Albertsons Case Study

The grocery industry as a whole is competing aggressively for razor-thin profit margins. Albertsons has much to do to gain a competitive advantage against Wal-Mart who are famous for keeping the prices of its merchandise low, but still reap a 3 cent profit for every dollar of sales whereas the industry average is one cent per dollar of sales and Albertsons is about 1.4 cents. Albertsons value proposition is to keep costs as low as possible but try to provide superior service and product selection, since its costs will never be as low as Wal-Mart’s.

In the value chain model, Albertsons commits a substantial amount of resources toward implementing new technology,and beefing up its administration and management support. Albertsons uses technology in order to reduce costs in its supply chain by consolidating distribution centers and using the Web to coordinate shipments and to reduce billing and invoicing costs. The company has also upgraded its core corporate systems, moving financial applications to software from Oracle and its human resources management to PeopleSoft sofware. The company’s high-speed network infrastructure has also been upgraded and electronic data interchange capabilities have been added, resulting in better processing of transactions with suppliers. Albertsons must work on its marketing strategies to gain customers who are open to the use of such innovative technology.

In looking at Figure 3-15, “Porter’s competitive forces model,” Albertsons has not given enough attention to the fact that the traditional industry competitors will be a momentual challenge. The nature of the top three players in the industry and their relative bargaining power will greatly determine industry structure and the overall profitability of doing business in the grocery environment.

2. What role do information systems play in Albertsons’ business strategy? How do systems provide value for Albertsons?

Albertsons uses information systems to create new services for their customers in order to distinguish themselves from their competitors. Through product differentiation, Albertsons hope to be able to prevent the competition from responding in kind. Albertsons is attempting to become a customer-focused business in order to gain a competitive advantage over its main competitor вЂ" Wal-Mart.

3. Compare Albertsons to Wal-Mart in terms of business strategy, current success, and future success.

Albertsons:

• Business Strategy вЂ" use information technology to keep prices competitive while making the shopping experience more compelling. Bolster the company’s leadership with the best minds available and use motivational techniques to invigorate employees. Albertsons is working on reducing costs in the supply chain so that the stores can offer prices more competitive with Wal-Mart’s.

• Current Success вЂ" currently earns 1.4 cent for every dollar of merchandise that is sold (compared to the industry average of one cent for every dollar of sales).

• Future Success вЂ" must dramatically close the profit margins if it is to become the number one grocer in the United States. Merchandise currently sells for 20 to 25 percent more on average than Wal-Mart’s product offerings. Self-service checkouts may be a major draw for some customers however; it may be also overwhelming many others. Employees may be harder to attract and retain because they realize that the company is aggressively eliminating people in favor