers wholesale in merchandise. Puregold has Puregold Jr., which is a neighborhood store which offers targeted consumers’ items and limited variety of general merchandise, without the wholesale operations. On the other hand, Puregold Extra offers a very limited number of Stock Keeping Units at discounted prices., provides consumers with a discount on time, not just on the price.
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This chain of supermarkets in the Philippines was established way back in 1998. In the year 1998, Puregold opened it’s first ever branch in the City of Mandaluyong. And presently, they have grown into a big retail chain and they now have 180 stores in the country. Amazingly, they did this for only 14 years. The company launched a loyalty program in 2001; renamed as Tindahan ni Aling Puring in 2004. In between the years of 2002 and 2006, they have launched an average of 3 stores per year and have expanded their operations in the Northern and Southern part of Luzon. In 2008, Puregold was branded in Reader’s Digest Asia’s “Most Trusted Brands” and have introduced a new store format, Puregold Jr. In 2009-2010, Puregold became the 2nd largest hypermarket and supermarket retailer in the Philippines as regards to the net sales, in this period of time, they have introduced the Puregold Extra, a new store format. In 2011, Puregold Price Club went public and inaugurated as listing on the Philippine Stocks Exchange. They had a rapid expansion via organic new Puregold stores roll-out and acquisitions other than that they have made history by having had acquired the highest number of new store openings ever, opening 38 new Puregold stores. In 2012, Puregold opened 31 new Puregold outlet stores and acquired Kareila Management Corp., which owns S&R Warehouse Membership Shopping Club with 6 stores and Parco Supermarkets with 19 stores. And those 19 operating outlets were purchased and converted to Puregold. The shareholders of the retail chain Puregold have approved the merger of the other two operating units into the parent company, consolidating Puregold's supermarket businesses under the publicly listed supermarket operator.
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Currently, Puregold is continuing new stores roll-out via organic geographic expansion and acquisitions. They are targeting to open 25 more Puregold stores and 1 S&R store.
Nature of Business The advent of one-stop shopping convenience began in 1998 when PUREGOLD opened its first branch along Shaw Blvd. in Mandaluyong City. The store offered a wide array of goods from groceries, apparel, household accessories and furniture at very affordable prices. During that time, the one-stop shopping philosophy was still a novel idea to consumers but with the excellent service and quality products it provided, it did not take long for Puregold to make its mark in the retail industry.
Current Revenue and Profit
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From the previous years, Puregold has an uptrend revenue. The revenues generated each year comes from the different store formats: Puregold Price Club, Extra, Jr. And S&R stores.
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Consolidated net sales grew by 49.8%; Puregold and Parco stores sales increased by 18.2%; S&R contributed 16.4% and Company E accounted for 1.0% of
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total consolidated net sales. Gross profit grew by 62.8%; with gross profit margin improving to 17.6%; S&R accounted for 22.4% of the realized gross profit. Operating income increased by 88.5%; with operating margin shooting up to 7.4%; S&R contributed 42.3% of the recorded operating margin. Consolidated NIAT expanded 105.3%; Puregold and Parco stores NIAT swelled 30.1%; S&R added 36.4% to the consolidated NIAT. Net profit margin chalked-up at 6.0%.
Major Markets Served Today, Puregold is the No. 1 Retailer in the Hypermarket Format in the Philippines and the No. 2 in Retail Format in the Country. The company has been catering to more and more Filipinos having over 150 (159) stores nationwide. They have over 1500 Suppliers and Trade Partners. With their exemplary services, they are servicing to over 230,000 sari-sari stores and small businesses in the Metro, various places in the Northern and Southern parts of Luzon, and Visayas. Puregold has completed over 600 million sales transactions.
Number of Employees Puregold supermarkets houses more than 30000 employees. With its competent employees, Puregold is serving its valued customers through its effective customer service program and competitive price scheme.
Other Relevant Information Puregold was featured in Reader’s Digest Asia’s “Most Trusted Brands”. They became the 2nd largest hypermarket and supermarket retailer in the Philippines in
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terms of net sales. They made history for opening as much as 38 new Puregold stores. They maintain the quality of their products and the competitiveness of their strategies so they have already opened 156 stores in just the period of 14 years.
II. RESEARCH DESIGN AND METHODOLOGY The data used in this research came from various internet sources, journals, newsletters, news articles, blogs, books, law books, and different government agency sites. Some on=f the personally visited websites are referred by other researchers who have conducted a research with the same company nature and background. Some of the sites visited are as follows: National Statistics Coordination Board (NSCB), National Statistics Office (NSO), Asian Development Bank, Bangko Sentral ng Pilipinas, Department of Labor and Employment (DOLE), and Philippine Overseas Employment Administration (POEA). Official websites of Philippine Securities and Exchange Commission (SEC), World Bank, creditcard.com, Business World, Business Mirror, Development Bank of the Philippines (DBP), Euromonitor International, Philippine Star, Department of Budget Management (DBM), Department of Foreign Affairs, Commission on Filipinos Overseas and Asia Pacific Economic Cooperation (APEC). These sites were used as primary source of data to be used in this study. Most of the data used are from the site of the company whose data is visible to the pubic. The financial statements used herein came from the Securities and Exchange Commission. The data in this research came from these sources. The data used for the competitor companies came from the sites of the latter and the financial statements readily available on the internet. The assessment of the company as regards to its competitors is supported by data that came from the companies’ websites. Other data and information came from the textbook prescribed by the professor which is The Introduction to Strategic Management 12 th edition (2009) by Fred David. The textbook was used as a reference material for data and computations. The formulas, implications, different strategies, different strategy formulation, strategy formulation tools, and the step-by-step process and guide used in this research
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was adapted from the textbook and sample thesis papers and research papers available in the San Beda College of Arts and Sciences Library.
SCOPE AND LIMITATION This research paper is only limited to Puregold and its top competing competitors. Since there are only a few players in this field of business with the relatively same market share and market size, we only chose 2 other leading players who are respective models and material companies to be studied in this research. III. EXTERNAL ENVIRONMENT ANALYSIS
General Environment This external analysis is detrimental to the discovery and identification of the opportunities and threats of the company. With regards to the macroenvironmental forces and factors, that is to the socio-cultural, demographic, lifestyle changes, technological developments, economic developments and advancements, ecological aspects, and political and governmental-legal aspects. Economic factors Economic Advancement Both developed and emerging markets of Asia are seen to grow faster than the Euro area and North America. Expected to have the fastest growth in 2013 and 2014 are China (7.7 and 7.3 percent, respectively), the Philippines (7 and 6.7 percent), India (4.9 and 6 percent), Indonesia (5.6 and 5.5 percent) and Vietnam (5.5 and 5.6 percent).
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All fast-growers in Asia have big populations upward of 90 million. The banks polled recognize that a larger population means more entrepreneurs and workers, more producers and consumers.1 Source: The Economist The projections by the global vanguard of macroeconomic and external account stabilization, the International Monetary Fund (IMF). Its most recent and most comprehensive report is the World Economic Outlook (WEO) released last October.2 We arranged the grouping of countries to be similar as that by
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http://www.interaksyon.com/business/77802/fat-free-economics--happy-2014-for-philippine-economy The Economist, December 21, 2013
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The Economist for easier comparison of projections. 3
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http://www.economist.com%2Fnews%2Feconomic-and-financial-indicators%2F21591899-output-pricesand-jobs&sa=D&sntz=1&usg=AFQjCNEwA8Sta9dv-OpGsEqjuVTtONQEbw
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Source: IMF, World Economic Outlook Database Belgium, Italy, Netherlands and Spain are among Europe's biggest economies, and they are either crawling or backsliding. The US and Canada are performing better than those in Europe but their expansion not fast enough to compensate for sluggish growth on the other side of the Atlantic Ocean. 4 Asian economies -- led by China, Japan, India and South Korea, plus the other tiger and emerging markets of the continent -- continue to hum and push the world economy to modest growth. The Philippines is projected to be second to China in pace of growth this year and next year.5 Favorable Economic Environment Strong GDP growth is being supported by stability in the economic environment, especially low consumer inflation and interest rates that encourage consumption and 4
http://www.imf.org%2Fexternal%2Fpubs%2Fft%2Fweo%2F2013%2F02%2Fweodata %2Findex.aspx&sa=D&sntz=1&usg=AFQjCNGssnYcL-GURUK1jOnToGg5o32k2w 5 IMF, World Economic Outlook October 2013 Database
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investment. While we forecast an uptick in headline inflation this year as a result of natural calamities in 4Q13, we expect it to ease by 2H14 as supply shocks recede. Indeed, January headline inflation of 4.2% is still low versus a 10-year average of 4.7% (Figure 16). Similarly, interest rates are low with the benchmark 91-day Treasury bill currently below 1.0% compared with a 10-year average of 3.8% (Figure 17). This virtuous cycle enhances domestic growth prospects that ultimately result in rising incomes. In addition, stability in personal spending is supported by a large number of overseas Filipino workers who regularly remit supplemental income to their families and the rise of the business process outsourcing (BPO) industry.
