Reference: Publix Super Markets: Its Strategy in the U.S. Supermarket and Grocery Store Industry Case Study

Help on: In 750-800 WO****DS Answer These Questions and Provide Works Cited Page.

Wr**** and analysis report.

Address the following questions in yourreport:

1. What is Publix's strategy?
2. Which of the five generic competitive strategies discussed most closely fit the competitive approach that Publix is taking?
3. What type of competitive advantage is Publix trying to achieve?
4. What does a SWOT analysis of Publix reveal about the overall attractiveness of its situation?

CASE 15 Publix Super Markets: Its Strategy in the U.S. Supermarket and Grocery Store Industry Gregory L. Prescott David L. Turnipseed University of West Florida University of South Alabama M oving into the decade of the 2020s, Kevin health, and natural organic foods. A new and pow- Murphy reflected back over his two years erful force that Murphy thought capable of caus- as president of Publix Super Markets, Inc. ing significant and lasting industry effects was the Sales and profits had maintained their positive trend, COVID-19 pandemic sweeping the country. Cost con- established long before Murphy's presidency, and com- trol remained a major key to success, and private brands parable store sales continued to increase, despite the had emerged as a practical means of keeping costs low. chain's expansion of the number of stores. Publix con- Murphy was concerned that the rapid change tinued to enjoy excellent publicity and a great corpor- in the supermarket industry was of sufficient magni- ate image, both internally and externally: it had been on tude to cause a major disruption in Publix's positive Fortune's 100 Best Companies to Work For, and Publix's trajectory if the company did not accurately identify voluntary turnover rate was 5 percent, versus the indus- the driving forces in the industry, and forecast and try average of 65 percent. The company was the larg- stay ahead of the industry's path. He resolved to est employee-owned company in the United States and accurately assess the supermarket industry and keep had never laid off an employee in its 89-year history. Publix at its forefront. Although fiscal 2019 had shown net sales of a record $38.1 billion (an increase of 5.6 percent over History of Publix Super Markets fiscal 2018), and net earnings of over $3 billion, or The history of Publix began with its founder George 7.9 percent of sales, Mr. Murphy was concerned about the future. The grocery industry appeared to be mov- Jenkins beginning his retail career in his father's gen- eral store in Harris, Georgia. In 1925, Jenkins decided ing rapidly from the traditional in-person shopping experience in which the shopper visited a favorite gro- that Florida's real estate boom offered better oppor- tunities, and he moved to Tampa, Florida. Rather cery and personally chose the week's grocery items, to e-commerce with home delivery, or phone app-ordered than working in the real estate industry, Jenkins took a job as a stock clerk in a Piggle Wiggly store. pickup based shopping. Technology had provided the After two months, he was promoted to store man- means for shoppers to select their grocery items from ager, and a short time later, was transferred to Winter an app on their phones, and delivery and logistics Haven, Florida, to manage the chain's largest store. improvements enabled quick delivery of the grocery basket to the shoppers' door. Mr. Murphy believed that Jenkins held the management position at Winter Amazon's purchase of Whole Foods was a likely catalyst Haven from 1926 to 1930. In 1930 he resigned from to cause faster than normal industry change in ecom- Piggly Wiggly and opened his own grocery store in Winter Haven and opened a second in 1935. merce grocery sales and delivery. Evolving lifestyles had resulted in a decreasing amount of food cooked at home, and an increased focus on sustainability,CASE 15 Publix Super Markets: Its Strategy in the US. Supermarket and Grocery Store Industry Jenkins closed his first two stores, and opened his dream store, the first Publix Super Market, in November 1940. The Publix was a \"food palace\" of marble, stucco and glass, and included innovations such as fluorescent lighting, air conditioning, electric eye doors, and terrazzo floors at a time when these items were considered luxuries not found in compet- ing grocery stores. He acquired a warehouse and 19 All American stores from the Lakeland Grocery Company in 1945 and began replacing the small stores with larger supermarkets. He continued his aggressive expansion and brought the Publix brand to customers throughout Florida. The Publix Culture From the day he opened his first grocery store, Jenkins was focused on excellent customer treatment. He thought that friendly customer service and royal treat- ment were crucial elements in connecting with cus- tomers and forming lasting relationships. He believed that the key to treating his customers like royalty was knowledgeable and friendly employees who provided a convenient, but lean, shopping environment. At Publix. the foundation of its firstclass customer ser- vice was learning all possible about the business. and to make the shopping experience pleasurable. Publix employees (called associates) were taught that providing the highest level of service and treat- ing the customers like royalty, extended beyond the grocery aisles. Customers should have excellent experiences in every interaction with the company. Publix believed that its associates, who continued to embrace the philosophies set out by Jenkins, were what separated Publix from other major grocery retailers. The Company regularly recognized and rewarded its associates for their hard work, dedica- tion, and service. Associates were recognized for many reasons, including: - Going \"above and beyond.