Grocery Checkout (Gco) Inc. Essay Example

suppliers in the grocery industry, Grocery Checkout has the flexibility to switch to alternative suppliers if the need arises.

Buyer Power- Grocery Checkout has a variety of suppliers to choose from in the London area, giving them some leverage in their purchasing decisions. They can easily compare prices with other suppliers and negotiate to pay less for their products, potentially increasing profitability. Threat of Substitutes- As the sole online grocery business in London, Grocery Checkout Inc. is the only option for customers who want to buy groceries online and have them delivered to their homes. There are no alternatives to this distinctive business model. Holistic analysis of external environment – Supermarkets predominantly control the Canadian grocery market.

74% of all grocery shopping is conducted in traditional grocery stores, making it challenging for Grocery Checkout to compete with larger chains. However, Grocery Checkout has managed to find success in a specific niche market segment. If other chains adopt online grocery shopping methods, it will be difficult for Grocery Checkout to compete due to the larger chains' greater financial resources and stronger purchasing power. Consequently, these chains would likely sell their products at lower prices and deliver groceries to customers more quickly.

Valuable

Grocery Checkout's capability to offer online grocery services is valuable in the London market as it caters to customers' demand for online purchases and home deliveries. This allows Grocery Checkout to compete in the London grocery market despite not being as large as traditional supermarkets.

Grocery Checkout's online business model is unique in the London market, giving them a competitive advantage for now. If successful, other companies may adopt the online

approach as well. This temporary advantage will lead to higher profits for Grocery Checkout until other supermarkets catch up. However, competitors can imitate Grocery Checkout's online business model.

Competitors have not yet imitated the online business model because they want to assess its profitability and whether customers will prefer it over traditional grocery shopping at their physical stores. The absence of limiting factors such as high cost, property rights, time, and casual ambiguity means that competitors are simply waiting to determine if it is beneficial for them to adopt this online business model.

Non-substitutability- The Grocery Checkout business model cannot be replicated by utilizing different resources or abilities. It is impossible to imitate the act of purchasing groceries online and having them delivered. The options are restricted to either buying them online or from a conventional grocery store.

Exploitability

As the sole online grocery destination in London, Grocery Checkout can take full advantage of their resources. When the organizational structure, systems, and processes of Grocery Checkout work together, they create a competitive advantage. However, when isolated, these components do not generate the same benefits.

Grocery Checkout has a competitive advantage as the only online grocery store in London, allowing them to successfully exploit their valuable, rare, non-substitutable, and exploitable resources. However, when other grocery chains adopt the online model, they may face more difficulties in resource exploitation. An internal and external analysis, such as a SWOT analysis, can reveal Grocery Checkout's internal capabilities as well as external opportunities and threats. Their strengths include being the only online grocery store in London, having a strong balance sheet, improving earnings over time, a substantial customer base,

a strong current ratio for 2009, strong profit growth, and a good debt to equity ratio. However, weaknesses include not being well known outside of the University of Western Ontario and an increase in the age of receivables for 2009. Opportunities for growth include expanding with an on-campus store and using Facebook advertising. On the other hand, threats arise from large chains starting their own online grocery businesses. A holistic analysis of the SWOT reveals that Grocery Checkout has a very strong balance sheet and income statement.

The financial ratios of Grocery Checkout show annual improvement, and their expenses-to-revenues ratio is below the industry average. (Industry Canada - http://www.ic.gc.ca/cis-sic/cis-sic)

Alternatives and recommendations Decision criteria:
Revenues- Grocery Checkout should aim to maximize revenues when considering the following alternatives.
Expenses- Grocery Checkout must be able to minimize expenses when considering the following alternatives.
Capabilities- The resources are available for the growth options below.

Sustainability

If Grocery Checkout cannot maintain high revenues and low costs, then the following alternatives are not acceptable. Options for growth include improving its distribution network and order fulfillment system to handle more customers. Another option is to start advertising on Facebook. Pros of advertising on Facebook include the CPM (pay-per-views) model, as calculated in appendix #1.