Relevance:
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The economy of the Philippines has been continuously growing, but with it grows too, the economy of other countries. The economic crisis has surely affected the financial status and buying power of the consumers. Decision to buy or not, what to do with their money and whatnot is greatly affected by these changes. The company’s target market is the general public, with the data collected and stated above, we can say that this is good news, thus, an opportunity for the company. With a growing economy, more consumers would have more money to spend. Products offered by the company are staple to households. Positioned to benefit from strong Philippine economy PGOLD should be among the main beneficiaries of the strong Philippine economy as it is being driven mainly by robust domestic growth. 2013 GDP growth of 7.2% YoY was already among the highest in Asia (Figure 9), even as domestic demand (GDP without net exports) slowed down sharply in 4Q13, attributable mainly to the natural disasters in Oct and Nov of last year. The slowdown in 4Q13 domestic demand growth to 5% from 11% in 9M13 was not enough to detract from it being the main engine of growth last year. Even better is that robust domestic demand is happening within the context of underleveraged corporates and households, and declining fiscal debt ratios. That means there is space for growth to continue.
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Young and expanding population Growth in domestic demand is supported by a population estimated at 97m (Figure 10), the second largest in Southeast Asia and the 12th largest in the world. It is estimated to be rising 1.7% annually, faster than the 1.6% average for Southeast Asia (Figure 11). It is young, with an average age of 22.5 years. By 2015, it is estimated that the working population (ages between 15 and 59 years) would account for more than 60% of the total populace (Figure 12). Such demographics support the country’s healthy growth in personal consumption.
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Steady Growth in Personal Consumption Consumer spending is the cornerstone of the Philippine economy, accounting for the largest portion of real GDP at 69% (Figure 13) in 2013. Because of its size, growth in private consumption usually sets the pace for overall economic growth. In the past 10 years, real private consumption expenditures (PCE) grew an average 4.7% annually. On a per-capita basis, nominal GDP grew 11.8% CAGR in 2003-13 to USD2,716 (Figure 15). We forecast PCE will grow at around 6% this year and next from 5.6% in 2013. Robust PCE growth will be complemented by investments. With the government’s fiscal consolidation over the past years, there are now resources to address the country’s inadequate infrastructure. In the process, other sources of demand are
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expected to open up from which Puregold will eventually benefit through sales in all its store formats.
Global Competitiveness 22
The Philippines ranked 65th (out of 144 countries) in the 2012-2013 Global Competitiveness Report.6 This year, the country improved by leaping to number 59. As noted in a previous post in this blog, competitiveness is relative. The overall ranking does not really matter much. What is more significant is to compare the Philippines against its neighbors in Southeast Asia. This time, the World Economic Forum makes it easier to see this comparison. The new report, 2013-2014 Global Competitiveness Report7 has the following table and figure:
Source: 2013-2014 Global Competitiveness Report
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World Economic Forum
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http://philbasiceducation.blogspot.com/2013/09/philippines-global-competitiveness.html
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Source: 2013-2014 Global Competitiveness Report In this table and figure, it is much clearer where the Philippines really stands. Infrastructure, health and education remain very weak especially when compared against its real competition, the other members of the Association of Southeast Asian Nations (ASEAN).8 Relevance: If the Philippines is globally competitive, the company would most probably have more opportunities to establish new market schemes or maybe a new store format. The idea is to expand the business to other countries and build an exclusive market among Filipino citizens abroad, as well as other prospective customers. Unemployment Rates Jobless rate rose to 7.5 percent, up from 6.5 percent in the previous period and 7.1 percent a year ago. There were nearly 3 million unemployed in the Philippines, up 8
World Economic Forum, The Global Competitiveness Report
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from 2.8 million in January 2013. Among the unemployed persons, 63.9 percent were males. Of the total unemployed, the age group 15 to 24 years comprised 48.2 percent, while the age group 25 to 34, 29.9 percent. By educational attainment, about one-fifth (19.8 percent) of the unemployed were college graduates, 13.3 percent were college undergraduates, and 34.0 percent were high school graduates.9 The employment rate is estimated at 92.5 percent. Workers in the services sector continued to comprise the largest proportion of the population who are employed. These workers made up 54.1 percent of the total employed in January 2014. Employed in agriculture sector comprised the second largest group making up 30.0 percent, while workers in the industry sector made up the smallest group registering 15.9 percent. Among the major occupation groups, the laborers and unskilled workers remained the largest group making up 31.3 percent of the total employed. 10 Relevance: Job layoffs are brought about by bad economic status. With a bigger unemployment rate, the employees of the companies may have decreased and could lead to less efficiency and effectivity both in service and productivity. Also, the consumers would probably be affected too and less income means less spending and this would gravely affect sales records of the company for the year.
Economic, Political-legal, and Governmental aspects Plastic Bag Ban
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http://www.philstar.com/headlines/2014/03/12/1299885/unemployment-rises-p7.5-january http://www.tradingeconomics.com/philippines/unemployment-rate
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Manila City Ordinance 8282, once implemented, will ban the use of plastic bags for dry goods and regulate their use for wet goods, and altogether bans polystyrene (Styrofoam) as container for food, produce and other products. 11 To date, at least 90 cities and towns have passed ordinances banning or regulating the use of plastic bags, with several more local government units (LGUs) poised to follow suit before the end of the year, according to EcoWaste Coalition.12
Senate Bill No. 2759 – Total Plastic Bag Ban March 8, 2011
“AN ACT PROHIBITING THE USE OF PLASTIC BAGS IN GROCERIES, RESTAURANTS, AND OTHER ESTABLISHMENTS, AND PROVIDING PENALTIES FOR VIOLATIONS THEREOF “13
Relevance: The Senate Bill No. 2579 or the Total Plastic Bag Ban aims to prohibit the use of plastic bags in establishments. The company has been using plastic bags to package the customers’ purchases. It is both a threat and opportunity for the company. One bad thing this would do to the company is how the company would dispose of the remaining plastic bags unused prior to the passed laws. Also, the source of new manufacturers for their paper bags or ecobags. Although the law only covers some cities, it still affects the company because most cities covered by the law are in the NCR. Most branches of Puregold are within this area and surely there would be drastic measures to be taken to surpass this. The good side is they can minimize garbage wastes. This is an opportunity for the company to inculcate new marketing schemes to increase profit. Technological development 11
http://ecowastecoalition.blogspot.com/2013/07/supporting-manilas-plastic-bag-ban.html http://newsinfo.inquirer.net/438011/environmentalists-seek-nationwide-plastic-ban 13 http://lorenlegarda.com.ph/senate-bill-no-2759-total-plastic-bag-ban/ 12
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Credit Card trends Though cash remains heavily used in day-to-day transactions, ATM cards continued to be the most important type of financial card in the Philippines, as cash remained heavily used in day-to-day transactions due to the large unbanked population and low acceptance of financial cards in retail stores. Nonetheless, cashless payments further gained popularity due to banks’, telecommunication companies’ and card operators’ aggressive advertising and marketing campaigns. As a result, financial cards recorded moderate growth in terms of the number of cards in circulation, and also volume and value transactions in 2013.14 Relevance: This trend is a great opportunity for the company. Most consumers would use cash as a medium of exchange but with the rapid development of technology, and if this trend would expand to more and more Filipinos, transactions would go faster and relatively could increase sales due to the faster service. Credit card frauds and scams 2013 was certainly not a shrinking violet in terms of card skimming and associated card fraud scams. With 2013 card compromise data in hand, I thought I’d share the latest year-over-year trend breakdowns and offer a few predictions for the year ahead (an update to my post last year on ATM fraud trends).