\" Associates who had been a role model in embracing the Publix cul- ture and provided premier service were eligible to receive a free sub coupon and a personalized note from their manager. - Being dedicated to the Company. Associates received a gift and were invited to a dinner recognizing each five years of service. Publix valued its associates and rewarded those who made a difference in the lives of others. (2-199 Although Jenkins died in 1996, his beliefs influenced the way Publix operated up to the present. Each year on September 29, the Company celebrated Jenkins's birthday. The celebrations, known as Mr. George Day, honored the man whose passion for \"people first\" led to Publix's beginning in 19 30. Recognition of Publix Super Markets ' Forrmre's Best Big Companies to Work For 0 Fortune's Best Workplaces for Parents . Indeed's Top-Rated Workplaces for Veterans - Forrmre's 100 Best Companies to Work for in America for 22 consecutive years 0 Fortune's Best Workplaces for Diversity . Fortune's Best Workplaces for Women - Forrmre's Best Workplaces for Millennials Fortune's Best Workplaces for Retail ' Fortune's Most Admired Companies for 23 con- secutive years - lndeed's Top-Rated Workplaces 0 Market Force's Americals Favorite Grocery Chains Publix's Mission, Commitment, Guarantee, and Key Values Publixis mission was \"(0 be the premier qualiiyfood rerafler in the world.\" To achieve that mission, the com- pany focused on its customers, efficiency, employees, stockholders, and communities. Over the years, Publix had an unwavering com- mitment to being: . Passionately focused on customer value, ' Intolerant of waste, - Dedicated to the dignity, value, and employment security of our associates, ' Devoted to the highest standards of stewardship for our stockholders, and ' Involved as responsible citizens in our communities. The company gave its customers the guarantee that \"We will never knowingly disappoint you. If for any reason your purchase does not give you complete satisfaction, the full purchase price will be cheerfully refunded immediately upon request." During the early years, Jenkins reflected on what he had learned in his business life before Publix and developed a set of values upon which he built the company. C-200 PART 2 Cases in Crafting and Executing Strategy These values were adhered to every day at Publix. serving as a highly visible example of Publix connect- These values were: ing with its employees, customers, and stakeholders, and this practice was continued by Publix's manage- . Invest in Others . Give Back ment. Jenkins sought ways to treat customers like Prepare for Respect the Dignity royalty and thereby connect with the customers and Opportunity of the Individual form enduring relationships. He used store presenta- Be There Treat Customers tions, personal service, and quality products to make Like Royalty customers feel valued. Publix attributes its high cus- tomer loyalty to unwavering focus on excellent and Jenkins believed in investing in others by build- unmatched customer service. ing relationship, making connections, working col- laboratively, learning, and mentoring others. Being Publix Super Markets' a good community partner was requisite for organ- izational success in Jenkins' mind and he stressed Financial Situation donating time, talent and money to the cities in As of March 2, 2020, Publix operated 1,243 super- which Publix operated. Publix's growth required a markets in Florida, Georgia, Alabama, South constant increase in employees and Jenkins encour- Carolina, Tennessee, North Carolina, and Virginia. aged his people to prepare themselves for the con- In 2019, Publix ranked as the eighth largest private stantly emerging opportunities in the organization. company in the United States. Publix's sales revenue Having experienced working for a company where for the five years 2015-19 increased at a compound his thoughts and ideas were not valued, Jenkins average growth rate (CAGR) of 4.2 percent. Over the vowed to make Publix a place where individuals same period, gross profit had a CAGR of 3.9 percent, were respected, communication was open, everyone and net profit showed CAGR of 11.2 percent. had a voice, and opinions were valued. Further, he Publix's net margin ranged from 6.1 percent in 2015 committed himself to being involved in all aspects to 7.9 percent in 2019, significantly greater than the of the company, because he wanted his customers industry average-see Exhibit 1. and employees to know that he cared about them. Publix's consolidated statement of earnings, Until his death in 1996, Jenkins regularly visited 2017-2019, are produced in Exhibit 2, and consolidated stores and other facilities, attended store openings, balance sheets, 2018-2019, are provided in Exhibit 3. EXHIBIT 1 Selected Financial Data for Publix Super Markets, Inc., 2015-2019 ($ in thousands) 2019 2018 2017 2016 2015 Sales Sales $38, 1 16,402 36,093,907 34,558,286 33,999,921 32,362,579 Percent change 5.6% 4.4% 1.6% 5.1% 5.9% Comparable store sales percent change 3.6% 2. 