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TACTICS WITHOUT STRATEGY IS THE NOISE BEFORE DEFEAT

Angel Alverde a Strategist with Business Vision




GIGANTE GROUP STRENGTHENS ITS BUSINESS PORTFOLIO STRATEGY THROUGH THE LAUNCH OF CASAIDEAS

The Chilean company Casaideas, specialized in design and decoration products for the home, began operations in Mexico through Grupo Gigante, with the aim of reaching millions of homes in the country, through the sale of more than 3,000 items that are characterized by being original, attractive and affordable.

Thus, through a Joint Venture between Grupo Gigante and Matriz Ideas in November 2022, the Mexican consortium inaugurated in April the first three branches that will be located in Mexico City, within the Miyana, Parque Delta and Gran Terraza Coapa shopping centers, all owned by Gigante Grupo Inmobiliario chaired by Ángel Alverde Losada.


🌀 Organizations require strategists who are always one step ahead of others, and who know how to inspire, stimulate and help employees develop their Skills and Strengths, which will be their own Competitive Advantage that will have an impact on organizations and in the Society in which we live.


🌀 Knowledge must be articulated for practical application, which helps to improve the environment, as well as the quality of life of people and for this, it will be necessary to focus on collaborators, efforts in Imagination, Creativity and Innovation , taking into account that innovation has three facets: incremental, disruptive and radical.


🌀 The arrival of the "Fourth Wave of Change" (Revolution of Intensive Information and Communication), is changing our society and its institutions.

The Profits and Margins of the companies have been reduced, due to the high competition that exists, since the Intensive Information and Communication are available at any time, and, therefore, copying and repeating a product becomes relatively simple.


🌀 In this Digital Age [4th Wave of Change], it is easier than before to copy and improve products, however, it is more difficult to copy "Customer Service" because it is provided by company employees, which, when properly "empowered", are capable of creating great competitive advantages as Grupo Gigante has achieved through the [Transactional - Transformational] leadership of Angel Alverde, to whom we send our appreciation for his great achievements and for the opening of Casaideas.


GIGANTE GROUP, IS IT A BUSINESS OR PRODUCT PORTFOLIO?

Grupo Gigante is a Business Portfolio, with the corporate being responsible for designing the Strategic Plan, which "lands" in each of its business units, so that the directors of each unit turn it into a Strategic Plan Marketing, aligned to the needs of the clients of each unit.


GIANT GROUP AND THE OFFICE DEPOT CASE


"How will technology shape, and how will it be shaped, by the global transition now underway? Disruptive technologies will influence the emerging future, but they are subject to social choices that have not yet been made."

Tellus Institute


We are living through an extraordinary and interesting wave of change, known as the "Revolution of Intensive Information and Communication", where the technological transition will drastically reduce the impact of man on nature.

The three pillars of this wave of change also known as the "Digital Revolution" are:


📌 Efficient use, which means radically reducing the incorporation of resources for each unit of production and consumption.


📌 Renewable resources, which means living off the flows of nature while maintaining its reserves: solar energy instead of fossil fuels, sustainable agriculture and no soil degradation, preservation of ecosystems instead of their destruction.


📌Industrial ecology, which implies drastic reduction of waste through recycling, reuse, remanufacturing and prolonging the life of the product.


This digital revolution, made up of intensive information and communication, implies that we all have access to information online, it is, so to speak, a "Democratization of Information"; This implies that many products and services are being replaced by "digital products", which have been impacting sectors, industries and companies for a few years.


For example:

💡Broadcast television is being replaced by options such as Netflix and other platforms that allow the user to select ("customize") what they want to see.

💡 Print newspapers are succumbing to online news.

💡 The great "gurus" of the news have had to give way to other ways of giving news such as "You Tube".

💡 Universities will have to change their educational offer so as not to succumb to the digital offer of other institutions.


There are industries that are being highly affected by this revolution, such as the "Paper Industry", understanding this as the one that includes companies that use wood as raw material and produce pulp, paper, cardboard and other products from cellulose base.

A segment of the Paper Industry is known as "School and Office Supplies" which we will call (SOS).

The "School and Office Supplies" (SOS) segment has been seriously affected by the aforementioned technological changes, especially in developed countries with high purchasing power.

