Strategic Management Paper On Puregold PDF

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San Beda College College of Arts and Sciences Department of Legal ManagementSTRATEGIC MANAGEMENT PAPEROnSubmitted to: Prof. Ric Palo, CPA, MBASubmitted by: SANTOS, Arantxa Stefi L.TABLE OF CONTENTSExecutive SummaryI. Introduction 1II. Research Design and Methodology 5 1. Research Design 2. Scope and...

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San Beda College College of Arts and Sciences Department of Legal Management

STRATEGIC MANAGEMENT PAPER On

Submitted to: Prof. Ric Palo, CPA, MBA

Submitted by: SANTOS, Arantxa Stefi L.

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TABLE OF CONTENTS Executive Summary I.

Introduction

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II.

Research Design and Methodology 1. Research Design 2. Scope and Limitation

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III.

External Analysis 1. Economic Performance and Forecast 2. Economic, Political-Legal, and Governmental Aspects

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3. Social/Cultural Aspects 4. Technological Advances IV.

Industry and Competitor Analysis 1. Industry and Market Segments Market Segments and Trends Pricing Advertising and Promotion Buyer’s and Consumer’s Profile 2. Porter’s Five Forces of Competitive Analysis 3. Competitive Profile Matrix 4. Strategic Issues based on External Factors 5. External Factor Evaluation Matrix

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V.

Company Analysis 1. Internal Environment Analysis 2. Internal Factor Evaluation Matrix

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Strategy Formulation 1. SWOT Matrix 2. SPACE Matrix 3. Internal-External Matrix 4. GRAND Strategy Matrix 5. Summary of Strategies

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VI.

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6. Quantitative Strategic Planning Matrix VII.

Objectives and Recommendations 1. Current Vision Statement 2. Proposed Vision Statement 3. Current Mission Statement 4. Proposed Vision Statement 5. Financial Objectives 6. Strategical Objectives 7. Recommended Strategies 8. Financial Projections

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VIII.

Appendices 1. Puregold Financial Statements

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STRATEGIC MANAGEMENT PAPER EXECUTIVE SUMMARY

Puregold is the second leading hypermarket in the Philippines. The company is in a very competitive position. This paper reflects that the company’s portfolio is above average and near to outstanding. The top competitors of the company are also studied in this paper to further envision the strategies and objectives to be drafted for the constant growth of the company.

The company’s vision and mission is very commendable and a proposal for change is herein established to hopefully help in developing the company

I. INTRODUCTION

Background of the Company

Puregold Price Club, Inc. is a chain of supermarkets which offers a wide variety of general merchandise and a full-service supermarket with wholesale. Unlike other Puregold stores, Puregold Price Club offers wholesale in merchandise. Puregold has Puregold Jr., which is a neighborhood store which offers targeted consumers’ items and limited variety of general merchandise, without the wholesale operations. On the other hand, Puregold Extra offers a very limited number of Stock Keeping Units at discounted prices., provides consumers with a discount on time, not just on the price.

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This chain of supermarkets in the Philippines was established way back in 1998. In the year 1998, Puregold opened it’s first ever branch in the City of Mandaluyong. And presently, they have grown into a big retail chain and they now have 180 stores in the country. Amazingly, they did this for only 14 years. The company launched a loyalty program in 2001; renamed as Tindahan ni Aling Puring in 2004. In between the years of 2002 and 2006, they have launched an average of 3 stores per year and have expanded their operations in the Northern and Southern part of Luzon. In 2008, Puregold was branded in Reader’s Digest Asia’s “Most Trusted Brands” and have introduced a new store format, Puregold Jr. In 2009-2010, Puregold became the 2nd largest hypermarket and supermarket retailer in the Philippines as regards to the net sales, in this period of time, they have introduced the Puregold Extra, a new store format. In 2011, Puregold Price Club went public and inaugurated as listing on the Philippine Stocks Exchange. They had a rapid expansion via organic new Puregold stores roll-out and acquisitions other than that they have made history by having had acquired the highest number of new store openings ever, opening 38 new Puregold stores. In 2012, Puregold opened 31 new Puregold outlet stores and acquired Kareila Management Corp., which owns S&R Warehouse Membership Shopping Club with 6 stores and Parco Supermarkets with 19 stores. And those 19 operating outlets were purchased and converted to Puregold. The shareholders of the retail chain Puregold have approved the merger of the other two operating units into the parent company, consolidating Puregold's supermarket businesses under the publicly listed supermarket operator. Currently, Puregold is continuing new stores roll-out via organic geographic expansion and acquisitions. They are targeting to open 25 more Puregold stores and 1 S&R store.