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http://www.euromonitor.com/financial-cards-and-payments-in-the-philippines/report
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The chart above reflects ATM points of compromise within the United States that were analyzed by FICO® Card Alert Service. Looking at overall volume of activity, we instantly see a continued increase in card skimming at bank-owned ATMs over the past couple years. As this segment increases each year, point-of-sale (POS) card and PIN skimming has somewhat diminished in comparison. You might wonder: “How is it possible that POS is contributing less towards card and PIN skimming when we are staring down on one of the largest retail data breaches in history?” Keep in mind that the data used to create this chart is reflective of fraud spend at ATMs only. Most of the recent publicized data intrusions did not develop into wide-scale PIN fraud, aside from some isolated social engineering scams that may have netted criminals access to consumer PIN data. In 2014, increasingly, risk on payment cards will develop in two phases. Fraud spend may initially be signature-based, and then, after a significant time has elapsed, the same group of affected cards could see PIN fraud develop on cards that were not previously reissued. This criminal strategy points out the danger when we focus only on
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the risk at-hand without considering the potential exposure of other data elements, like PIN numbers, that might have previously been ignored. Another growing threat: Carders will continue to sell and purchase cards based on bank identification number or BIN. This will dilute the detection of data breaches by making the fraud appear to be specific to a certain financial brand. 15 Relevance: The rising number if credit card scams and frauds is a threat to the company’s operations. The payment of those defrauded cards could possibly be refunded and could decrease the income and profit of the company. Socio cultural trends and lifestyle changes Online Marketing Internet marketing, or online marketing, refers to advertising and marketing efforts that use the Web and email to drive direct sales via electronic commerce, in addition to sales leads from Web sites or emails.16 Internet marketing and online advertising efforts are typically used in conjunction with traditional types of advertising like radio, television, newspapers and magazines. Internet marketing can also be broken down into more specialized areas such as Web marketing, email marketing and social media marketing: Web marketing includes e-commerce Web sites, affiliate marketing Web sites, promotional or informative Web sites, online advertising on search engines, and organic search engine results via search engine optimization (SEO). Email marketing involves both advertising and promotional marketing efforts via e-mail messages to current and prospective customers. Social media marketing involves both
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http://bankinganalyticsblog.fico.com/2013/02/card-fraud-trends-and-predictions.html http://www.webopedia.com/TERM/I/internet_marketing.html
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advertising and marketing (including viral marketing) efforts via social networking sites like Facebook, Twitter, YouTube and Digg.17 Relevance: Online marketing is very much helpful nowadays. Filipinos are using the internet for averaging from 4-8 hours a day, give or take. The internet is an inexpensive way of promoting business and increasing profitability. Online Shopping The Nielsen report found that among consumers who engaged in e-commerce activities, 72 percent of online consumers in the Philippines indicated using the Internet for grocery shopping research over the past month.18 The study also showed that online Filipino consumers were also the most active in Asia-Pacific to search online for deals. Sixty-one percent of Filipino consumers have, in fact, done online deal searches during the past month, compared to only 39 percent in the Asia-Pacific. The study exposed the Achilles heel of Filipino online consumers, however, showing that when it comes to online purchase conversion, only 34 percent have made purchases online in the past month compared to 62 percent in the Asia-Pacific and 49 percent globally. Relevance: This trend would be a big opportunity for the company to establish a store format on the internet. Filipinos nowadays are very fond of buying stuff from the internet. It is 17
http://www.smallbusinesscomputing.com/emarketing/article.php/3939561/10-Inexpensive-Ways-toAdvertise-Your-Small-Business.htm 18 http://technology.inquirer.net/16152/filipinos-top-in-online-shopping-research-but-lag-inpurchases#ixzz30C4ZbgEb
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very convenient for the consumer and there is less hassle in transacting especially most online shopping sites have payment methods through online banking, Paypal, and whatnot. The main point here is to be the first online supermarket to cater to all states of life in the Philippines. Another aim is to sell products and deliver them to the convenience of the customer’s doorsteps. Go organic. Healthy living trend Filipinos are venturing into the healthy living lifestyles. People are spending more on gym memberships, organic food, and the like. Organically-grown vegetables are only available in select stores. Since more and more people are getting into this new kind of diet, people tend to rush to organic hippie groceries and only buy their food there. Or from the side effects of packaging. Let me add this, I am a fanatic when it comes to food storage, I buy every kind of storage container and baggie (my father was the co inventor of a lot of canning and packaging like the plastic ham can and zip lock baggies), but I feel this article has hit the nail on the head with packaging deriving chemical reactions to things like acid from canned tomatoes leeching the polymers from the inside of tin cans into the product. I am not used to the markets here keeping foods unrefrigerated or in the open for creatures to land on like flies and the like and I have a fit when our kids put food in the refrigerator uncovered but I honestly feel my health improvements may just be related to these primitive actions as well as having almost all of my foods organic, without the high price tag I might add. I love it here in the Philippines, it isn’t paradise, it’s dirty, in some places it’s dangerous. It’s not where I’m from but I have come to see what our esteemed editor in chief along with a myriad of others have come to love about Living in the Philippines19 Relevance: The new lifestyles of Filipinos are inspired by their local celebrity idols who have been promoting healthy living and healthy diet plans to get a better physique and to stay 19
http://liveinthephilippines.com/content/healthy-living/
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healthy. This factor is a threat to the company because some products of the company are now being substituted by a few products offered by specialty stores. Although only a few percentage of the company’s market are following this trend, it is still important to look at all the factors that would affect the company.