The cost for Grocery Checkout's advertising would be $15,622 annually, with revenues of $61,855, resulting in a gross profit of $46,241. According to Facebook statistics, there are nearly 100,000 Facebook users aged 18-25 in London and its surrounding area, making it a significant audience for Grocery Checkout's ads. On the other hand, Nathan also considered the pay-per-click (CPC) model, which has associated costs of $19,710 and revenues of only $11,563.

This leads to

a total loss of $8,147. Another possibility is to create a mobile application for Grocery Checkout. This would enable customers to purchase groceries using their smartphones. Some benefits of this option include the fact that many students at Western already possess smartphones, simplifying the app download process for them. Nevertheless, according to the calculations in appendix #1, Grocery Checkout would need about 139 fresh customers to regain the initial cost of $10,000 necessary for app development. Attracting this many new customers and reaching a breakeven point with their new app could prove challenging for Grocery Checkout.

Alternative #3 – Establishing an on-campus location: Grocery Checkout is considering the possibility of building a physical store at the University of Western Ontario. Advantages: * According to appendix #2, it would be beneficial for Grocery Checkout to move forward with creating the on-campus store. In just 2.7 years, they can recoup their initial investment and anticipate a 36% return on equity.

The addition of a new on-campus location for Grocery Checkout would yield a remarkable 7% increase in profits, amounting to an annual cash influx of $50,000. Furthermore, there is potential for further expansion into other university markets, which would further augment Grocery Checkout's earnings. However, it is important to consider the cons: the forecasts may not be entirely reliable, and if online customers continue to prefer the convenience of shopping online rather than visiting the on-campus store, Grocery Checkout could potentially suffer significant financial losses.

Sell option Alternative #4- Grocery Checkout has the option to sell the company to larger chains for their 3,500 customer list or to a savvy entrepreneur who might want to take over. Pros: * From

the calculations in appendix #2, grocery checkout could be sold for approximately $200,000, equivalent to around 10 times its operating cash flow. * Nathan Felder’s own financial security is becoming increasingly important, so selling the business would provide him with a large sum of cash that he could independently grow without the Grocery Checkout business. Cons: * Once he sells the business, he will no longer hold the position of CEO in a company that has developed a sustainable online business model with a substantial customer base.

The current state, known as Alternative #5- Grocery Checkout or the Status Quo option, involves keeping things as they are without implementing any other alternatives. If sales reach $1.5 million in the upcoming year, this choice has the potential to generate a net profit of $37,500 (1.5 million multiplied by 2.5%).

Grocery Checkout has seen an uptick in sales compared to the previous year, but if they don't explore growth options, their sales could plateau. This might lead to zero net earnings for an entire year, which would disappoint investors. To avoid this situation, it is recommended that Grocery Checkout pursue faster growth strategies like advertising on Facebook and opening a store on campus.

By utilizing the CPM model of Facebook advertising, Grocery Checkout has the potential to generate a gross profit of $46,241. Additionally, constructing the on-campus store would allow them to recoup their investment within 2 years.

Grocery Checkout has the opportunity to earn an extra $96,241 annually by implementing two alternatives. One option is to run a Facebook advertising campaign, while the other is to set up an on-campus store. To start the Facebook advertising, Grocery Checkout needs to

reach out to Facebook and express interest in the CPM advertising model. They also need to create an advertisement that highlights the convenience and affordability of ordering groceries online and having them delivered. This implementation requires following specific tasks at different times throughout the year.

Assuming the projected impressions and conversion rates are accurate, Grocery Checkout simply needs to wait for Facebook users to see the ad and purchase groceries. On-campus store, Grocery Checkout, will initially need to invest $140,000 in physical assets (such as shelving, computers, refrigerators, etc.), leasehold improvements, programming costs, and project management. However, Grocery Checkout shouldn't have any trouble securing a bank loan for this investment, as it will only take 2.7 years to repay and the resulting cash flows will be exceptional.

After the building becomes operational, Grocery Checkout will need to hire staff for both peak and low seasons. Additionally, Grocery Checkout will need to arrange for an electric company to establish utilities for the store. Once the store is accessible to the students of the University of Western Ontario, Grocery Checkout will solely be responsible for managing the store's daily operations.