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Nature of Business The advent of one-stop shopping convenience began in 1998 when PUREGOLD opened its first branch along Shaw Blvd. in Mandaluyong City. The store offered a wide array of goods from groceries, apparel, household accessories and furniture at very affordable prices. During that time, the one-stop shopping philosophy was still a novel idea to consumers but with the excellent service and quality products it provided, it did not take long for Puregold to make its mark in the retail industry.

Current Revenue and Profit

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From the previous years, Puregold has an uptrend revenue. The revenues generated each year comes from the different store formats: Puregold Price Club, Extra, Jr. And S&R stores.

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Consolidated net sales grew by 49.8%; Puregold and Parco stores sales increased by 18.2%; S&R contributed 16.4% and Company E accounted for 1.0% of

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total consolidated net sales. Gross profit grew by 62.8%; with gross profit margin improving to 17.6%; S&R accounted for 22.4% of the realized gross profit. Operating income increased by 88.5%; with operating margin shooting up to 7.4%; S&R contributed 42.3% of the recorded operating margin. Consolidated NIAT expanded 105.3%; Puregold and Parco stores NIAT swelled 30.1%; S&R added 36.4% to the consolidated NIAT. Net profit margin chalked-up at 6.0%.

Major Markets Served Today, Puregold is the No. 1 Retailer in the Hypermarket Format in the Philippines and the No. 2 in Retail Format in the Country. The company has been catering to more and more Filipinos having over 150 (159) stores nationwide. They have over 1500 Suppliers and Trade Partners. With their exemplary services, they are servicing to over 230,000 sari-sari stores and small businesses in the Metro, various places in the Northern and Southern parts of Luzon, and Visayas. Puregold has completed over 600 million sales transactions.

Number of Employees

Puregold supermarkets houses more than 30000 employees. With its competent employees, Puregold is serving its valued customers through its effective customer service program and competitive price scheme.

Other Relevant Information

Puregold was featured in Reader’s Digest Asia’s “Most Trusted Brands”. They became the 2nd largest hypermarket and supermarket retailer in the Philippines in

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terms of net sales. They made history for opening as much as 38 new Puregold stores. They maintain the quality of their products and the competitiveness of their strategies so they have already opened 156 stores in just the period of 14 years.

II. RESEARCH DESIGN AND METHODOLOGY The data used in this research came from various internet sources, journals, newsletters, news articles, blogs, books, law books, and different government agency sites. Some on=f the personally visited websites are referred by other researchers who have conducted a research with the same company nature and background. Some of the sites visited are as follows: National Statistics Coordination Board (NSCB), National Statistics Office (NSO), Asian Development Bank, Bangko Sentral ng Pilipinas, Department of Labor and Employment (DOLE), and Philippine Overseas Employment Administration (POEA). Official websites of Philippine Securities and Exchange Commission (SEC), World Bank, creditcard.com, Business World, Business Mirror, Development Bank of the Philippines (DBP), Euromonitor International, Philippine Star, Department of Budget Management (DBM), Department of Foreign Affairs, Commission on Filipinos Overseas and Asia Pacific Economic Cooperation (APEC). These sites were used as primary source of data to be used in this study. Most of the data used are from the site of the company whose data is visible to the pubic. The financial statements used herein came from the Securities and Exchange Commission. The data in this research came from these sources. The data used for the competitor companies came from the sites of the latter and the financial statements readily available on the internet. The assessment of the company as regards to its competitors is supported by data that came from the companies’ websites. Other data and information came from the textbook prescribed by the professor which is The Introduction to Strategic Management 12 th edition (2009) by Fred David. The textbook was used as a reference material for data and computations. The formulas, implications, different strategies, different strategy formulation, strategy formulation tools, and the step-by-step process and guide used in this research

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was adapted from the textbook and sample thesis papers and research papers available in the San Beda College of Arts and Sciences Library.