IV. INDUSTRY AND COMPETITOR ANALYSIS Market Segments PUREGOLD Price Club Inc. plans to double its grocery and hypermarket chain over five years as it challenges its only bigger rival, SM Investments Co., by targeting low-income shoppers and neighborhood stores. The nation’s second-biggest supermarket operator plans to spend P10 billion to boost the network to 200 stores by 2016, its chairman, Lucio Co, said in an interview. 20 The outlets will target “market segments that the existing players aren’t serving,” Co said. “We want to be everywhere.” The retailer plans to have 150 stores by 2013 as it intends to lure customers from the hyper markets and groceries in billionaire Henry Sy’s 163-outlet SM retail chain, which includes 41 department stores. Co has already doubled the number of stores since last year as a rebate of as much as 3 percent on purchases and a program offering to improve the stores of top buyers with signage and merchandising jars attracted low-income shoppers and owners of so- called sari-sari stores, aka variety or convenience stores. 21 Pricing Puregold Price Club, Inc. (PGOLD) is engaged in the business of buying, selling, distributing, and marketing wholesale or retail goods and commodities throughout the 20 21
http://businessmirror.com.ph Puregold Plans To Invest P10B to Double Branches / IAN SAYSON / BLOOMBERG NEWS
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Philippines. Unlike its top competitors, Shopwise and SM Investments, Co., Puregold’s prices are far more economical and for the mass. Especially to the members of the club in the company, the prices are discounted and members are more privileged. The company’s membership is called the Aling Puring membership. What are the benefits of this membership? AP members earn up to 3% rebate through points accumulation in his/her Aling Puring card whenever he/she shops at any Puregold Branch (excluding Puregold Jr.) Points earned are equivalent to rebates which can be redeemed at any Puregold Branch (excluding for Puregold Jr) and can be used as tender in shopping. Other benefits are: Instant Ka-Asenso Welcome Kit, Points – Rebate Redemption Program, Free Delivery *with minimum purchase and distance requirement of store, Call – Order – Pick-up Service via call/text/e-mail, Wireless and COD Transactions, Kitang-Kita Packs and Kitang-Kita Case for added savings and points, Special Ka-Asenso events, promos and text blast updates, Bi-annual Ka-Asenso Booklet with exclusive Kalendaryo ni Aling Puring discount coupons 22
Advertising and Promotions The company advertises itself through its online website, general and local publications and through social networking sites. They are currently in partnership with a noon time show television program aired through GMA 7. There are also printed ads. SM though, has a bigger advertising scheme. The Co-owned corporation is very advanced in this aspect. Unlike Shopwise and SM, Puregold has more promotions and antics. They have been introducing more and more promotions like raffles, packages, discount items, freebies, and the like. Also, they do not only give out free stuff but they also give out medical check-ups for free. 22
http://puregold.com.ph/aling_puring.do?id=7772
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The advertising and promotions department of Puregold is very much good but they could develop more, on so many levels. Buyer / Customer’s Profile PGOLD is the second largest modern grocery retailer in the Philippines by sales. Its estimated market share was 11.7% in 2013, according to Euromonitor. It operates hypermarkets, supermarkets and discounters carrying the flagship Puregold brand. Its target markets are low and middle income consumers, and resellers that operate traditional neighbourhood outlets known as sari-sari stores. PGOLD also operates S&R Membership Shopping stores, the only warehouse membership club in the Philippines that services middle to higher income consumers. Porter’s Five Forces of Competitive Analysis
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LOW LOW
LOW LOW
MODERATE MODERATE HIGH HIGH
LOW LOW
Potential development of substitute products – LOW
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Puregold offers a wide variety of products and mainly composes of basic household grocery items and staple household needs. The development of substitute products does not affect the company much because Puregold is very flexible when it comes to adapting to sudden changes in the new products being introduced in the market. Since most products are not exclusive to only one hypermarket, the possibility of one company having a monopoly of hat certain product is very vague, though feasible, it still doesn’t affect the firm much. Bargaining power of Suppliers – MODERATE Developing good ties with their suppliers, the company is not prone to suppliers haggling with regards to their product offers. Recently, Puregold has been producing their own line of products just like what SM is doing. With these all said, the bargaining power of their suppliers is only moderate and will only affect the profitability and productivity of the company if PGOLD will not contain such shortcomings. SM Hypermarkets is the leading competitor of Puregold. Bargaining with suppliers could be at a strong factor if SM would try to buy the suppliers of Puregold. Rivalry among Competing Firms – HIGH As aforementioned in the preceding chapters, it is well established that the rivalry among the competitors in this field of business is very high. Though Puregold is branded as one of the leading hypermarkets in the Philippines, we cannot ignore the fact that SM is still the leading hypermarket in the country and both companies are doing very well in their fields. They are both competitive and upgrading.
Bargaining power of Consumers – LOW It is evident that the general public is the target market of the company. The bargaining powers of the latter are very low. A good subject to support this
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statement is that the price of the commodities offered by the company is very inexpensive. PGOLD offers affordable and quality products, other than that, they are giving out numerous promotions, discounts, and the like for the consumers to have and enjoy. The company sells at the suggested retail price or less, and this is because they do not only sell in retail but also in wholesale (not applicable to Puregold Jr. And Puregold Extra). Potential entry of new competitors – LOW Puregold, SM Hypermarkets, Rustans, and Robinsons Supermarkets are amongst the top key players in the game. The entry of new competitors would be very low because it is very hard to enter into this line of business since the former companies have already established a good reputation in the society. Also, consumers prefer an established company over a new one especially if it is not in a large scale business.
Competitive Profile Matrix (CPM) The competitive profile matrix is based on the variables of marketing operations and finance of three hypermarkets in the Philippines. The CPM categorizes a firm’s main rivals and its particular strengths and weaknesses in relation to a design firm’s strategic position. In CPM, an organization asses itself as well as its rivals by giving rating and weights to key success factors. It recognizes its strategic competitive place with its major rivals.23
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David, Fred
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Critical Success Factors
Price
Weight (%)
Puregold
SM Hypermarket
Robinson Supermarket
Rating
Weighted Score
Rating
Weighted Score
Ratin g
Weighted Score
.10
3.0
.30
4.0
.40
3.0
.30
.10
3.0
.30
4.0
.40
3.0
.30
.20
4.0
.80
2.0
.40
2.0
.40
.15
4.0
.60
4.0
.60
3.0
.45
.15
3.0
.45
4.0
.60
2.0
.30
.20
3.0
.60
2.0
.40
2.0
.40
.10
3.0
.30
2.0
.20
2.0
.20
Inventory management Products: Variety and Availability Quality of Service
Facilities, Equipment, etc. Accessibility to market Number of branches TOTAL
1.00
3.35
3.00
2.35
We gave a 20 % weight on the variety of the products and the accessibility of their facilities because hypermarkets serve as source of common household products and items and they should be easily accessible to their market. Since all of these companies’ primary business is to sell groceries, it is given that weight to emphasize their manner of introducing and maximizing it to their market. We differentiate the companies through analysis of how they use these factors. 38
Other factors are not given much weight for it does not contribute a major percentage in the share of the profits. As interpreted in the matrix, the company has a good rating because it is a good company if you look at the overall appearance and appeal of the company to the general public.
External Factor Evaluation Below are the identified major opportunities and threats which would affect the industry of the company. The Weights, level of responsiveness, and Ratings to and/or for the company are given. Opportunities Opportunity 1: Online Marketing is a big trend in the Philippines. Internet marketing, or online marketing, refers to advertising and marketing efforts that use the Web and email to drive direct sales via electronic commerce, in addition to sales leads from Web sites or emails.24 Rating We gave the company a rating of 4 because they are very much aware of such new innovations. They are using social networking sites like Facebook to advertise their products and services. A weight of 20% is given to this external factor because this innovation is a very inexpensive way of advertisement. Internet is being used by a huge majority of Filipinos everyday. Advertisement and promotions in social-networking sites like Facebook and 24
http://www.webopedia.com/TERM/I/internet_marketing.html
39
Twitter would affect the company’s profitability and could possibly generate more sales, thus, more income. Opportunity 2: Eco bags are becoming a trend Since the launch of the ‘I am not Plastic bag’ movement, more and more industries are starting to use reusable canvas tote bags for their shopping. In the company store formats,you are more likely to bring your own reusable shopping bag unless you want to pay for the plastic bags.This is part of the recently passed bills as regards to the regulation and banning of plastic bags in certain cities and industries. Rating We give this a 3 rating because this moderately affects the company and the company responds to this with various marketing approaches such as venturing into the eco bag business and complying with the A weight of 10% was given because this moderately affects the company. Following the ongoing global movement to steer consumer culture away from excessive plastic bag consumption (banning plastic bags in San Francisco, Hong Kong and Melbourne) we are pleased to see reusable tote bag make big gains in popularity. We’ve covered eco-chic tote bags of all shapes and sizes (Envirosax, Trash Bags, Sea Bags), but the hype and excitement surrounding Anya Hindmarch’s trendy “I am Not A Plastic Bag” design (which sold out of London stores just hours after being released) is somewhat baffling, even if we are only too happy to see “eco” becoming trend. 25 Opportunity 3: Puregold Membership: Aling Puring Card gives out more benefits than its competitors. AP members earn up to 3% rebate through points accumulation in his/her Aling Puring card whenever he/she shops at any Puregold Branch (excluding Puregold Jr.) 25