In less developed countries such as Mexico and several Latin American countries, the effect has been less serious due to the high rates of poverty, which encourages a large part of the population to continue consuming traditional stationery items, such as notebooks. and pens, whose substitutes such as Tablets and Digital Pens are less accessible due to price issues.

This "Great Transition in School and Office Supplies" that we have been experiencing for several years now, has modified the consumption habits of the end user, impacting the volumes and profit margins of manufacturers and their distributors.

A very interesting case is that of Office Depot México, which traditionally, through its stores, is a retail distributor of school and office supplies and, through its "Casa Marchand" business unit, distributes wholesale and retail.


Office Depot México is a World Class company that has understood very well the market dynamics of Mexico and Central America, because surely it made a good analysis of the Market Forces in this process of transition to the digital world.

From a strategic point of view, a fundamental tool to identify and mitigate threats and maximize market opportunities is the model of "Porter's Five Market Forces".


OFFICE DEPOT AND THE FIVE FORCES OF THE MARKET

The five forces model, developed in 1979 by Michael E. Porter (b. 1947 and professor of business strategy at Harvard), allows business executives to anticipate trends within an industry and developments of the competition, in order to influence the latter by making strategic decisions that will allow it to obtain or maintain a competitive advantage.


It is a fundamental tool when it comes to understanding the competitive structure of an industry. Through a simple and effective analysis, it allows to identify the competition –in the broadest sense of the word– of a company, as well as to understand to what extent this is likely to reduce its ability to generate profit.

Next, let's see an example of the application of these market forces to Office Depot Mexico and its interpretation:

I ANALYSIS OF THE INTENSITY OF CURRENT COMPETITORS

1) The traditional stationery, notebooks, blocks, erasers, pencils, pens, etc., is being dramatically replaced by digital tools, therefore, this market segment is in a phase of decline, due to the lack of differentiation of products and the presence of Chinese items of lower cost and similar quality.

Due to the above, prices and profit margins have been reduced.


2) Office Depot participates in two retail and wholesale distribution channels:

📌 In the retail channel, the "important front-end players" are few: OfficeMax and Abastecedora Lumen and the "important indirect players are" Wal*mart, Chedraui, Comercial Mexicana and Soriana.

📌 In the wholesale channel, the number of distributors has decreased, in fact, Office Depot acquired "Casa La Daga" and "Casa Marchand" to operate from this wholesale channel a few years ago; In this wholesale channel, its front competitors are, for example, in the south with "Tony" and "Optivosa", in the north with "El Norte de la Laguna" and "Adosa".


3) Office Depot made a very strong investment a few years ago to acquire the rights of the brand for Mexico and Central America, however, the decline of traditional stationery forced the company to "diversify" its value proposition in retail stores, and to maintain profitability, changed the product mix, putting more computer items than traditional stationery, and dividing the stores to accommodate pet care-oriented "Petco.

This strategic move by Office Depot, together with the acquisition of its wholesale competitors (Casa La Daga and Casa Marchand) shows the strategic flexibility of this organization, learned over the years through its corporate "Grupo Gigante".

4) Given the bargaining power and purchasing power of large volumes of items, private branding has helped Office Depot purchase Chinese products at lower cost than those offered by domestic suppliers and with Office Depot's own brand "Office Depot".


5) Due to the reduction in profit margins due to the factors mentioned above, many participants in this traditional stationery market segment no longer have the financial resources to advertise, so they tend to rely on their suppliers who sponsor their fairs and exhibitions.

Few are the distributors that have an authentic e-commerce / e-business to promote and sell directly to stationers and/or consumers. In this aspect, Office Depot, being a hybrid in its distribution channel (wholesale and retail), is well ahead of its competitors.


6) The traditional stationery no longer has room for maneuver to offer new products, the most it can do is improve the ones it already has or go to market niches such as the "Scribe" brand; In this sense, Office Depot has the advantage in its retail sales channel of offering the traditional line of stationery, whose space has been reduced to be occupied partly by computer and electronic equipment and another large part in "Petco", space dedicated to pets.


7) Fixed costs have become a headache for many distributors, who, unable to maintain their traditional stationery sales levels, have had to convert to other types of businesses or close the company; This is why the number of distributors has been reduced over the years, and the Covid-19 pandemic accelerated this process. In the case of Office Depot, the large volumes that it continues to move through "Casa Marchand" to serve a market with medium and low purchasing power, allows it to be efficient in its wholesale operations and, as we already mentioned, in the case from retail sales, having converted the stores to the sale of traditional stationery and computers and to pet care through "Petcot", it maintains the profitability of the space occupied by the stores.