1% 1.7% 1.9% 4.2% Earnings Gross profit 10,375,933 9,782,516 9,428,569 9,265,616 8,902,969 Earnings before income tax expense 3,785,986 2,920,968 3,027,506 2,940,376 2,869,261 Net earnings 3,005,395 2,381, 167 2,291,894 2,025,688 1,965,048 Net earnings as a percent of sales 7.9% 6.6% 6.6% 6.0% 6. 1% Source: Publix Super Markets, Inc. 2019 Annual Report.CASE 15 Publix Super Markets: Its Strategy in the US. Supermarket and Grocery Store Industry 0201 EXHIBIT 2 Consolidated Statement of Earnings for Publix Super Markets, Ino., 2017-2019 (in thousands, except per share amounts) 2019 2018 2017 Revenues Sales $38,116,402 $36,093,907 $34,558,286 Other operating income 346,351 301,81 1 278,552 Total revenues 38,462,753 36,395,718 34,836,838 Costs and expenses: Cost of merchandise sold 27,740,469 26,311,391 25,129,717 Operating and administrative expenses 7,833,035 7,339,924 6,974,297 Total costs and expenses 35,573,504 33,651,315 32,104,014 Operating profit 2,889,249 2,744,403 2,732,824 Investment income 814,372 56,699 226,626 Other nonoperating income, net 82,365 119,866 68,056 Earnings before income tax expense 3,78 5,986 2,920,968 3,027,506 Income tax expense 780,591 539,801 735,612 Net earnings $ 3,005,395 $ 2,381,167 $ 2,291,894 Weighted average shares outstanding 713,535 726,407 753,483 Earnings per share $4.21 $3.28 $3.04 Source: Publix Super Markets, Inc. 2019 Annual Report. EXHIBIT 3 Consolidated Balance Sheets for Pu blix Super Markets, Inc., 2018-2019 ($ in thousands) ASSETS Current assets: Cash and cash equivalents $ 763,382 599,264 Shortterm investments 438,105 560,992 Trade receivables 737,093 682,981 Inventories 1,913,310 1,848,735 Prepaid expenses 75,710 122,224 Total current assets 3,927,600 3,814,196 Longeterm investments 7,988,280 6,016,438 Other noncurrent assets 441,938 515,265 Operating lease rightofuse assets 2,964,780 Property, plant and equipment: Land 1,984,400 1,850,718 Buildings and improvements 5,948,039 5,535,538 Furniture, fixtures and equipment 5,477,534 5,114,698 Leasehold improvements 1,660,164 1,564,243 Construction in progress 152,272 109,367 15,222,409 14,174,564 Accumulated depreciation (6,037,887) (5,537,947) Net property, plant and equipment 9,184,522 8,636,617 Total assets $245011 20 18,982,516 0202 PART 2 Cases in Crafting and Executing Strategy 2019 2018 LIABILI'nES AND EQUITY Current liabilities: Accounts payable Accrued expenses: Contributions to retirement plans Selfinsurance reserves Salaries and wages Other Current portion of longterm debt Current portion of operating lease liabilities Total current liabilities Deferred income taxes Selfinsurance reserves Accrued postretirement benet cost Longrterm debt Operating lease liabilities Other noncurrent liabilities Total liabilities Common stock related to Employee Stock Ownership Plan (ESOP) Stockholders\" equity: Common stock of $1 par value. Authorized 1,000,000 shares; issued and outstanding 706,552 shares in 2019 and 715,445 shares in 2018 Additional paidin capital Retained earnings Accumulated other comprehensive earnings (losses) Common stock related to ESOP Total stockholders\" equity Noncontrolling interests Total equity Total liabilities and shareholders\" equity Source: Publix Super Markets, Inc. 2019 Annual Report. Stock Market Performance Publix stock was not traded publicly: it was held only by current and former employees. Because of the lack of active trading, there was no traditional trading- or market-based daily price available. A group ofindependent financial analysts determined the Publix stock price based on comparison of financial performance in a \"peer group\" of other supermarket chains. Consequently, stock price swings in other grocers\" stock price could affect $ 1,934,761 1,364,604 531,699 540,760 149,032 145,241 143,662 132,916 461,427 321,030 39,692 4,954 335,391 7 3,700,714 3,009,555 632,434 420,757 226,727 222,419 120,015 105,303 131,997 162,711 2,603,206 140,633 67,102 7,605,776 3,937,352 3,259,230 3,134,999 706,552 715,445 3,753,066 3,453,004 12,317,473 10,340,654 31,239 (55,762) (3,259,230) 13, 134,999) 13,604,155 11,323,342 37,959 36,323 16,901,344 14,994,664 $24,507,120 $13,932,516 Publix's share price. Exhibit 4 produces Publix's stock, compared to the S&P 500, and its peer group of supermarkets. Supermarket and Grocery Stores Industry The US. supermarket and grocery stores industry had grown during the five years 2014-19, primarily due the strong national economy, producing revenue of CASE 15 Publix Super Markets: Its Strategy in the US. Supermarket and Grocery Store Industry 0203 EXHIBIT 4 Comparison of Five-Year Cumulative Return Based on Fiscal Year End Price for Publix Shares, 2014-2019 $200 $180 $150 $140 $120 0 Publix S&P 500 I Peer Group $100 2014 2015 2016 Source: Publix Super Markets, Inc. 2019 Annual Report. $655 billion in 2019. a .9 percent increase over 2013. Annual revenue growth. 