http://inhabitat.com/i-am-not-a-plastic-bag/
40
Points earned are equivalent to rebates which can be redeemed at any Puregold Branch (excluding for Puregold Jr) and can be used as tender in shopping. Other benefits are: Instant Ka-Asenso Welcome Kit, Points – Rebate Redemption Program, Free Delivery *with minimum purchase and distance requirement of store, Call – Order – Pick-up Service via call/text/e-mail, Wireless and COD Transactions, Kitang-Kita Packs and Kitang-Kita Case for added savings and points, Special Ka-Asenso events, promos and text blast updates, Bi-annual Ka-Asenso Booklet with exclusive Kalendaryo ni Aling Puring discount coupons. On the otherhand, SM advantage card only offers Points rewards system and New and renewing members will receive the Value Perks booklet filled with coupons from our retail partners, fun partners, restaurants, boutiques, health & beauty establishments and many more.26 Rating We give this a 4 because the customers are benefiting from this marketing scheme and the company responds to their needs with regards to the benefits and privileges brought out by this membership card. A 20% weight is given for only the company provides their members with such benefits. The company has this as an advancement to its competitors. Opportunity 4: Free check-ups at selected branches A promotion by the company was recently launched. Other than the usual sales promotions, they are now conducting free medical check-ups in partnership with Rite Med. 27 Rating
26 27
http://www.smadvantage.com.ph/value-perks https://www.facebook.com/puregold.shopping?sk=wall
41
We give this a rating of 4 because the company is pushing more projects inline with this. Also, a 15% weight is given because its top competitors: SM and Shopwise, do not conduct these kinds of promotions. Though SM gives out free checkups as well, it is only conducted in their malls,not in their hypermarkets. Threats Threat 1:Credit card frauds The risk on payment cards will develop in two phases. Fraud spend may initially be signature-based, and then, after a significant time has elapsed, the same group of affected cards could see PIN fraud develop on cards that were not previously reissued. This criminal strategy points out the danger when we focus only on the risk at-hand without considering the potential exposure of other data elements, like PIN numbers, that might have previously been ignored. Rating: We give this a rating of 2. The company does not respond much to this because most of its customers pay in cash. The weight of 15% is given to this matter. Although they are not very much concerned with this issue, the company should focus on this too since using credit cards is a becoming a big thing today in the Philippines from the good offers of local and international banks. Threat 2: Unemployment rates are relatively rising. The employment rate is estimated at 92.5 percent. Workers in the services sector continued to comprise the largest proportion of the population who are employed. These workers made up 54.1 percent of the total employed in January 2014. Employed in agriculture sector comprised the second largest group making up 30.0 percent, while workers in the industry sector made up the smallest group registering 15.9 percent. 42
Among the major occupation groups, the laborers and unskilled workers remained the largest group making up 31.3 percent of the total employed. 28 Rating: We give this a 2 for the rating. The company is not much concerned of the effects of unemployment because they have a good employment system. Employees are always considered and are taken good care of the company. A 10% weight is given to this because this only mildly affects the company’s performance. INTERNAL ANALYSIS
Key
Weight
Rating
Score
.20
4
.80
.10
3
.30
External Factors Opportunities 72 percent of online consumers in the Philippines indicated using the Internet for grocery shopping. Eco bags are in since the launch of the ‘I am not a Plastic Bag’ campaign as of 28
http://www.tradingeconomics.com/philippines/unemployment-rate
43
2013 Puregold
.20
4
.80
.15
4
.60
.10
3
.30
.15
2
.30
.10
2
.20
Membership: Aling Puring Card gives out more benefits than its competitors. More promotions and Free checkups at selected branches 6.7% increase in the Gross Domestic Product of the Philippines in 2013 Threats 10% increase in Credit card frauds as recorded by FICO Banking Analytics Blog in the first w=quarter of 2014 Unemployment rates are relatively rising. There is 7.5 % increase in the unemployment
44
rate as of January 2014. TOTAL
1.00
3.40
V. COMPANY ANALYSIS INTERNAL ENVIRONMENT ANALYSIS Leading player in modern grocery retail PGOLD is the second largest modern grocery retailer in the Philippines in terms of sales with an estimated 11.7% market share in 2013, according to Euromonitor. Based on our estimates, it also had the second highest 2012 net sales among storebased retailers in the country at PHP57.5b, behind SM Investment Corp’s (SM) SM Retail with PHP159.5b and at par with Robinsons Retail Holdings Inc’s (RRHI) PHP57.4b. PGOLD is mainly in grocery retailing, namely hypermarkets, supermarkets and discounters. It also operates warehouse membership shopping stores. As of 9M13, PGOLD had 201 stores nationwide with 341,056 sqm of net selling space.
45
The company is majority-owned by the Co family through a 16% direct equity stake and an effective 37% stake through Cosco Capital Inc’s (COSCO) 51% interest in PGOLD. COSCO is the holding company of the Co family and is also engaged in liquor distribution, real-estate development, and oil and mining exploration
46
PGOLD primarily conducts its operations through hypermarkets, supermarkets and discounters carrying the flagship Puregold brand. Throughout the years the brand has been associated with low prices and a wide assortment of value-for-money offerings. Puregold focuses on two customer segments, namely retail consumers in the low- and middle-income classes, and resellers who are small business owners. The company has uniquely positioned itself against other grocery retailers by specifically targeting resellers, mainly the sari-sari stores or mom-and-pop outlets through its customer loyalty programme Tindahan ni Aling Puring. Resellers account for around 35% of PGOLD’s revenue. PGOLD also operates S&R Membership Shopping stores, the only warehouse membership club in the Philippines, which services higherincome consumers.
47
From only 34 stores at end-2009, PGOLD has since opened 117 new stores via organic expansion as of 9M13 and acquired 50 others that were operating under four different brands; namely Puregold Jr, Parco, S&R and Company E. In a span of less than four years the company was able to almost triple total net selling space. PGOLD’s expansion strategy focused on both existing and new markets. Smaller store formats were opened within the vicinity of the hypermarkets, which resulted in deeper penetration of highly-populated areas. The company’s store network also widened to include other parts of Luzon, and last year, the Visayas and Mindanao regions. PGOLD acquired Kareila Management Corp in 2012, operator of S&R Membership Shopping stores. With the S&R brand catering mainly to the upper income segment, the strategic acquisition helped PGOLD address all segments of the market.
48
The company acquired 19 Parco supermarkets in 2012 and 15 Company E stores in 2013, most of which have already been rebranded to Puregold stores. Last December, wholly-owned subsidiary Entenso Equities bought a 49.34% stake in San Roque supermarkets, operator of nine grocery stores in Metro Manila.
49
Weaknesses Intensifying competition among industry players
50
Competition among Philippine modern grocery retailers has further intensified in recent years as the industry consolidates. Key players are expanding their store networks and acquiring or forming strategic partnerships with independent store chains. They compete on the basis of price, product availability and quality, customer service and store location, among others. Aggressive expansion, particularly in Metro Manila, has contributed to softening SSSG over the past year. As retailers expand into areas outside Metro Manila, securing key locations and opening new stores ahead of others may also be the subject of competition. Execution risk The company’s ability to deliver on its target number of store openings each year depends on its success in securing prime store locations in a timely manner and on favorable terms. Availability of sufficient cash flows to support capital expenditures is another important factor in successfully executing its store network expansion plans. Sensitivity to rising prices PGOLD’s customer base is composed mainly of low- to middle-income consumers, which are most sensitive to rising prices. There is no guarantee the company will be able to pass on all cost increases to customers. A significant rise in suppliers’ selling prices may either negatively affect PGOLD’s SSSG or result in lower margins.
Key Internal
Weight
Rating
Score
Factors STRENGTHS Very Low Price
.14
4
.56
Strategic Location
.12
3
.36
due to accessibility to
51
target market Branded as one of
.13
4
.52
.12
4
.48
.13
4
.52
.12
3
.36
.13
3
.39
.11
4
.44
the leading supermarket in the Philippines Leading distribution channel of goods to sari sari stores/small businesses Numerous branches WEAKNESSES Outdated technology Intensifying competition among industry players Sensitivity to rising prices of customers TOTAL
1.00
3.63
VI. STRATEGY FORMULATION SWOT Matrix
52
SO Strategies
Strengths S1) Very Low Price S2) Strategic Location due to accessibility to target market S3) Branded as one of the leading supermarket in the Philippines S4) Leading distribution channel of goods to sari sari stores/small businesses S5) Numerous branches Opportunities O1) 72 percent of online consumers in the Philippines indicated using the .Internet
for grocery shopping O2) Eco bags are in since the launch of the ‘I am not a Plastic Bag’ campaign O3) Puregold Membership: Aling Puring Card gives out more benefits .than
its competitors O4) More promotions and Free check-ups at selected branches O5) 6.7% increase in the Gross Domestic Product of the Philippines
SO1. Establish a new store format to their distributors (S1,S2,S3,S4,O1,O3,O5) The gradual increase of Filipinos using the internet as a medium for buying their needs is a good opportunity to start a new strategy of online shop as a new store format. It is a win-win situation for the company and its distributors. The success of the proposed strategy would increase sales of Puregold and benefit the distributors through the membership card. This is a good marketing strategy because having affordable groceries with the convenience of it being delivered to your own home would be very convenient especially to busy households.
