Case study: Mercadona

Ms. Patricia Pinto

Date: Tuesday, 20
September 2016

Executive summary
Mercadona is a Spanish family-owned supermarket company, founded in 1977. By the end of
2008, Mercadona was the biggest supermarket chain in Spain, with 1,210 stores and 61,500
employees. Facing increasing competition from international retail chains, Mercadona
responded to this challenge by adopting total quality management (TQM) as the main value
and principle of all its processes. Thanks to well-implemented TQM and its integration to the
core of Mercadonas cost leadership strategy, the company was showing a steady growth and
expansion over all following years. Its sales per employee were 18% higher than that of any
other Spanish supermarkets.
However, unexpected economic crisis, which had a global effect, significantly affected all the
retail business. Mercadonas steady growth and its HR bonus policy were challenged. As the
crisis was taking place, Mercadona had to adjust its strategy to new economic environment by
lowering its prices, shortening its assortment and reconsidering its HR policy.
The first part of this report is dedicated to the analyses of Mercadona case as well as SWOT
analyses. This helped us to identify Mercadonas strengths such as: TQM approach,
sophisticated logistics, innovative approach to cutting costs, HRM strategy. Additionally, it
became possible to identify possible opportunities such as: further enhancement of
Mercadonas low cost leadership position on the market and introduction of new Mercadonas
brand products and its further vertical integration, and possible threats: increasing slowdown
of the global economy, decrease in household spending, increasing competition and possible
shrinkage of margins.
The second part of this report is dedicated to recommendations to the company. It was
suggested to keep on pursuing cost leadership strategy with TQM approach over the
companys operations. The company should look for new opportunities to cut costs, for
example, elimination of certain categories of products. Moreover, Mercadona should keep on
paying the bonuses to its employees since it will not only increase their motivation and
performance, but will enhance the brand image.

Main issues
Facing the global economic crisis, Mercadona was experiencing a slowdown of its growth,
which raised a challenge to the future prospect of the supermarket chain company.

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As the crisis was affecting the global economy, Mercadona had to adjust its strategy to the
new economic environment.
In order to better understand the company and the environment it operates in, SWOT analyses
are required.
Strengths:
Largest supermarket chain (economies of scale). According to Exhibit 2, in 2008
Mercadona had 1,210 stores with sales over 14 billions.
Strong dedication to cost leadership strategy. According to Exhibit 6, Mercadona was
consistently trying to reduce costs of packaging and improve stacking.
Well-integrated TQM. Pursuit and control of high quality all over the companys
structure and its operations.
Sophisticated logistics. Investment into a fully automated logistics block and well-
planned truck routes.
Excellent HR strategy. Training programs, skilled personal, great employment
conditions and well-designed workforce-management software.
Strong culture with a focus on customer service and customer satisfaction.
Weaknesses:
Lost focus on Bosses, the customer.
Too wide assortment of products. Certain products didnt have high demand and didnt
bring significant value to the customer (Exhibit 14).
Non-met goals regarding sales levels and growth.
Opportunities:
Further enhancement of Mercadonas low cost leadership position on the market.
Introduction of new Mercadonas brand products and its further vertical integration.
Threats:
Increasing slowdown of the global economy. Decrease in household spending.
Increasing competition and possible shrinkage of margins.

Analyses of the case

Mercadona would have never been successful as it is today without integrating TQM
approach in all of its operations back in 1993. This management approach of excellence in
every process gave Mercadona undisputable competitive advantage on the market. According
to Exhibit 11, Mercadona significantly outperformed its main competitors such as Carrefour
and other small groceries stores. It showed excellent financial performance with higher rates

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over the years and achieved to preserve higher margins than any other competitor by the end
of 2008.
Through TQM, Mercadonas management tried to satisfy five main components of its
business:
1. The Boss,
2. The employee,
3. The supplier
4. Society
5. Capital
As it can be seen, the Boss or the customer was always the priority to Mercadona. Putting
the customer in the center of its operations and focusing all efforts to satisfy customers needs
and provide great service, was one of the key factors to sustainable growth of the company.
Additionally, the companys approach to HR management was the best on the market. Its
employment policy and conditions was one in a kind providing its employees with stability,
great working conditions, training, transparency, compensations, quality of life, and
opportunities of advancement.
Moreover, the well-designed job classification structure within TQM gave Mercadona
substantial advantage in providing high quality service to the customer. (Exhibit 4) Awareness
and good knowledge of the specialists about the products in ambience sections of the store
was bringing higher customer service as well as higher turnover of products. As the result, the
customer was shopping faster and always knew that he can get the guidance and help from the
specialist. It is important to mention that such approach had a great success and helped people
with diseases where you have to choose your products carefully.
Following what was said above, Mercadona preserved high quality among all quality
dimensions:
1. Tangibles. All stores had a well-planned layout with special ambience stores and well-
trained consultants in them.
2. Service reliability. Mercadonas stores provided the same quality service over all its
stores.
3. Responsiveness. Mercadonas employees tried to help customer with
recommendations and provide best service. Additionally, the managements and
research groups were constantly conducting market search analyzing customer needs
and competition.
4. Assurance. HR policy entrusted and incentivized every employee giving them more
confidence and motivation to provide better performance.