201520 had been 1.4 percent. and revenue was forecast to top $673 billion in 2020. There were over 66.290 grocery businesses in 2109. with industry employment of 2.772.898. Industry Margins. The margins vary among departments in a large supermarket. The main gro- cery aisles margins, approximately one percent. are the lowest in the economy. Industry consolidation had resulted from the low margins: in a low margin situation. economies of scale could provide ef- ciency and centralization. and economic rewards. Consequently. for several decades. the grocery industry had been in the process of consolidation. New store formats pressed margins even lower as competition became more intense. The present aver- age grocery store was a large supermarket with an average of about 45,000 square feet and annual rev- enue of about $14 million a year, or about $500 per square foot of sales as the industry average. New gro- cery formats since the 1990s changed the industry. and specialty chains like Whole Foods were earning margins of about 3.2 percent and higher. far greater than the industry average. The wholesale clubs for- mat also undercut the larger grocery stores. putting pressure on the struggling industry. 2017 2018 2019 Organic and Private Brands. During the ve years 201419. many consumers switched to organic and all-natural food brands. and premium food brands. as per capita disposable income increased. which boosted industry revenue. However. many consum- ers continued purchasing private-label. or store brands due to rising food costs. Increasing gen- eric food purchases reduced revenue growth. but increased profit margins. because store brands could be produced at less cost than national brands. Not only could private- brand foods fill inventory voids. but they also boosted the bottom line. Profit margins on third-partybranded foods were about one percent to two percent. while gross margins on private-label goods could reach between 25 percent and 30 percent. When private brands were rst introduced. retailers' ideas of private labels were an afterthought. The word \"Generic\" was often used interchangeably with private brand. and packaging. usually black and white. was not highly desirable, and quality was also not a priority. The Food Marketing Institute's 2019 poll reports that 46 percent of private-label brands are \"very influ- ential\" in their decision ofwhich food retailer to shop. an increase of 35 percent from three years previous. The data reflects a similar result from Coresight Research posted earlier in 2019. that suggested more 0204 than half of US. shoppers visit a particular retailer to purchase a private-label good. Some grocers turned their private-label brands into lines that are were as well respected as comparable options from packaged food companies like Kraft Heinz or General Mills, if not more so. Data from the Food Marketing Institute (FMI) and market research firm IRI indicated that almost half of all consumers specifically seek out a private-label product. \"Food retailers should be very pleased that their brands are becoming bigger factors in how consumers shop. This gives retailers the oppor- tunity to further drive loyalty and trips\CASE 15 Publix Super Markets: Its Strategy in the U.S. Supermarket and Grocery Store Industry C-205 The retail grocery industry was generally slow to Publix compared quite favorably to the top super- respond to the changing competitive conditions, and market competitors in customer experience met- between 2008 and 2018, sales growth of large grocery rics, ranking first among top grocery chains in item chains in North America had been only two percent, availability, store cleanliness, and finding wanted versus 8.4 percent in South America and Eastern items. Customers ranked Publix number two in Europe, 6.2 percent in Asia, and 9.8 percent in Africa. checkout speed and cashier courtesy: Publix tied for As labor costs and commodity prices increased number two with Whole Foods for specialty depart- between 2012 and 2017, traditional grocers had not ment service. Despite these high rankings, Publix been able to increase their prices to compensate, placed eighth for good sales and promotions of the because of intense competition from lower priced 22 top grocery chains surveyed, and 18" for value for formats such as dollar stores and discount chains. the money. Consequently, their margins dropped dramatically. The Kroger Co. Profile of Select Rivals in the The world's largest retail grocery/ supermarket chain was U.S. Supermarket Industry Kroger Co. with fiscal 2019 sales of $121,162 million. Kroger was the third-largest retailer in the world, Kroger Co., Costco Wholesale Corporation, Albertsons, behind Walmart Stores, Inc., and Costco Wholesale H.E. Butt Grocery Co., Meijer, Inc., and Whole Corp. Kroger owned 18 chains of supermarkets include Foods were Publix's close competitors for top U.S. ing King Soopers', Ralph's, Smith's, City Market, and supermarket-see Exhibit 5. Pick'n Save, with a total of 2, 764 stores, as well as price- A June 2018 study of favorite grocery store impact stores (e.g., Food4Less), multi-department chains showed that Publix Supermarkets had the stores (e.g., Fred Meyer, Kroger Marketplace), as well second highest composite customer loyalty in the as jewelry and specialty retailers. Kroger's statement of grocery/ supermarket industry, scoring 76 percent, income is produced in Exhibit 6. versus the leader, Wegmans (a small, privately held Kroger launched a three-year "Restock Kroger" New England grocery chain) which was 77 percent. plan, beginning in 2018, that was intended to create Among Publix's other close competitors, H-E-B was shareholder value by pursing its vision of serving 69 percent, Costco was 65 percent, and Whole Foods America by food inspiration and uplift. The com- 60 percent, Kroger, Albertsons, and Meijer did not pany reported that it delivered over $1 billion in sav- make the list. ings in 2018 through process improvements and cost EXHIBIT 