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Apple, Walmart, and The Kroger Comparison

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Apple, Walmart, and The Kroger Comparison

An overview of the companies

Apple, Inc.

Apple, Inc. is a global technology corporation based in the United States. Its objective can be described as long-run profit maximization, investing heavily in research and development and producing innovative devices, as well as pivoting towards providing services. The company produces consumer electronic and smart devices, such as personal computers, smartphones, and related accessories. Additionally, it provides proprietary software for these devices, as well as digital distribution of media through its online services, the Apple App Store, and iTunes. As such, it serves private users of personal computers, smart devices, and digital services on a global scale. The company’s statements claim that it seeks to minimize its negative environmental impact through “greener” practices and create a positive social impact by implementing diversity and fairness programs among its employees and suppliers.

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Walmart, Inc.

Walmart, Inc. is a retail chain that is based in the U.S. but operates globally. Walmart’s current objective can be defined as sales maximization through offering low prices and reducing costs. However, physical retailers are currently facing significant competition from delivery services such as Amazon and need to innovate to remain competitive. Therefore, the company is under pressure to switch to a long-run profit maximization objective. It supplies mass customers with general merchandise and groceries, providing various day-to-day supplies. While Walmart, Inc., primary source of income is its retail stores, with a significant portion of the goods sold being manufactured through contracts with manufacturers, the firm has recently undertaken attempts to expand. These attempts are primarily focused on securing an online delivery service, but also include the acquisition of a digital movie distribution platform, Vudu.

As the world’s largest company by revenue and the largest retailer in the U.S., Walmart has a significant social impact in the country. The firm has been criticized for mistreating its employees with poor working conditions and low wages, and concerns related to discrimination. Furthermore, its aggressive expansion into new areas was criticized for driving small private retailers out of business through an inability to compete. Finally, Walmart’s low wages have been accused of significantly reducing the average wages in the areas where the company’s larger hypermarkets are located and contributing to poverty.

The Kroger Company

The Kroger Company is a retail chain specializing in groceries, drug stores, and jewelry stores. Like with other physical retail firms, competition from emerging online and delivery markets are forcing Kroger to pivot towards long-run profit maximization. This firm serves customers, whom it describes as “working mom[s]”, primarily in the Southern and Midwestern states, (Kroger Precision Marketing). Some of the groceries that Kroger retail locations carry are manufactured at facilities fully owned by the company. Specifically, it operates 35 food production or manufacturing facilities that produce private-label products (Kroger Corporate). These facilities include dairy plants, bakeries, and plants that produce soft drinks, pet food, and packaged foods.

Although Kroger is the second-largest retail company in the U.S. and runs dairy and manufacturing plants, it has a limited social or environmental impact. The firm is maintaining programs related to reducing waste and improving the sustainability of its operation (Kroger Corporate). Furthermore, Kroger seeks to source its products from providers certified by Fair Trade, an advocacy movement that ensures beneficial conditions for exporters from developing countries (Kroger Corporate). Overall, these strategies contribute to limiting the negative social or environmental impacts of The Kroger Company’s operation.

Inputs and competition

Apple, Inc.

As a tech company that produces electronic hardware, Apple sources technological components for its devices from a large number of suppliers in several different countries. These suppliers usually specialize in producing one or two specific types of parts (e. g. displays, cameras, or processors). The suppliers’ countries of origin include China, Japan, Taiwan, and Germany, while individual locations are spread internationally over up to 80 countries. These components are then assembled into final products, primarily in China, and imported globally. This makes Apple one of the largest global consumer electronics providers with offices in Paris, Tokyo, and New Zealand, among others. Its research and development processes, however, primarily occur at its headquarters, Apple Park, in Cupertino, California.

The labor involved in developing new devices and software solutions, as well as maintaining its online services, is a crucial part of Apple’s production costs. The company subcontracts the manufacturing of its products; therefore, a significant part of its land and capital costs are provided by external entities. However, it also employs retail and physical support locations for its products, necessitating these inputs, albeit to a lesser extent than manufacturing would. Finally, the R&D occurring at Apple Park incurs a significant land, labor, and capital cost.

