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Marc Martinez Gomez

mmgomez1992@gmail.com

MERCADONA BUSINESS MODEL: Satisfying The Boss


Mercadona is the leading supermarket retailer operator in Spain and the fastest growing retailer in
the world behind Wal-Mart. This report aims to briefly analyze the current competitive position of
Mercadona within the Spanish grocery retail industry seeking to understand the strategic decisions
which switched the company from a struggle to survive in the earliest 90s to a position of
leadership, even improving its performance during the financial crisis by relying more than ever on
its innovative business model, the Total Quality Model(TQM).
The document is logically structured into three parts. First of all, an industry and market analysis is
conducted, describing the Spanish food retailing market, its underlying structure and the
environmental factors which are driving the demand. Secondly, a capabilities analysis is performed
on Mercadona, indentifying its business model and determining the source of its sustainable
competitive advantage. To wrap up, recommendations are presented, segmenting the future
uncertainty into threats and opportunities.
INDUSTRY OVERVIEW
The evolution of the Spanish food retailing industry has been extremely competitive throughout last
years, especially since the economic crisis emerged in the country in 2008. Its been a mature
market composed of many players which compete in low margins being aware that the customer
switching cost is nearly negligible. Moreover, even though these large supermarkets are in better
position as a result of the economies of scale the customer still relies on the small local groceries to
conduct their shopping, increasing even more the competition. This fact definitely causes many
firms to struggle along price wars and growth is only possible to the detriment of other players.
Despite the fact that macroeconomic variables are disclosing better future perspectives, the
recession crashed severely, leading to less income affordable within the population and defining a
daunting situation in an already commoditized price sensitivity industry. The environmental factors
which are affecting the demand within the market can be observed in exhibit 1. At the same time,
the underlying industry structure is outlined in exhibit 2.
According to Kantar Worldpanel consulting company, Mercadona is the leader of the market holding
nearly 20% of Market Share in 2013, followed by Carrefour and Eroski which dont represent a
threat by themselves, specially taking into account that Mercadona is the only player which has
been able to sustain a positive growth trend during last years (Exhibit 3). As a result of the industry
structure and the high customer bargaining power, firms have tried to cut cost but the strategic
actions and investment policies to accomplish with this goal have been dramatically different
between competitors. Exhibit 4 shows the decisions implemented for Mercadona relative to its
competitors, underlying the higher relative investment in employees and internal processes. Aside
from that, it is very important how companies position themselves within the industry. The strategic
map provided in Exhibit 5 aims to analyze the different positions of each company industry in terms
of two relevant variables, product price stability and product variety, and the corresponding Market
Share. Even though Mercadona offers a reduced relative product portfolio, this enables the
company to focus its resources on providing the best quality/price relation, the most important
variable for the customer when it comes to selecting supermarket.
In this manner, the long term strategy established by Mercadona focusing on the customer and
guaranteeing at the same time the satisfaction of all its stakeholders has ended up being the most