5 Leading U.S. Supermarket and Grocery Store Chains, 2017 2017 2017 Net 2012-2017 Global Rank Name U.S. Rank Revenue* Income Revenue CAGR Costco $129,025 $2, 714 5.4% W N Kroger 122,622 1,889 4.2% 15 Albertson's 59,925 46 74.4% UT D WN 31 Publix 34,837 2,292 4.7% 37 H.E. Butt 24,600 n/a 4.9% 54 Meijer 18,900 n/a 5.3% 58 Whole Foods 16,030 245 6.5% * In millions US $ e - estimated Source: Deloitte, "Global Powers of Retailing 2019, https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Consumer Business/cons-global-powers-retailing-2019.pdf0206 PART 2 Cases in Crafting and Executing Strategy EXHIBIT 6 Consolidated Statements of Operations for The Kroger Co., Fiscal 2016-Fiscal 2018 (in millions, except per share amounts) 2018 2017 2016 (52 weeks) (53 weeks) (52 weeks) Sales $121,162 $122,662 $115,337 Operating expenses Merchandise costs, including advertising, warehousing, 94,894 95,662 89,502 and transportation, excluding items shown separately below Operating, general and administrative 20,305 21,041 19,162 Rent 884 911 881 Depreciation and amortization 2,465 2,436 2,340 Operating prot 2,614 2,612 3,452 Other income (expense) Interest expense (620) (601) (522) Nonservice component of companysponsored pension plan costs (26) (527) (16) Mark to market gain on Ocado securities 228 Gain on sale of business 1,782 7 7 Net earnings before income tax (benefit) expense 3,978 1,484 2,914 Income tax (benet) expense 900 (405) 957 Net earnings including noncontrolling interests 3,078 1,889 1,957 Net loss attributable to noncontrolling interests (32) (18) (18) Net earnings attributable to The Kroger Co. $ 3,110 $ 1,907 $ 1,975 Net earnings attributable to The Kroger Co. per basic common share $3.80 $2.1 1 $2.08 Source: Kroger Co. 2018 Annual Report. controls and invested in the future. One part of the Restock Kroger plan was an aggressive move toward omnichannel retailing: the Company believed that its customers did not distinguish between online and in-store purchase experiences, but rather sought the easiest and most seamless solution to their needs or problems. Kroger attempted to expand its capa- bilities and be available, relevant and accessible to its customers in both the physical and digital shopping environments. The Company had been working on increas- ing its digital platform for several years and showed a 58 percent growth in digital sales in 2018, and a 21 percent increase in the third quarter of 2019. It was integrating its traditional brick and mortar busi- ness with its expanding digital sales platform, with the intention of serving its customers anything, anytime and anywhere. By December 2018, grocery pickup or delivery was available to 91 percent of Kroger households: in December 2019, the company had 1,915 pickup locations and 2,326 delivery loca- tions covering 96 percent of Kroger households. Kroger entered into partnerships with several companies that enhanced the company's omnichan- nel retailing and served the rapidly evolving grocery market. The Company merged with an online meal kit company, Home Chef, which was ranked first place in online meal kit companies. Shortly after the merger, Home Chef launched the first in-store meal kit line, and at the end of 2018, they were in 700 Kroger locations, and expanding. In February 2019, Kroger announced that Home Chef retail meal kits would be added to an additional 500 Kroger stores. Another significant partnership in 2018 was Ocado. one of the world's largest online grocery retailers, which used advanced robotics and highly efficient automated warehouses. This partnership enabled Kroger to provide faster, more organized ecommerce shopping to its customers. Customers had fresher food, delivered faster from Ocado's CASE 15 Publix Super Markets: Its Strategy in the U.S. Supermarket and Grocery Store Industry C-207 customer fulfillment centers initially located in cen- Greenwise locations provided a beverage bar with tral Florida, the Mid-Atlantic region, and southwest coffees, locally crafted beers, wines, and smoothies Ohio. A Wisconsin fulfillment was added in 2019. as well as handcrafted sandwiches, burritos, acai Kroger invested heavily in private brand foods. bowls, gourmet pizzas, bowls, sushi and sausage Kroger's private brands, known as Our Brands made in-house; local and organic produce; body care (Kroger, Private Selection, Simple Truth, Big K, products; and natural vitamins and supplements. and Heritage Farms) accounted for 31 percent of Kroger's sales in 2018. In 2019, Kroger produced about 43 percent of Our Brand grocery items in Costco Wholesale Corporation Kroger owned food production plants. Kroger also Costco was the second largest retailer in the world, debuted a Greenwise Market chain of healthy-living with fiscal 2019 sales of $152.7 billion-see Exhibit 7. stores designed to be a place for customers to find Costco operated as a Cash & Carry/Warehouse Club products that will support their evolving lifestyles. but was a significant competitor to grocery stores EXHIBIT 7 Consolidated Statements of Income for Costco Wholesale Corporation, Fiscal 2017-Fiscal 2019 (amounts in millions, except per share data) 52 Weeks 52 Weeks 53 Weeks Ended Ended Ended September 1, September 2, September 3, 2019 2018 2017 Revenue Net sales $149,351 $138,434 $126, 172 Membership fees 3,352 3, 142 2,853 Total revenue 152,703 141,576 129,025 Operating Expenses Merchandise costs 132,886 123, 152 11 1,882 Selling, general and administrative 14,994 13,876 12,950 Preopening expenses 86 68 82 Operating income 4,737 4,480 4, 111 Other Income (Expense) Interest expense (150) (159) (134) Interest income and other, net 178 121 62 Income Before Income Taxes 1,765 4,442 4,039 Provision for income taxes 1,061 1,263 1,325 Net income including noncontrolling interests 3,704 3, 179 2,714 Net income attributable to noncontrolling interests (45 ) (45) (35) Net Income Attributable to Costco $ 3,659 $ 3, 134 $ 2,679 Net Income Per Common Share Attributable to Costco: Basic $ 8.32 $ 7.15 $ 6. 