53
SO2. Integrate free check-ups promotion in more branches (S2,S5,O4)
-
Puregold should put more free check up booths in more stores. With the very accessible locations of the stores, the company could reach out to more customers by introducing new promotions to other branches and this is to hopefully help in increasing sales. SO3. Use eco bags to create more revenue (S1,S3,S4,O2,O3)
-
Since the
launch of the ‘I am not a plastic bag’ movement, eco bags have been widely used in various malls, supermarkets, boutiques, and the like. This is a good marketing scheme to sell more products through inculcating the use of eco bags as freebie when reaching a certain amount on a single purchase. SO4. Strengthen the web presence more by finding more sites or social networking sites, other than its current advertisers to advertise in. (S1,S3,O1,O3,O5) Puregold should strengthen its web presence more by utilizing other marketing media channels and sites or social networking sites, other than the company’s current advertisers to advertise itself. It is a very good strategy because it is a very inexpensive way of advertising the business.
WO Strategies
Weaknesses W1) Outdated technology W2) Intensifying competition among industry players W3) Sensitivity to rising prices of customers
Opportunities O1) 72 percent of online consumers in the Philippines indicated using the 54
.Internet
for grocery shopping O2) Eco bags are in since the launch of the ‘I am not a Plastic Bag’ campaign O3) Puregold Membership: Aling Puring Card gives out more benefits .than
its competitors O4) More promotions and Free check-ups at selected branches O5) 6.7% increase in the Gross Domestic Product of the Philippines WO1. Invest on information technology specialists (W1,W2,O1,O5) -
The
company is very outdated on technology. The company should invest on specialists to upgrade their equipment and sites. WO2. Develop new promotions involving the membership card (W2,W3,O3)
-
Puregold is currently at the upper hand when it comes to giving out freebies and promotions through its membership card. The company provides more benefits to its valued customers compared to its top competitor, SM. The company can use this strategy to lure more loyal customers, and lessen the agitation of consumers when it comes to sudden changes in prices. WO3. Launch an exclusive and unique type of eco bag. (W2,O2,O4)
-
Puregold can devise a new eco bag design to promote sales. An innovative design would hopefully beat the growing number of sales produced by the competitors.
ST Strategies
Strengths S1) Very Low Price S2) Strategic Location due to accessibility to target market S3) Branded as one of the leading supermarket in the Philippines
55
S4) Leading distribution channel of goods to sari sari stores/small businesses S5) Numerous branches Threats T1) 10% increase in Credit card frauds as recorded by FICO Banking Analytics Blog T2) Unemployment rates are relatively rising. There is 7.5 % increase in .the
unemployment rate as of January 2014
ST1. Develop the system for the use of credit card machines (S1,S3,S4,T1)
-
With Credit card frauds relatively rising, the company should be more cautious of the credit cards. The target market of Puregold is the general public who most of the times use cash to pay for their purchases.
WT Strategies
Weaknesses W1) Outdated technology W2) Intensifying competition among industry players W3) Sensitivity to rising prices of customers Threats T1) 10% increase in Credit card frauds as recorded by FICO Banking Analytics Blog T2) Unemployment rates are relatively rising. There is 7.5 % increase in .the
unemployment rate as of January 2014
56
WT1. Invest on upgrading the internal system and machines (W1,W2,T1) -
With
the increasing crime as regards to fraudulent use of credit cards, it is good for Puregold to invest in a secure operational system to protect the company and its customers.
★ ★ ★ ★ ★
Market Penetration Backward Integration Market Development Related Diversifications Unrelated Diversifications
SPACE MATRIX The researcher evaluates different variables and assigns them their weight based on how important they are for the company. It is a matching tool which is an hour quadrant framework that indicates whether aggressive, conservative, defensive, or competitive strategies are the most appropriate for a give organization. 29 It analyzes four area; two internals and two externals which will represent the quadrants in the graphic. The purpose of SPACE matrix is to position the company in one of these quadrants to determine which type of strategies is advisable for them.
SPACE MATRIX FS Conservative
9
Aggressive
8
29
Market Penetration
7
Backward, forward, horizontal int.
Market Development
6
Market Penetration
Product Development
5
Market Development
Puregold
David, Fred
57
Related Diversification
4
Product Development
3
Diversification (related/unrelated)
CA
IS -7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
-1 Retrenchment
-2
Backward, forward, horizontal int.
Divestiture
-3
Market Penetration
Liquidation
-4
Market Development
-5
Product Development
Defensive
-9
Competitive
ES
X Axis: 3.0
Y Axis: 1.4
According to the results from SPACE matrix, the company is in the agressive quadrant. Thus, the organization is in an excellent position to use its internal strengths to take advantage of external opportunities, overcome internal weaknesses, and avoid external threats. Diversification is feasible depending on the specific circumstances that face the firm; forward, backward and horizontal integration; market penetration; market development; and product development are appropriate strategies for these divisions to consider for the company has in a very ideal status.
Financial Position (FP) Return on Investment (ROI) The ROI increased by 58%.
(6)
Net Income The net income increased by 248.39%
(7)
Liquidity The liquidity ratio increased by 0.6 .
(3)
58
Working Capital The working capital increased by 192.20%
(6)
Cash Flow The cash flow increased by 338.60%.
(6)
Financial Position Average
5.4
Industry Position (IP) Growth Potential The growth potential increased by 23.31% Financial Stability The financial stability increased by 48.39%. Ease of Entry into Market Resource Utilization The resource utilization increased by 155.57% Profit Potential The profit potential increased by 23.32% Industry Position Average
(5) (6) (7) (6) (6) 6.0
Competitive Position (CP) Market Share Product Quality Customer Loyalty Technological Know – How Control over Suppliers and Distributors Competitive Position Average
(-2) (-2) (-4) (-5) (-2) (-3.0)
Stability Position (SP) Rate of Inflation Technological Changes Price Elasticity of Demand Competitive Pressure
(-4) (-5) (-5) (-2)
59
Barriers to Entry into Market Stability Position Average
(-5) (-4)
SPACE Matrix Axes Conclusion Financial Position (FP) Average: 5.4 Industry Position (IP) Average: 6.0 Stability Position (SP) Average: (-4.0) Competitive Position (CP) Average: (-3.0)
IE Matrix
This is a strategic management matching tool used to analyze working conditions and strategic position of a business. It is based on an analysis of internal and external business factors which are combined into one suggestive model.
60
TOTAL IFE WEIGHTED SCORE
EFE Rating
Strong 3.0 to 4.0
Average 2.0 to 2.99
Weak 1.0 to 1.99
High 3.0 to 4.0
I
II
III
Medium 2.0 to
IV
V
VI
VII
VIII
IX
3.40 IFE Rating 3.60 TOTAL EFE WEIGHTED SCORE
2.99
Low 1.0 to 1.99
61
BCG
Quadrant II – It represent the organization’s best long – run opportunities for growth and profitability. Divisions with a high relative market share and a high industry growth rate should receive substantial investment to maintain or strengthen their dominant positions. The following strategies are recommended: Forward, backward and horizontal
integration;
market
penetration;
market
development;
and
product
development are appropriate strategies for these divisions to consider.
62
GRAND STRATEGY MATRIX
WEAK
RAPID MARKET GROWTH Quadrant II Quadrant I 1. Market development 1. Market development 2. Market penetration 2. Market penetration 3. Product development 3. Product development 4. Horizontal integration 4. Forward integration 5. Divestiture 5. Backward integration 6. Liquidation 6. Horizontal integration 7. Concentric diversification
STRONG
COMPETITIVE
COMPETITIVE
POSITION
POSITION Quadrant III 1. Retrenchment 2. Concentric diversification
Quadrant IV 1. Concentric diversification 2. Horizontal diversification 3. Conglomerate
3. Horizontal diversification diversification 4. Conglomerate diversification 4. Joint ventures 5. Divestiture 6. Liquidation SLOW MARKET GROWTH
Quadrant I: Firms located in this quadrant are in an excellent strategic position. These firms continued concentration on current markets such as market penetration and market development and product developments which is an appropriate strategy. The following are recommended strategies are: market development, market
63
penetration, product development, forward integration, backward integration, horizontal integration, and related diversification.