SCOPE AND LIMITATION This research paper is only limited to Puregold and its top competing competitors. Since there are only a few players in this field of business with the relatively same market share and market size, we only chose 2 other leading players who are respective models and material companies to be studied in this research. III. EXTERNAL ENVIRONMENT ANALYSIS

General Environment This external analysis is detrimental to the discovery and identification of the opportunities and threats of the company. With regards to the macroenvironmental forces and factors, that is to the socio-cultural, demographic, lifestyle changes, technological developments, economic developments and advancements, ecological aspects, and political and governmental-legal aspects. Economic factors Economic Advancement Both developed and emerging markets of Asia are seen to grow faster than the Euro area and North America. Expected to have the fastest growth in 2013 and 2014 are China (7.7 and 7.3 percent, respectively), the Philippines (7 and 6.7 percent), India (4.9 and 6 percent), Indonesia (5.6 and 5.5 percent) and Vietnam (5.5 and 5.6 percent).

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All fast-growers in Asia have big populations upward of 90 million. The banks polled recognize that a larger population means more entrepreneurs and workers, more producers and consumers.1 Source: The Economist The projections by the global vanguard of macroeconomic and external account stabilization, the International Monetary Fund (IMF). Its most recent and most comprehensive report is the World Economic Outlook (WEO) released last October. 2 We arranged the grouping of countries to be similar as that by

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http://www.interaksyon.com/business/77802/fat-free-economics--happy-2014-for-philippine-economy The Economist, December 21, 2013

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The Economist for easier comparison of projections.3

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http://www.economist.com%2Fnews%2Feconomic-and-financial-indicators%2F21591899-output-pricesand-jobs&sa=D&sntz=1&usg=AFQjCNEwA8Sta9dv-OpGsEqjuVTtONQEbw

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Source: IMF, World Economic Outlook Database Belgium, Italy, Netherlands and Spain are among Europe's biggest economies, and they are either crawling or backsliding. The US and Canada are performing better than those in Europe but their expansion not fast enough to compensate for sluggish growth on the other side of the Atlantic Ocean.4 Asian economies -- led by China, Japan, India and South Korea, plus the other tiger and emerging markets of the continent -- continue to hum and push the world economy to modest growth. The Philippines is projected to be second to China in pace of growth this year and next year.5 Favorable Economic Environment

Strong GDP growth is being supported by stability in the economic environment, especially low consumer inflation and interest rates that encourage consumption and 4

http://www.imf.org%2Fexternal%2Fpubs%2Fft%2Fweo%2F2013%2F02%2Fweodata %2Findex.aspx&sa=D&sntz=1&usg=AFQjCNGssnYcL-GURUK1jOnToGg5o32k2w 5 IMF, World Economic Outlook October 2013 Database

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investment. While we forecast an uptick in headline inflation this year as a result of natural calamities in 4Q13, we expect it to ease by 2H14 as supply shocks recede. Indeed, January headline inflation of 4.2% is still low versus a 10-year average of 4.7% (Figure 16). Similarly, interest rates are low with the benchmark 91-day Treasury bill currently below 1.0% compared with a 10-year average of 3.8% (Figure 17). This virtuous cycle enhances domestic growth prospects that ultimately result in rising incomes. In addition, stability in personal spending is supported by a large number of overseas Filipino workers who regularly remit supplemental income to their families and the rise of the business process outsourcing (BPO) industry.

Relevance:

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The economy of the Philippines has been continuously growing, but with it grows too, the economy of other countries. The economic crisis has surely affected the financial status and buying power of the consumers. Decision to buy or not, what to do with their money and whatnot is greatly affected by these changes. The company’s target market is the general public, with the data collected and stated above, we can say that this is good news, thus, an opportunity for the company. With a growing economy, more consumers would have more money to spend. Products offered by the company are staple to households.

Positioned to benefit from strong Philippine economy PGOLD should be among the main beneficiaries of the strong Philippine economy as it is being driven mainly by robust domestic growth. 2013 GDP growth of 7.2% YoY was already among the highest in Asia (Figure 9), even as domestic demand (GDP without net exports) slowed down sharply in 4Q13, attributable mainly to the natural disasters in Oct and Nov of last year. The slowdown in 4Q13 domestic demand growth to 5% from 11% in 9M13 was not enough to detract from it being the main engine of growth last year. Even better is that robust domestic demand is happening within the context of underleveraged corporates and households, and declining fiscal debt ratios. That means there is space for growth to continue.