11 Diluted $ 8.26 $ 7.09 $ 6.08 Shares used in calculation (000s) Basic 439,755 438,515 438,437 Diluted 442,923 441,834 440,937 Source: Costco Wholesale Corporation 2019 Annual Report.C-208 PART 2 Cases in Crafting and Executing Strategy and supermarkets. The company opened its first non-perishables, tissue, detergent, and similar items. location in 1976 as Price Club, in San Diego. The There was no separate delivery fee for two-day orders, fledgling company quickly discovered that it could but a minimum order of $75.00 was required. achieve much greater buying power by serving small Although many groceries and supermarkets were businesses and a select group of non-business mem- devoting significant resources to grocery pickup, bers. This was the beginning of the warehouse club Costco had no plans to implement pickup services industry. Costco's operating philosophy is "Keep as of mid-2019. Costco's CFO Richard Galanti costs down and pass savings on to our members." remarked on an earnings call that despite the suc- Costco focused on a best value strategy and provided cess that Walmart and other competitors had with a 100 percent satisfaction guarantee on the member- grocery pickup, Costco had no plans to add pickup ships and merchandise. services. Galanti said that, "We continue to look at it, Costco developed its private brand Kirkland we continue to scratch our head about it, we recog- Signature as a way to support its low-cost strategy nize that they [ Walmart] and some others are putting by helping to keep prices low. The Kirkland Brand in a lot of financial commitment to doing this. I think included grocery items, eggs, honey, sparkling water, what you're going to find it is like everything else in razor blades, tissues, wine and vodka, which sold life at Costco, over time we figure out how to do it for at least 20 percent less than national brands. our way that makes sense for us that still works. Costco's strategy in private branding had been quite successful. In 2018, Kirkland Signature's revenue was $40 billion, an 11 percent increase over the Albertsons prior year, and a greater amount than the revenue Albertsons Companies, Inc., a Boise, Idaho-based super- of Macy's and JCPenny, combined. Costco's private market chain, was the world's 15" largest retailer. The brand had become the powerhouse in private brands Company family of stores includes over 2,200 super- by 2019. The Washington Post ranked Kirkland markets operating under 22 names in 34 states and the hot dogs number one of the best-selling brands in District of Columbia. Albertson's statement of oper- 2019. In 2019, Costco's Kirkland brand revenue of ations, 2014-19 are produced in Exhibit 8. $39 billion, and accounted for about 25 percent of Albertsons Companies' in-house brand, Own the company's total sales. Kirkland accounts for Brands, launched in 2018, comprised over 1,000 items, about 30 percent of all U.S. private-brand grocery and was one of the most diverse private brands in the sales. Kirkland's numbers starkly contrast with the country. The Company also owned one of the nation's Private Label Manufacturers Association's report largest lines of USDA-certified organic products, with that private brands account for only 17 percent of all sales of over $1 billion yearly. grocers' sales. Recognizing that competitive success in the Costco was rather late to offer grocery delivery: retail grocery industry required a good online gro- its online grocery, CostcoGrocery, did not begin cery platform, and that omnichannel shoppers were operations until 2017. The company was slow to more valuable to the Company than only traditional adopt online shopping because its members tended brick and mortar customers, Albertsons entered into to spend more money when they shopped in a phys- three strategic digital partnerships. The partnership ical store. Costco shoppers had one- and two-day with Bloom Reach, a digital experience platform, delivery options for online groceries. Costco mem- employed artificial intelligence to provide Albertsons's bers in "qualifying zip codes" could order groceries, online customers an enhanced search experience, including perishable foods, meat, produce, and sea- quickly showed results in expanding the shopping food online and have it delivered in a selected time basket. The Company partnered with Quotient window by Instacart, a national delivery service. The Technology, which became Albertsons's exclusive minimum order was $35.00, and prices for same-day digital media platform. Quotient enabled consumer delivery items were higher than Costco warehouse packaged goods companies to work with Albertsons prices. Customers who were not Costco members to direct shoppers to their branded shopping loca- could order online from Instacart.com but paid tions that allowed customers to add products directly a higher price than Costco members. The two-day to