Case Study Can Albertsons Trounce Wal-Mart with Advanced Information Technology?

Presented by: 1. Areeb Hasan 2. Kashyap Rao 3. Kruti Maniar 4. Rahul Mertia 5. Vipul Shah

Submitted To: Prof. Nityesh Bhatt

Case Facts

Albertsons was founded by Joe Albertson as a grocery store in 1939 in Boise, Idaho, USA.

2305 retail stores in 31states with 1351combination food drug stores, 707 stand alone drugstores and 247 conventional & warehouse stores

Brand also marketed through subsidiary stores (Jewel-Osco, Acme, Max Foods, etc.)

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Wal-Mart is the number one grocer with annual revenue from grocery department of $56 Million compared to $ 36 Million of Albertson. Wal-Mart was a relatively new comer in the grocery business but had vast retail experiences, massive purchasing power and leading-edge systems. Wal-Mart's retail link network pulls in POS data every 15 minutes and sends it to suppliers whereas other retailers capture data only once or twice each day.

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Albertson desired to be the number one grocer in United States. Larry Johnston, CEO wanted to leverage upon Information Technology in order to keep prices competitive and make shopping experience compelling.

Allocated $0.5 billion (yearly) for technological advancements in 2004.

Wanted to earn more per dollar. Currently they were making 1.4 cents on every dollar sale compared to 3 cents earned by WalMart.

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Begun to install self-service checkout stations. Enabled customers to scan the items as soon as they pick them up, pay by swiping debit/credit cards in machines by themselves thereby reducing checkout time to seconds. This would also allow to lay off cashiers and cut costs as they would not have to pay wages. Industry analysts say that Albertson would save close to $100 million.

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In future they planned to have technology enabled grocery stores. Customers could set up shopping lists from homes on Albertsons web portal. Also they could give additional information about allergies, dietary restrictions. Then, when they visit Albertsons store, they would be given a hand-held device which would guide them efficiently through the aisles to gather and scan products of their choice. But as per analysts, such radical changes would be difficult to be accepted by customers and employees.

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It would be difficult for Albertsons employee because such advancements would result in more lay offs and they would not be a part of the vision of the company. Consumers would also find it difficult to align with Johnstons vision as they would not intend for high-tech shopping for items of daily use (milk, bread, etc.) Invested $ 50 million NCR Teradata warehouses to understand customer buying habits. Analytics software by KhiMetrics also was used to set prices / sales strategies.

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Use of Web coordinated supply chain management. Shift of financial applications at corporate office to software from Oracle. Also adapted People Soft Software for efficient HRM. Had added Electronic Data Interchange (EDI) which facilitated better processing of transactions with suppliers. Also went on to hire veterans from the industry experienced in various business fields. Efforts resulted in savings of $500 Million, but sales did not increase significantly.

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Wal-Marts grocery sale continued to grow steadily. Wal-Mart introduced Neighbour-hood Markets. A deviation from their extensive Supercenters and Big Box stores. These stores were smaller in size and were intended for the local markets. Albertson had lost market share to Wal-Mart in Boise, where Albertson was headquartered. Since Wal-Mart entered in 2000, their market share in Boise dropped from 65% to 39%. These stores had exactly similar operations

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Wal Mart stores were no frill stores compared to the Albertsons which often had in house Buthcer, Baker and Gourmet coffee bar. Albertsons were counting on the technological advancements they had incorporated in the organisation to work in their favour and lure customer from WalMarts low price offerings and simple presentation based stores. Albertsons had joined Wal-Mart in their approach to make it mandatory for their suppliers to use RFID tags on all product

Radio Frequency Identification (RFID) Tag

Wireless system that uses radio frequency electro magnetic field to transfer data from a tag attached to an object to a remote device. Used extensively in toll booths, tracking of goods (logistics and supply chain management), animals in sanctuaries etc.

Q1. Analyze Alberstons using The Value Chain and Competitive Forces Model.

Value Chain Model

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Porter Five Force Model

Q2 . What roles do Information Systems play in Alberstons business strategy? How do systems provide value for Alberstons?

Information systems would help Albertsons in

following ways :1.

Flattening the organisation

2.
3.

Management Span of Control grows.

Customization and Personalisation which

would make life easier for customer.

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Value added by IS to Alberstons and its customers :1. Better shopping experience. 2. Convinient. 3. Time saving. 4. Reduced cost. 5. Savings for Alberstons

Q3. Compare Alberstons to Wal-Mart in terms of business strategy, current success and future success?

Albertsons strategy was to provide a

consumer friendly and high tech shopping

experience.

They also focused on reducing costs.

Whereas Wal-Mart since its introduction focused just on keeping inventory down to minimum and operating costs low so that overheads take a much smaller chunk out of

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Current Success

Albertons

saved over $500 million since adapting new IS . Also reducing employee strength which would further lead to further savings of around $100 million. Wal-Mart has launched their new Neighbourhood Markets to extend their reach to the local markets. Wal-Marts sales are growing steadily.

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Future Success (Scenario as of 2013) Alberstons was acquired by Super Value Inc. In January 2006 for $10 billion due to intense competition. Super Value closed down many store subsequently. On January 10, 2013 Super Value sold New Alberstons was sold to Cereberus Capital Management. And currently Walmart sits in a comfortable position of market leader with revenues over $ 258 billion.

Q4. Which management organisation and technology factors hinder Alberstons from achieving the goals of its business strategy and which of them helped?

Hindrance from : Employees

Existing

Customers

Factors that helped :

Improved

Information Systems

Reduced
Profits

costs

from drug stores.

Recruitment

of industry veterans.

Q5. Do you think Alberstons business strategy will work, why or why not?