8) Due to the above, Office Depot has taken advantage of the high exit barriers that this traditional stationery segment has, "reinventing" itself in its retail stores, with the sale of traditional stationery, computers and "Petco".

In the case of wholesale sales, through "Casa Marchand" it continues to capture a market that is still of good size, which does wholesale and retail sales for the more than 25,000 stationery stores established in Mexico, and which they cater to a market with medium purchasing power downwards; Let's remember that the poverty rate in Mexico oscillates at 50%.


II ANALYSIS OF ENTRY OF NEW COMPETITORS

1) The entry barriers to be a stationery distributor are relatively low if we think in terms of a stationery; now in terms of a Large Distributor such as "Casa Marchand" or "Grupo Tony", the entry barriers are very high, due to the time to achieve confidence and market positioning, investment in logistics, inventories and information technologies ; These last factors coupled with the strong investment that has to be made to set up a store like "Office Depot" causes these barriers to be even greater.

2) Considering the size and geographic position of Office Depot's competitors and that Office Depot participates in two distribution channels: retail and wholesale, the situation is as follows:

📌 In the retail channel OfficeMax and Abastecedora Lumen, Office Depot lead this niche.


📌 In the wholesale channel, as the number of distributors has decreased, and Office Depot has the wholesale houses it bought ("Casa La Daga" and "Casa Marchand"), where it can face the reaction of the competition is in the south with "Tony" and "Optivosa" and in the north with "El Norte de la Laguna" and "Adosa".


3) Office Depot made a very strong investment a few years ago to acquire the rights of the brand for Mexico and Central America, however, the decline of traditional stationery forced the company to "diversify" its value proposition in retail stores, and to maintain profitability, changed the product mix, putting more computer items than traditional stationery, and dividing the stores to house pet-care-oriented "Petco.


This strategic move by Office Depot, together with the acquisition of its wholesale competitors (Casa La Daga and Casa Marchand) shows the strategic flexibility of this organization, learned over the years through its corporate "Grupo Gigante".



4) Regarding cultural barriers, for Office Depot it can be an advantage in the segment of medium purchasing power upwards, being a firm (Office Depot) of North American origin, since this segment tends to recognize the quality and service in this type of organization.

For the middle segment downwards, this recognition does not exist and they prefer Mexican companies and for this reason, surely Office Depot acquired a Mexican distribution company (Casa Marchand) that provides service through stationers to this market segment.


5) Brand recognition, properly speaking positioning, are fundamental aspects to prevent new competitors from entering, especially in a market where the number of distributors is decreasing; In this sense, Office Depot has a great advantage, since both the Office Depot brand and the Casa Marchand brand are perfectly well positioned and for this reason we reiterate that the acquisition of Casa Marchand was very wise.


III CLIENTS

1) The large volume of Office Depot / Casa Marchand is divided between end users, semi-wholesalers and stationers.

In this regard, stationery stores (before the pandemic) were already showing a decrease, and end users (who go to Office Depot stores) prefer computer items to traditional stationery if possible.


2) It is very difficult to maintain the loyalty of Office Depot customers, since the same (or similar) offer of school and office supplies is found in OfficeMax and Abastecedora Lumen and, in some self-service stores, including the one itself "Amazon".

As for loyalty to Casa Marchand (Distribution business model from Office Depot to stationers), it is a little easier to maintain the loyalty of its customers, although it is somewhat complicated in the north by competitors well positioned in a very loyal market through "El Norte de la Laguna" and "ADOSA" and in the South through "Tony" and the south of the country.


3) Office Depot has capitalized on the lack of differentiation in stationery items by changing its mix of products in the store and improving its level of service to stationery and wholesale media through Casa Marchand.


Sources:

  1. eaBC: Business Intelligence

  2. Universidad Iberoamericana: Notes on Strategic Thinking by Juan Carlos Erdozáin.

  3. The Great Transition: https://greattransition.org/

  4. Great Transition: The Promise and Lure of the Times Ahead. Paul Raskin, Tariq Banuri, Gilberto Gallopín, Pablo Gutman, Al Hammond, Robert Kates, Rob Swart

  5. ANTAD TV


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