their carts. Although Albertsons had an existing delivery could be used for cleaning supplies, organic partnership with Instacart, a grocery delivery service,CASE 15 Publix Super Markets: Its Strategy in the US. Supermarket and Grocery Store Industry 0209 EXHIBIT 8 Consolidated Statements of Operations for Albertsons Companies, Inc., Fiscal 2014-Fiscal 2018 (in millions) 2013 2017121 201612] 2015\"] 2014111121 Results of Operations Net sales and other revenue $60,534.5 $ 59,9246 $59,678.2 $58,734.0 $27,198.6 Gross Prot 16,894.6 16,361.1 16,640.5 16,061.7 7,502.8 Selling and administrative expenses 16,107.3 16,275.4 16,032.9 15,702.6 8,157.0 Goodwill impairment 7 142.3 7 e 7 Operating income (loss) 787.3 (56.6) 607.6 359.1 (654.2) Interest expense, net 830.8 874.8 1,003.8 950.5 633.2 Loss (gain) on debt extinguishment 8.7 (4.7) 111.7 Other (income) expense (104.4) (9.2) (44.3) (49.6) 91.2 Icome (loss) before income taxes 52.2 (917.5) (463.6) (541.8) (1,378.6) Income tax benefit (78.9) (963.8) (90.3) (39.6) (153.4) Net income (loss) $ 131.1 46.3 $ (373.3) $ (502.2) 5}; (1,225.2) \"1 Includes results from four weeks for the stores purchased in the Safeway acquisition on January 30, 2015. '2] These periods have been adjustedfor the retrospective adoption of Accounting Standards Update ("ASU") 201707, "Compensation Petirement Benets (Topic 7 15} , improving the Presentation of Net Periodic Pension Cost and Net Periodic Postreti'rement Benefit Cost\" in the first quarter of scal 201 Source: Albertsons Companies, Inc. 2018 Annual Report. it launched its own branded subscription delivery ser- vice in 2019, and partnered with Glympse, a location sharing technology. Glymps enabled customers to get real-time status updates for delivery and pickup orders. By the fourth quarter 2019. Albertsons's home deliv- ery services were available in 11 of the top 15 markets across the United States. Albertson's filed for an IPO (Initial Public Offering) in 2015 but abandoned it due to market volatility of grocery stocks. The company filed again in March of 2020, and if successful, it would be one of the largest market debuts of the year, estimated at $2 billion. However, stocks around the world were dropping sharply due to rapid spread of the corona- virus in March 2020. and the fate of Albertson's IPO was questionable. H. E. Butt Grocery H. E. Butt Grocery, commonly known as H-E-B, was a family-owned, regional supermarket chain in Texas and Mexico. H-E-B was founded in 1905 by Florence Butt, and had grown to 400 stores (336 domestic) in 2020. In scal 2018, H-EB had $2 8 billion in revenue, an increase of 12 percent from the prior year. The company was the 37'\" largest retailer in the world in 2017, and 12'\" largest private company in the United States. In 2018, the company had moved up to 11'\" largest. The company operated as H-BB, HBB Plus, Mi Tienda. Joe V's Smart Shop. and Central Market. In 2019. HE-B was listed by Forbes as number 11 - America's larg- est private companies, number 23 - Best Employers for New Grads, number 32 - Best Employer for Women, and number 32 America's Best Employers by State. HEB tied for first in customer satisfaction in the 2019-20 survey by the American Consumer Satisfaction Index ranking. Financial information was scarce. Annual sales were estimated to be $28 billion in fiscal 2013 (ended October 31, 2013). and $23.12 billion in fiscal 2017'. These revenue amounts exclude results from Mexican operations. In scal 2017', Mexican operations gener- ated sales of$1.48 billion. H-E-B developed a family of private brands, beginning in 1991, including H-E-B, HEB Select Ingredients, H-E-B Organics, Hill County Products, HEB Buddy. Central Market, H-E-B Kitchen & Table, and Chef'Style. The company promised that the quality of H-EB brands would always equal or exceed that of national brands. The company began C-210 PART 2 Cases in Crafting and Executing Strategy grocery delivery in 1916 in a Model T Ford. A cen- Texas. Two years later, Mackey and Lawson part- tury later, in February 2018, H-E-B acquired Favor nered with Craig Weller and Mark Skiles, who Delivery, an innovative, on-demand delivery service. owned Natural Grocery, and formed Whole Foods Favor was the best-rated delivery service in Texas, and Market in 1980. The company began an expansion in 2017, had become the first U.S. on-demand com- and acquisition strategy in 1984 and expanded into pany to achieve profitability at scale. According to Houston and Dallas. In 1988, Whole Foods Market H-E-B, the Favor and other acquisition partnerships, acquired Whole Food Company in New Orleans, plus strategic investments in technology, gives H-E-B and, in 1989, expanded into California. The com- the ability to ship groceries and other merchandise to pany continued opening new stores, but the rapid 48 states and military bases around the world. growth was the result of acquisitions. Throughout the 1990s, Whole Foods Market acquired compan- Meijer, Inc. ies from California to Boston. In 2002, the company expanded into Canada, and, in 2004, entered the Meijer, Inc. was started in 1935 as a supermarket UK market by acquiring seven Fresh & Wild stores. chain in Grand Rapids, Michigan by Hendrik Meijer. Whole Foods Market was acquired by Amazon in The company operates over 200 stores in Michigan, August 2017 for $13.4 billion. Whole Foods Market Ohio, Indiana, Illinois, and Kentucky, employs statement of operations 2015-17 (prior to