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Young and expanding population Growth in domestic demand is supported by a population estimated at 97m (Figure 10), the second largest in Southeast Asia and the 12th largest in the world. It is estimated to be rising 1.7% annually, faster than the 1.6% average for Southeast Asia (Figure 11). It is young, with an average age of 22.5 years. By 2015, it is estimated that the working population (ages between 15 and 59 years) would account for more than 60% of the total populace (Figure 12). Such demographics support the country’s healthy growth in personal consumption.

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Steady Growth in Personal Consumption Consumer spending is the cornerstone of the Philippine economy, accounting for the largest portion of real GDP at 69% (Figure 13) in 2013. Because of its size, growth in private consumption usually sets the pace for overall economic growth. In the past 10 years, real private consumption expenditures (PCE) grew an average 4.7% annually. On a per-capita basis, nominal GDP grew 11.8% CAGR in 2003-13 to USD2,716 (Figure 15). We forecast PCE will grow at around 6% this year and next from 5.6% in 2013. Robust PCE growth will be complemented by investments. With the government’s fiscal consolidation over the past years, there are now resources to address the country’s inadequate infrastructure. In the process, other sources of demand are

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expected to open up from which Puregold will eventually benefit through sales in all its store formats.

Global Competitiveness

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The Philippines ranked 65th (out of 144 countries) in the 2012-2013 Global Competitiveness Report.6 This year, the country improved by leaping to number 59. As noted in a previous post in this blog, competitiveness is relative. The overall ranking does not really matter much. What is more significant is to compare the Philippines against its neighbors in Southeast Asia. This time, the World Economic Forum makes it easier to see this comparison. The new report, 2013-2014 Global Competitiveness Report7 has the following table and figure:

Source: 2013-2014 Global Competitiveness Report

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World Economic Forum

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http://philbasiceducation.blogspot.com/2013/09/philippines-global-competitiveness.html

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Source: 2013-2014 Global Competitiveness Report In this table and figure, it is much clearer where the Philippines really stands. Infrastructure, health and education remain very weak especially when compared against its real competition, the other members of the Association of Southeast Asian Nations (ASEAN).8 Relevance: If the Philippines is globally competitive, the company would most probably have more opportunities to establish new market schemes or maybe a new store format. The idea is to expand the business to other countries and build an exclusive market among Filipino citizens abroad, as well as other prospective customers. Unemployment Rates Jobless rate rose to 7.5 percent, up from 6.5 percent in the previous period and 7.1 percent a year ago. There were nearly 3 million unemployed in the Philippines, up 8

World Economic Forum, The Global Competitiveness Report

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from 2.8 million in January 2013.

Among the unemployed persons, 63.9 percent were males. Of the total unemployed, the age group 15 to 24 years comprised 48.2 percent, while the age group 25 to 34, 29.9 percent. By educational attainment, about one-fifth (19.8 percent) of the unemployed were college graduates, 13.3 percent were college undergraduates, and 34.0 percent were high school graduates.9

The employment rate is estimated at 92.5 percent. Workers in the services sector continued to comprise the largest proportion of the population who are employed. These workers made up 54.1 percent of the total employed in January 2014. Employed in agriculture sector comprised the second largest group making up 30.0 percent, while workers in the industry sector made up the smallest group registering 15.9 percent. Among the major occupation groups, the laborers and unskilled workers remained the largest group making up 31.3 percent of the total employed.10

Relevance: Job layoffs are brought about by bad economic status. With a bigger unemployment rate, the employees of the companies may have decreased and could lead to less efficiency and effectivity both in service and productivity. Also, the consumers would probably be affected too and less income means less spending and this would gravely affect sales records of the company for the year.

Economic, Political-legal, and Governmental aspects Plastic Bag Ban

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http://www.philstar.com/headlines/2014/03/12/1299885/unemployment-rises-p7.5-january http://www.tradingeconomics.com/philippines/unemployment-rate

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Manila City Ordinance 8282, once implemented, will ban the use of plastic bags for ...