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 5. Empathy. Prescription service, which provided customers with needed
recommendations and guidance as well as the website customer service which took
into account any complaints or advices from customers.

The relationship with supplier, which is the third component of Mercadonas business, was
also an essential part of Mercadonas strategy. By providing its suppliers with long-term win-
win contracts, Mercadona was lowering suppliers bargaining power and was giving the
company another competitive advantage.
Furthermore, the companys dedication to the customer to provide him with the lowest prices
was Mercadonas key success factor. According to Exhibit 6, the company was consistently
looking for opportunities to cut its costs to preserve cost leadership on the market and to
provide the customer with the best prices. It was a win-win situation for the company and the
customer.

Recommendations
As the result of the global economic crisis, Mercadona faced challenges for its growth and its
HR policy. The company is operating in a low-margin market with a fierce competition from
Carrefour and other groceries stores that raises more obstacles. Giving the new environment,
the number of transactions and consumer spending rate were declining. It increased buyers
bargaining power and once again intensified the competition.
Following above-mentioned analyses, it is recommended to Mercadona to pursuit its
dedication to the customer with its low cost leadership. The alignment of TQM approach with
Mercadonas strategy is its competitive advantage and, hence, will assure the company its
place on the market. The company should start by reconsidering its assortment (Exhibit 15).
There are a variety of products that should and should not be eliminated. The one, which
should be eliminated since they show negative profitability: 1) Saucepan Cleaner (-0,35),
2) Powder (-0.27). And the one, which should not be eliminated since they show positive
profitability: 1) Concentrate (0,16), 2) Ultra (0,11).
Furthermore, it is recommended to pay bonuses to its employees even though it will be
considerable cost to the company. Its employees are one of the most valuable assets. By
paying them a bonus in such a hard time, it wont only increase its motivation and
appreciation working for Mercadona, but will enhance its brand image. The company will
show that it cares about its employees and about the society. Such dedication to companys
mission and values will pay off in long-term perspective.

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And last but not least, it is suggested that Mercadona consider the option of introduction of its
own new brand products following the success of its home-brand.

Conclusion
Mercadona is the biggest supermarket chain in Spain with outstanding financial performance
thanks to its TQM approach all over the companys value chain. It is aligned with its cost
leadership strategy and enhances the value proposition to the customer giving Mercadona
competitive advantage on the market. Putting the customer and its employees as the priority
to the company strengthens the relationships and loyalty between them.
Finally, the creation of the culture of quality with its mission and values improves
Mercadonas internal process giving it an additional benefit not only to itself but to also to the
society (HBR, 2014).

Update
Following the updates of the case, it was found that Mercadona preserved its dedication to its
strategy and policy of cutting costs and providing the customer with the best price. In 2009
Mercadona dropped its prices by 10% giving the customer the savings of 60 euros. This effort
represented an injection of some 100 million euros a month into the Spanish economy
(Mercadonaes, 2016).
Additionally, in the midst of financial crisis in 2010 Mercadona paid bonuses for 210
millions (Mercadonaes, 2016).
Moreover, following the article from WSJ, Mercadona was showing a steady growth of its
market share, which increased from 15% in 2008 to 21% in 2012. (WSJ, 2012)

References
1. HBR. (2014). Harvard Business Review. Retrieved from
https://hbr.org/2014/04/creating-a-culture-of-quality
2. Mercadonaes. (2016). Mercadonaes. Retrieved from
https://www.mercadona.es/corp/ing-html/noticias.html
3. WSJ. (2014). Wall street Journal. Retrieved from
http://www.wsj.com/articles/SB10000872396390444592704578066803363005258

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Exhibits

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