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The company’s major competitors include Samsung Electronics, Microsoft, and Google. These companies’ areas of competition are focused on smart devices, home computer software, and digital services and distribution, respectively. Unlike Apple’s mostly isolated software and ecosystem, their competitors’ products offer significantly more compatibility with one another, such as Microsoft’s and Google’s software solutions being compatible with other manufacturers’ devices. Furthermore, most non-Apple smart devices have their separate software ecosystem based on Google’s Android operating system. These factors differentiate Apple, Inc. from its competitors in the digital and smart device market.

Walmart, Inc.

Walmart relies on contractors to produce the wares it sells, which include both agricultural and manufactured goods. The firm sources these goods from both domestic and foreign suppliers. As a retailer, Walmart uses labor, land, and capital as inputs for its production. The labor is represented by the employees working in its retail stores as well as other parts of the shipping and distribution chain. It requires renting or purchasing land as locations on which to build its stores. Finally, the capital used as input by Walmart is represented by the buildings it owns, including the stores and any warehouses involved in its distribution and retail chain. Walmart, Inc., is primarily based in the U.S., but it runs similar hypermarket chains in other countries, as well. These countries include the U.K. (branded as Asda), South Africa, and Japan, among a total of 26 countries (Walmart). Walmart fills similar market niches in those countries to those it does in the U.S.

In the U.S., Walmart is in direct competition with other physical retail outlets, such as Target, Kroger, Costco Wholesale, and Macy’s. This competition includes price competition, competing for locations that are likely to be profitable, and sourcing similar product categories. Furthermore, Walmart faces competition from local product-specific retailers in their product categories. However, like other physical retail stores, Walmart is facing increasing competition from online and e-commerce retailers such as Amazon. Its expansion into this area is a direct response to this competition. Finally, the acquisition of Vudu by Walmart puts it in competition with other digital distribution services, which include Netflix and Amazon’s online video services. The competition in this area involves increasing the selection of content available at each provider’s service, as well as producing unique films and series.

The Kroger Company

Kroger sells groceries and general merchandise produced both internally and sourced from contractors. Its production facilities process agricultural resources like milk, cereals, and eggs into dairy products and bread. A part of these goods is sourced and produced domestically, as evidenced by the company’s claims of dedication to local production (Kroger). The firm’s cooperation with Fairtrade indicates that another part of the goods it sells is imported from developing countries.

The cost of production for Kroger includes the labor used in its retail, shipping, and distribution and manufacturing channels. The company does not directly produce the inputs in its manufacturing; however, the land is nonetheless used as an input to house the stores and production plants. Finally, the buildings and machinery used by the production plants, as well as the vehicles used in its logistics and distribution.

Kroger operates primarily in the U.S., where all of its manufacturing and physical retail locations are located. However, in 2018 it launched a store test to provide its Simple Truth-branded items to Chinese customers through, Alibaba, the online retailer (PR Newswire). This suggests that Kroger may be interested in expanding to more international markets in the future if this experiment proves to be profitable.

Kroger competes with other physical retailers and grocery store chains. These chains include Walmart, Costco, and Albertsons. Kroger seeks to gain an advantage over its competitors by performing market research and customer analytics to provide a more personalized shopping experience to its shoppers. Furthermore, the increasing influence of online and e-Commerce providers like Amazon is forcing The Kroger Company to adapt by introducing competing for online stores and delivery services. To facilitate this transition to delivery-based shopping, the firm has partnered with Ocado to establish fulfillment centers that heavily rely on robotics to compete with Amazon directly (D. Meyer). These steps allow Kroger to distinguish itself from its previous competitors and protect its business against new ones.

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Structure analysis

Apple, Inc.