SUMMARY OF STRATEGIES The summary of strategies counted which strategies were recommended by the strategy formulation tools utilized earlier using the various information drawn from external and internal analysis. SUMMARY OF STRATEGIES STRATEGY OPTIONS
SWOT
Forward Integration Backward Integration
X
Horizontal Integration
SPACE
IE
BCG
GSM
TOTAL
X
X
X
3
X
X
X
4
X
X
X
3
Market Penetration
X
X
X
X
X
5
Market Development
X
X
X
X
X
5
Product Development
X
X
X
X
X
5
Concentric Diversification
X
X
Conglomerate Diversification
X
X
X
3 2
QUANTITATIVE STRATEGIC PLANNING MATRIX
64
KEY FACTORS
MARKET PENETRATION
MARKET DEVELOPMENT
PRODUCT DEVELOPMENT
0.15
AS 4
TAS 0.6
AS 4
TAS 0.6
AS 4
TAS 0.6
0.08
4
0.32
4
0.32
0
0
Increasing number sari sari stores 4 Shifting consumer behavior due to price 5 Stronger consumption of households 6 Government oversight is minimal EXTERNAL THREATS
0.1
4
0.4
4
0.4
4
0.4
0.12
4
0.48
4
0.48
4
0.48
0.18
4
0.72
4
0.72
4
0.72
0.05
2
0.1
0
0
0
0
1
Free Trade Agreements
0.05
0
0
2
0.1
3
0.15
2
Entrants of new players
0.1
4
0.4
4
0.4
3
0.3
Foreign exchange rates changes 4 Smaller players are furious competitors INTERNAL STRENGTHS
0.07
2
0.14
0
0
0
0
0.1
4
0.4
3
0.3
4
0.4
1
0.09
4
0.36
4
0.36
4
0.36
Strategic Location due to accessibility to target market 3 Quality of service to customers 4 Established company brand name 5 Strong relationship to suppliers 6 Leading distribution channel of goods to sari sari stores/small businesses 7 One of the leading retailers in the hypermarket format INTERNAL WEAKNESSES
0.08
4
0.32
4
0.32
4
0.32
0.07
3
0.21
4
0.28
4
0.28
0.08
4
0.32
3
0.24
3
0.24
0.07
0
0
4
0.28
0
0
0.07
4
0.28
3
0.21
4
0.28
0.08
2
0.16
3
0.24
4
0.32
1
Customer Loyalty
0.08
4
0.32
4
0.32
4
0.32
2
Outdated technology
0.04
4
0.16
4
0.16
4
0.16
3
Physical facilities
0.07
0
0
3
0.21
2
0.14
4
Arrangement of goods is not proper (e.g. soap brands are stacked beside food items) Inability to adapt to changing customer’s
0.04
0
0
3
0.12
3
0.12
0.08
2
0.16
4
0.32
3
0.24
EXTERNAL OPPORTUNITIES 1 Shifting consumer behavior due to proximity 2 Growing population 3
3
Very Low Price
2
5
WEIGHT
65
needs 6
Inventory management
0.07
0
0
2
0.14
3
0.21
7
Lack of Bayad Centers
0.08
4
0.32
4
0.32
4
0.32
TOTAL ATTRACTIVENESS SCORE
2
6.17
6.84
6.36
Rating Score: 4=Most Acceptable, 3=Probably Acceptable, 2=Possibly Acceptable, 0=Not Acceptable
VII. OBJECTIVES AND STRATEGY RECOMMENDATIONs Vision and Mission Statements A. Analysis of Company’s Vision
VISION To be the Most Customer-Oriented Hypermart offering a One-Stop Shopping convenience and Best Value to our Customers. Sa PUREGOLD, Always Panalo.
Parameter
Yes / No
Evaluation
Does it clearly answer .1 the question, “What do we ”?want to become
Yes
The statement shows what the company wants to become. It is concise as .regards to its content
Is it concise enough yet .2 ?inspirational
Yes
The Vision of the company is very much brief and concise. The idea of having such statement is for everyone to understand. The statement mentions “Sa Puregold, always panalo.” This is inspirational to both employees of Puregold .and their customers
66
?Is
it aspirational .3
Yes
The vision very much contains a meaning to lead them to future advancement. They aim to be the ‘most customeroriented’ supermarket and to give the ‘best value’ to .their customers
Does it give a clear .4 indication as to when it ?should be attained
No
The statement does not contain any indications of time or time frame as to when the vision should be .achieved
The table above is an evaluation of Puregold’s Vision Statement. It is shown that the company lacks an essential component to complete a proper vision statement. This paper proposes to revise the vision of the company in order to fill-out the necessary components. Thus, this will hopefully make the company more organized and be more competitive in their field of business.
Proposed Vision Statement VISION To be the Most Customer-Oriented Hypermart offering a One-Stop Shopping convenience and Best Value to our Customers from beginning to end. Sa PUREGOLD, Always Panalo.
Parameter
Yes / No
Evaluation
Does it clearly answer .1 the question, “What do we ”?want to become
Yes
The statement shows what the company wants to become. It is concise as .regards to its content
67
Is it concise enough yet .2 ?inspirational
Yes
The Vision of the company is very much brief and concise. The idea of having such statement is for everyone to understand. The statement mentions “Sa Puregold, always panalo.” This is inspirational to both employees of Puregold .and their customers
?Is
it aspirational .3
Yes
The vision very much contains a meaning to lead them to future advancement. They aim to be the ‘most customeroriented’ supermarket and to give the ‘best value’ to .their customers
Does it give a clear .4 indication as to when it ?should be attained
Yes
The statement contains a time frame as to when the vision should be achieved. IT aims to fulfill its vision from the moment the customer starts shopping .to the end
This is the proposed Vision statement for the company. As projected in the table, the vision has complied with all the necessary factors for a more suitable, more efficient and effective vision statement that will be the company’s guide or medium for its personal growth as regards to its financial and developmental progress.
Analysis of Company Mission MISSION Our Mission is to Provide Products, Services and Business Opportunities to Every Filipino Family.
68
We Establish Lasting Relationship with Our Suppliers and Business Partners. We Strive to Promote the Personal and Professional Development of our Employees. We Commit Profitable Results to the Stockholders. Sa bawat araw, PUREGOLD, kasama mo!
Component
Yes / No
Evaluation
Customers .1
Yes
The Mission states that Puregold’s mission is to cater to every Filipino Family. This is addressed to the general public that is of the citizens of the Philippines. Also, it is mentioned that it is in their mission to build a good relationship with their suppliers and business partners which is also their customers, one way or .another
Products and Services .2
Yes
The Mission Statement mentioned “provide products, services and business opportunities”. They do not only sell products, but also they provide quality service to customers, stockholders of the company, and their .business partners
Markets .3
Yes
The company operates more than 150 stores nationwide, mostly in Luzon, its target market is the general public. Their
69
business is concerned with every age group. The term ‘every Filipino family’ coins out that they are targeting households as their .primary market Technology .4
No
Although the Mission Statement is very much flexible and innovative patterned to the needs of their customers and stockholders, it did not mention technologies that can be used to serve the .former and the latter
Concern for survival, .5 growth, & profitability
Yes
Though it is not stated that the growth, survival, and profitability is for them, the statement has a concern for such because with the successful profitability and progress of their stockholders and the good bond they establish with their business partners, it will lead to their own .advancement
Philosophy .6
Yes
Puregold’s philosophy is “Sa bawat araw, Puregold kasama mo.” This statement reaches to the Filipino citizens. Unlike other companies, they used Filipino language to make their company more appealing to the public
Self-concept .7
No
Although Puregold has been operating in most cities in Metro Manila, Northern and Southern Luzon, the company failed to include in their mission a
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self concept of being the top 3 hypermarkets in the Philippines despite being the 2nd best hypermarket .in the country Concern for Public .8 Image
No
Although Puregold has received various awards, the Mission statement does not contain any words or phrases that shows their concern for their public image
Concern for Employees .9
Yes
Their mission statement indicates their healthy relationship with their employees and their drive to promote their employees’ development both professionally and .personally
In the current Mission statement of the company, it lacks the method of what they would use to be innovative and should be patterned to the needs and wants of their customers and stockholders that they should serve with just competence. The statement also lacks a self-concept in which they should establish a self identification as to what they want to project in the public. Their public image was not concerned if you would study the statement. The company should have an awareness and consciousness to their public image. The current mission statement is very promising but it lacks merit for it lacks a few factors necessary to a proper mission statement, that is stated in the step-by-step formulation of a strategic management paper textbook by Fred David. Proposed Mission Statement MISSION
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Our Mission is to be the leading Hypermarket in the Philippines and to Provide Products, Services and Business Opportunities to Every Filipino Family in the aid of Innovation and Technology. We Establish Lasting Relationship with Our Customers, Suppliers, and Business Partners. We Strive to Promote the Personal and Professional Development of our Employees. We Commit Profitable Results to the Stockholders. Sa bawat araw, PUREGOLD, kasama mo!