Marc Martinez Gomez

mmgomez1992@gmail.com

successful, leading the company to leadership position and building up a sustainable competitive
advantage essential to generate value creation.
MERCADONA s COMPETITIVE ADVANTAGE
Mercadonas value preposition is to provide the highest-quality products at the markets most
economical prices. Operation efficiency is crucial to reduce lead time and transportation costs but at
the same time the company thinks that its best asset to provide value to the customers is its
employees and thats the reason why they invest significant amount of money in them relative to its
competitors, paying them high waves and seeking to boost the staff to work harder for promotions
and self realization.
In order to provide the best shopping cart menu to its customers, Mercadona bases its strategic and
operational decisions on the Total Quality Model (TQM) developed in 1993 by its president Juan
Roig. TQM starts from a universal premise: to be satisfied, first you have to satisfy everyone else.
Hence, Mercadona orients its business model towards customer satisfaction firstly, so important that
internally it calls them bosses. At the same time, the manager is convinced that the workers,
suppliers, society and capital are equally important and all its policies must be aligned with providing
satisfaction to all them. In this manner, any initiative proposed must first be evaluated in order to
ensure that is meeting the model requirements. Eventually, the firm adopts proposals only when
their consequences are satisfactory to all five components, otherwise it rejects them. Exhibit 6
shows Mercadonas core capabilities and alignment with the TQM to provide value creation,
highlighting the significant investment in internal operational processes and employees. On the
other hand, the strategic actions carried out by the company to ensure shareholders satisfaction at
each level, from customer to capital, can be better understood by following the exhibit 7.
Even though the TQM may look simple apparently, its application is neither simple nor easy. It is a
multi-objective optimization problem in which five agents must be satisfied at the same time. This
model has been brought up to date since 1993, adjusting it to new stakeholders needs and has
enabled the company to experience a tremendous growth since its implantation. Besides, when the
company started to shake as a result of the recession around 2008, Juan Roig decided to rely on it
more than ever, resulting in improved performance as can be observed in Exhibit 8.
In this manner, the complentary , diverse and complex practices developed by the company to
create value ensure a sustainable long-term competitive advantage highly difficult to imitate.
CONCLUSION, FUTURE INSIGHTS AND CHALLENGES.
Mercadonas strength relies on its business management model, the TQM, which can also be seen
as a philosophy or mindset. It relies on very strong and solid pillars: motivated employees and
operational efficiency to provide the best long term value at the lowest price to the customers,
without forgetting the remaining stakeholders. In a period of great difficulty, the company has been
able to grow substantially and to establish a sustainable competitive advantage in a very
competitive market.
Growth opportunities and threats are analyzed in the exhibit 9.The company should try to follow the
same line, consolidating its position by market penetration strategy, strengthen its relation with
suppliers with long term contracts and invest in employees and internal processes to provide the
best long-term relation with the customer. Keep customers loyalty will be crucial in a mature market
so all the decision must be aligned with this purpose.

Marc Martinez Gomez

mmgomez1992@gmail.com

From the dynamic-competitive point of view, Mercadona must take care of the competitors
movements or potential acquisitions within the industry. New players are not likely to appear but
international chains could emerge on the market by acquisitions. Hence, it is crucial for the
company to keep levering its cost advantage, establishing low prices to generate barriers and
prevent new players from entering. The major threat is a technological disruption which may affect
the business management, so in terms of product development, the company may try to establish a
strategic partnership with an IT company focused on innovative distribution systems.
The main challenge of the company is the internationalization, which may try to accomplish by
acquiring a company which operates in neighbouring and similar countries such as France, Italy or
Portugal. Attractive regions such as Asia may be too risky because of cultural differences, specially
taking into account the customer-based policy defined. The good news is that the business model is
robust and well defined so could be spread into new markets by following the same receipt and
customer satisfaction.

Marc Martinez Gomez

mmgomez1992@gmail.com

EXHIBIT 1. ENVIRONMENTAL ANALYSIS FOR THE SPANISH FOOD RETAILING INDUSTRY

DEMOGRAPHIC
Population is shrinking.
Birth-rate goes down.
ECONOMY
Crisis has a dramatic impact in the
Spanish GDP
Income affordable has been reduced.
Very high unemployment ratio.

SOCIO-CULTURAL
Increased demand for healthy food from
younger generation.
Sustainable food supply awareness
TECHNOLOGICAL DEVELOPMENT
Supply chain management monitoring
IoT tracking the customer.

EXHIBIT 2. FIVE FORCES ANALYSIS FOR THE SPANISH FOOD RETAILING INDUSTRY.

ENTRY THREATHS
Easy to enter as a small player(-)
High economies of scale(+)
Brand loyalty(+)
Difficult to reach suppliers,
distribution channels(+)

BUYERS

Many Suppliers(+)
small chains, low bargaining
power(+)

RIVALRY
Fragmented market, many
players, low margins(-)
Low industry growth, mature
industry(-)
Difficult to differiantate(-)

SUBSTITUTES
Local farmers, no serious
threat(+)

BUYERS
Many options to choose, very low
switching cost (-)
High price sensitivity(-)

Marc Martinez Gomez

EXHIBIT 3 SPANISH FOOD RETAILING INDUSTRY : MS EVOLUTION

mmgomez1992@gmail.com

Grocery Retailers MS 2013(%Value)

Small/local
retailers
42%

Mercadona
20%

Grupo Eroski
5%
Carrefour
7%

Dia
Other
5%
supermarkets
21%

60

Grocery Retailers MS Evolution


Mercadona

50

Grupo Eroski
40
Carrefour
% MS 30

Dia
Small/local
retailers

20
10
0
2009

2010

2011

2012

2013

Year

EXHIBIT 4. CUT COST DECISIONS IMPLEMENTED BY MERCADONA RELATIVE TO ITS COMPETITORS.