being over 80,000, is the 19th largest private company acquired by Amazon ) is produced in Exhibit 9. As of in the United States, and 54" largest retailer in the January 2019, Whole Foods operated 479 stores in world in 2017. Meijer's estimated 2019 revenue was the United States. $17.8 billion. Meijer is credited for pioneering the Amazon immediately began to work toward posi- modern supercenter concept in 1962, when it opened tioning Whole Foods Market to excel in the online "Thrifty Acres," a food and general merchandise store grocery market. Amazon Prime members received in which customers could find everything they needed special discount on many foods and free shipping on in only one trip to the store. Each Meijer supercenter online grocery purchases. In many markets, Amazon has 40 departments, which sell over 120,000 prod- Prime customers could receive their online grocery ucts: the stores are open 24 hours daily, 364 days a orders in as little as two hours, between 8 a.m. and year. The company has created about 10,000 private- 10 p.m. Cost control was a priority: Whole Foods label brands. Market centralized its procurement and operations The Meijer corporate values are customers (cus- in Austin, Texas. Amazon imposed merchandising tomers don't need us, we need them), family ( Meijer is fees for suppliers of items that were on sale: the com- a family business, treating each other with dignity and pany offered a 10 percent Amazon Prime discount respect), fresh food, safety and health, and competi- on selected items, and Whole Foods charged that tion (Meijer is committed to keeping its competitive 0 percent back to the vendor. It was expected that spirit strong and staying nimble and flexible to win Whole Foods Market planned to focus on expanding in the marketplace). The manifestation of Meijer's its online grocery services and the availability of its value of competition is evidenced in Grand Rapids, 365 private label brands to online shoppers under Michigan, where the company is reacting to the chal- Amazon managerial control. lenge of e-commerce by piloting a micro-fulfillment center, built in repurposed footage of a supercenter. Publix Super Markets in Mid-2020. As the indus- The center will employ proprietary hardware and try moved into 2020, the magnitude of online sales software that will enable Meijer retail stores to pick made delivery options almost mandatory. Although and assemble on-line orders to meet their customers' delivery was necessary, it was not always profit- expectations and make online grocery profitable. able. For example, Walmart, which was considered one of the most successful online grocery retailers, Whole Foods forecast a loss of over $1 billion in 2019. Obviously, efficiency and cost control were mandatory areas In 1978, John Mackey and Renee Lawson, with for grocery retailers' attention as the rapidly chang- $45,000 borrowed from family and friends, started ing industry moved an increasing amount of sales a natural foods store named SaferWay in Austin, into ecommerce.CASE '|5 Publix Super Markets: Its Strategy in the US. Supermarket and Grocery Store Industry 0211 EXHIBIT 9 Consolidated Statements of Operations for Whole Foods Market, Inc., 2015-2017 (:15 in millions) Sales Cost of goods sold and occupancy costs Gross profit Selling, general and administrative expenses Mergerrelated expenses Preopening expenses Relocation, store closure, and lease termination costs Operating income Interest expense Investment and other income Income before income taxes Provision for income taxes Net income Source: Whole Foods Market, Inc. 2013' Annual Report. Profitability in the retail grocery industry had been falling due to decreasing productivity, higher costs and significantly increased price competition. According to a January 2019 Mcansey & Company report, grocers could experience a $200 billion to $700 billion in revenue shift to online, discount, and non-grocery channels. The net result was that the industry was risking more than $1 trillion in earn- ings (before interest and taxes), as well as the loss of about half oftraditional grocery retailers. The COVID-19 pandemic in early 2020 injected additional speed into the supermarket industry change. In 2019. about one-third of a sample of shoppers reported that they bought \"almost none\" of their groceries online, while 16 percent bought \"some,\" and 12 percent bought \"almost all\" online. On March 13, 2020, with the COVID-19 pandemic 2017 2016 2015 $16,030 $15,724 $15,339 10,633 10,313 9,973 5,397 5,41 1 5,416 4,627 4,477 4,472 156 60 64 67 95 13 16 459 357 361 {49) {41) 7 11 17 417 327 373 172 320 342 $ 245 $ 507 $ 536 spreading through the United States, one-third of shoppers reported purchasing groceries online dur- ing the prior week, with 41 percent being first-time online grocery shoppers. A result of the COVID-19 crisis was that most restaurants were closed, resulting in a large swing in food sales going to supermarkets. This presented many previously reluctant online grocery shop- pers with the experience of easy, convenient online shopping, which would likely accelerate the struc- tural change in shopping with an increase in the online grocery segment. Although the large revenue increase was welcomed by the industry. it concealed e-commerce deficiencies. A looming challenge for the industry was coping with the shift from gro- ceries purchased from store shelves to lower-prot e-commerce sales