Component
Yes / No
Evaluation
Customers .1
Yes
The Mission states that Puregold’s mission is to cater to every Filipino Family. This is addressed to the general public that is of the citizens of the Philippines. Also, it is mentioned that it is in their mission to build a good relationship with their suppliers and business partners which is also their customers, one way or .another
Products and Services .2
Yes
The Mission Statement mentioned “provide products, services and business opportunities”. They do not only sell products, but also they provide quality service to customers, stockholders of the company, and their .business partners
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Markets .3
Yes
The company operates more than 150 stores nationwide, mostly in Luzon, its target market is the general public. Their business is concerned with every age group. The term ‘every Filipino family’ coins out that they are targeting households as their .primary market
Technology .4
Yes
It is mentioned in the proposed mission statement that it aims to provide services and products with the aid of technological advancement and growth .and innovation
Concern for survival, .5 growth, & profitability
Yes
Though it is not stated that the growth, survival, and profitability is for them, the statement has a concern for such because with the successful profitability and progress of their stockholders and the good bond they establish with their business partners, it will lead to their own .advancement
Philosophy .6
Yes
Puregold’s philosophy is “Sa bawat araw, Puregold kasama mo.” This statement reaches to the Filipino citizens. Unlike other companies, they used Filipino language to make their company more appealing to the public
Self-concept .7
Yes
The statement provides a clear thought of Puregold
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aiming to be the leading Hypermarket in the .Philippines Concern for Public .8 Image
Yes
Puregold’s mission statement wants to establish a relationship with it’s customers and that is the general public. This coins out a certain hint that they have concern for their public image and they are doing this approach to appeal to the mass .population
Concern for Employees .9
Yes
Their mission statement indicates their healthy relationship with their employees and their drive to promote their employees’ development both professionally and .personally
The statement above is the proposed mission for the company. As projected in the lattest table, the factors and terms necessary for an improved and more proper version of the mission statement are complied therein. This statement aims to help in the development and growth of the company.
FINANCIAL OBJECTIVES Profits to increase at 26% CAGR from 2012-2015F We are aiming for the company’s net income to go up 22% this year to PHP4.56b after an estimated 37% rise in 2013 to PHP3.7b. In 2015F, earnings are expected to grow 19% to PHP5.4b. This translates to a three-year profit CAGR of 26% from 2012 to
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2015F to be driven by higher revenues from new store openings and improving operating margins. Store network expansion to drive revenue growth From an estimated 28% growth in 2013 revenues to PHP73.6b, total net sales are likely to go up 18% this year to PHP87.1b and 14% in 2015F to PHP99b. Revenue growth would come mainly from new store openings, which we aim, it would be 30 Puregold stores this year and 26 stores next year, comprising 25 Puregold stores and one S&R warehouse club. From 213 stores as of end-2013, we are expecting PGOLD’s total store count to reach 243 by end-2014F and further grow to 269 by end-2015F. In terms of net selling space, we forecast this would increase 9% this year and 7% next year, or from an estimated 352,006 sqm as of end-2013 to 382,656 sqm by 2014F and 410,806 sqm by 2015F. Our forecasts have not factored in PGOLD’s potential acquisitions. Higher margins from improving economies of scale Puregold has still room to improve in terms of the operating margins because the company reaps economies of scale from opening additional stores in areas outside Metro Manila that have considerably lower rental, manpower and other operating costs. Operating profit margin likely reached 7.2% in 2013 and we estimate this would further improve to 7.4% in 2014F and 7.7% 2015F. Likewise, we forecast overall gross margins to expand to 17.8% this year and 17.9% next year from our projected 17.4% gross margin in 2013. This would be driven by the bigger contribution to sales from the highermargin S&R warehouse membership shopping business, which we estimate would account for 22% of total revenues this year and 24% next year from our 19% estimate in 2013. Operating cash flows to support capex requirements
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One of the proposed objectives for the company is to make the total capex allotted for new store openings to be PHP3.2b- 3.3b in 2014F and 2015F from our PHP3.8b estimate for 2013. We believe PGOLD’s operating cash flows of PHP5.4b6.5b in the next two years will be sufficient to support its expansion needs. The company also has existing unused credit lines it may use in the case of additional capital requirements.
STRATEGICAL OBJECTIVES Focus on modern grocery retail Puregold is the second largest modern grocery retailer in the Philippines by sales. Its estimated market share was 11.7% in 2013, according to Euromonitor. It operates hypermarkets, supermarkets and discounters carrying the flagship Puregold brand. Its target markets are low- and middle-income consumers, and resellers that operate traditional neighbourhood outlets known as sari-sari stores. PGOLD also operates S&R Membership Shopping stores, the only warehouse membership club in the Philippines that services middle- to higher-income consumers. Key player in industry consolidation We expect PGOLD to remain a key player in the modern grocery retail business through rapid store network expansion, especially in areas outside Metro Manila where modern retail penetration is considerably lower. As competition in these areas is less intense and operating costs are lower, we believe same-store-sales growth will improve and overall margins widen. In the next 3-5 years PGOLD expects to open at least 25 Puregold stores, mostly in Luzon, and one S&R Membership Shopping store annually. Traditional retail to remain a major growth driver
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Traditional trade accounts for 73% of the country’s grocery retail industry. Given the high level, we think traditional grocery retailing will remain a significant driver of PGOLD’s revenue growth for some time. PGOLD derives about 35% of its revenue from approximately 300,000 reseller members of its loyalty programme out of more than 1m traditional retail channels in the country. Traditional grocery retail is forecast to expand 8.1% CAGR in the next five years, while modern grocery retailing is projected at 8.9% CAGR until 2018F. Earnings CAGR of 26% from 2012-2015F We forecast PGOLD’s net income to rise 26% CAGR in 2012 to 2015F, driven by higher revenues from new store openings and improving operating margins. From 213 stores as of end-2013, we expect PGOLD’s total store count to reach 243 by end-2014F and further grow to 269 by end-2015F. In terms of net selling space, we forecast this will increase 9% this year and 7% next year, or from an estimated 352,006 sqm as of end2013 to 382,656 sqm by 2014F and 410,806 sqm by 2015F. Our forecasts have not factored in PGOLD’s potential acquisitions. RECOMMENDED STRATEGIES Market Penetration It is important to seek and achieve increase in market share for present products or services in present markets through greater marketing efforts because the firm needs to embrace its market to surpass the sustainable competitive advantage. By introducing new marketing and sales promotion to entice customers to patronize the services of Puregold by introducing discount cards to really show their mission-vision to provide low cost in their products that are inside their establishments. Market Development
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It is important to introduce present products and services into new geographic area because maximizing the stockholder’s investment through expansion will have a greater chance of getting back the ROI and profit of the company. Moreover, by reaching out to the sub urban areas by establishing Puregold or PuregoldJr branches depending on the availability in the target area to capture the market. Product Development The company should develop their products and services into all their store formats to increase sales and possibly attract new types of customers, thus, increasing their scope of market. By doing so, they are not only creating diversity and offering a wider variety of products but this also helps the company to lessen the chances of new substitute products entering the markets which can affect the company’s external and/or internal environment
FINANCIAL PROJECTIONS
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IX. APPENDICES
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