MERCADONA

Abolish marketing costs.


Establish long term and loyal
relationship with suppliers.
Offer a selected good quality range of
products.
Invest in Operational efficiency to
reduce lead time.
Invest in employees to increase selfsatisfaction and customer value.

COMPETITORS

Invest In Marketing to boost sales.


Put pressure into suppliers to increase
margins.
Offer a wide range of products.
Establish discount policy in prices
Maintaining Logistics operations in the
background.
Forget employees training courses.

Marc Martinez Gomez

mmgomez1992@gmail.com

EXHIBIT 5. MARKET SHARE BY COMPANY IN TERMS OF PRICE POLICY AND PRODUCT VARIETY

High Product
Variety

Low Product
Variety

Discount Policy

Price Stability

EXHIBIT 6. MERCADONAS CAPABILITIES ANALYSIS

VALUE PREPOSITION
Highest-quality products at
the markets most
economical prices
EXCELLENT
OPERATIONAL
EFFICIENCY

EMPLOYEES
TRAINING

STAKEHOLDERS
SATISFACTION

Marc Martinez Gomez

mmgomez1992@gmail.com
EXHIBIT 7. TOTAL QUALITY MODEL (TCQ): SATISFYING ACTIONS.

THE BOSS
Best quality/cost offer.
Personalized customer service.
Stable low Price.
Very functional design.
Innovative practical packaging.
Complaints as feedback.
Promote communication.

THE EMPLOYEE
Best training programs investment.
Higher average waves.
Permanent contract with bonus.
Work-family compatibility.
Never work on Sunday.
Boost the staff to work harder for promotions,
self realization.

THE SUPPLIERS
Cooperation with suppliers.
Long term contracts and indefinite
loyal relationship.
Guarantee stability and mutual
benefits.

SOCIETY
High CSR. Transparency.
Research programs in natural environment.
Waste recycling programs
Linking Universities with business activity.

CAPITAL
Stock ownership highly concentrated.
Ensuring profitability, stability with
minimum risk.
Reinvest of profits to keep growing.

EXHIBIT 8. EVOLUTION IN MERCADONAS GROSS/NET PROFITS 1995-2006(M)

Marc Martinez Gomez

mmgomez1992@gmail.com
EXHIBIT 9. THREATS AND OPPORTUNITIES FOR MERCADONA

THREATS

Potential acquisitions within


the industry.
International new players
entering the industry.
Technological disruption.

OPPORTUNITIES

Consolidation/Penetration:
Maintain suppliers loyal relationship.
Keep low prices to avoid new players.
Innovate in packaging.
Offer experience Retailing
Maintain leadership position in customer
preferences.
Product development:
Complementary new portfolio according
to customer preferences,
Boost online channel and customer
tracking.
Innovative distribution system.
Market development:
Internationalization to neighbouring
similar country(France, Italy, Portugal)

Marc Martinez Gomez

mmgomez1992@gmail.com

REFERENCES

Mercadona: Adapting the business model in years of recession, Oriol Amat & Josep Frances
Valls.
www.hoovers.com
Deloitte: Global Powers of Retailing 2015: Embracing Innovation
How Mercadona Fixes Retails Last 10 Yards Problem, Julia Hanna, Harvard Business
School
Using Total Quality Management Model to Face the Economic Crisis: The case of Mercado,
Miguel Blanco Callejo, Universidad Rey Juan Carlos.

Spanish aisles, The economist


http://www.casestudyinc.com/mercadona-innovative-hr-practices-retailing
Wharton University of Pennsylvania:
http://knowledge.wharton.upenn.edu/article/for-mercadona-spains-leading-supermarket-tqmhas-been-an-excellent-investment/
Worldpanel distribucin 2014, respuesta sobre el sector retail, KANTAR WORLD PANNEL.
Mercadonas Annual Reports.
The Brattle Group: Anlisis de la Competencia en el Mercado Minorista de Distribucin en
Espaa.