Apple, Inc. can be classified as an oligopoly in the smart device market, which it dominates along with Samsung Electronics. However, it also has qualities of monopolistic competition since its products are significantly differentiated from those of its competitors by their unique hardware, software, and digital service ecosystem. Apple devices’ branding and reputation also give them the image of a status item, furthering this differentiation.

The company’s traditional hierarchical structure puts significant control in the hands of current CEO Tim Cook and other top executives. Its divisions are based on the product they develop and are allowed to interact with one another (P. Meyer). This structure allows significant collaboration between the company’s divisions, facilitating their ability to develop new products within the company’s hardware and software ecosystem. Therefore, it facilitates the firm’s ability to profit from its innovation and allows it to quickly adapt its strategic priorities (such as R&D) as necessary. Currently, the firm is yielding a significant profit of $59,531 million, which constitutes 22.4% of its revenue, with a 23.1% change over the last fiscal year (Fortune). This data can be acquired from the firm’s annual Form 10-K filings to the U. S. Securities and Exchange Commission (SEC).

Walmart, Inc.

The hypermarket retail sector that Walmart occupies is a clear oligopoly with Walmart and Kroger representing the primary major competitors. Together with Albertsons, they control over 40% of the U.S. grocery market, of which Walmart has 26% (Conway; McConnell, et al. 269). While smaller firms exist, particularly in more specialized sectors of the retail market, Walmart’s share and influence allow it to control the prices to a significant extent and prevent small competitors from entering the market. This oligopolistic structure makes it almost impossible for small entities to compete. The same control and relative market dominance allow the company to attract customers through occupying central locations and offering low prices. Furthermore, Walmart can constitute a monopsony in some regions, serving as the only employer or retailer in its segment. It allows Walmart to maximize its sales and, therefore, revenue. However, Walmart’s profit of $6,670 million only comprises 1.3% of its revenue and has fallen by 32.4% in 2019 compared to 2018 (Fortune). Overall, this puts Walmart, inc. at significant risk of incurring losses.

Walmart’s organizational structure can be described as a hierarchical functional organizational structure. This means that strict vertical lines of command exist throughout the company, and departments are assigned based on the function they fulfill (Lombardo). Due to its organizational structure, the company’s executives have significant control over its actions, which allows them to quickly pass down decisions and respond to changes in the market. However, it also limits the firm’s flexibility and ability to adjust local business practices and implement measures specific to each individual location.

The Kroger Company

Like Walmart, Kroger is part of an oligopoly in the U.S. grocery market. Although significantly smaller than its primary competitor, Kroger controls 10% of this market (Conway). This makes it sufficiently influential to affect the decisions of other players in this market. Unlike Walmart, it is not influential enough to constitute a monopsony, thus, limiting the amount of control it can exert on prices and wages.

Kroger describes its organizational structure as a balance between centralized and decentralized. According to the company’s 2018 factbook, decisions that affect the customers directly are made by divisional managers, while administrative processes are centralized at the corporate office in Cincinnati, Ohio (52). This structure allows the local establishments’ significant flexibility to quickly adapt to customer demands, while also retaining significant control for the higher executives to implement any major changes or innovations. These features allow Kroger to increase its profits by creating additional value for its customers. Furthermore, the oligopolistic market facilitates the company’s expansion by making mergers and acquisitions lucrative for smaller firms. In 2019, Kroger’s profits amounted to $3,110 million, 2.6% of its revenues, and an increase of 63.1% compared to 2018 (Fortune). This illustrates the success of the company’s strategies related to innovation and expansion.

Comparison

The three Fortune 500 firms compared share certain similarities, particularly in the fact that they are all parts of oligopolies in their respective fields. Kroger and Walmart are major retailers and direct competitors in the groceries sector in the U.S. The differences in their organizational structures can account for the shifts in their performance. Although Kroger’s profit is significantly less than that of Walmart, it represents a greater percentage of the company’s revenue and assets (Fortune). This fact illustrates the greater efficiency and higher profit margins allowed by the company’s smaller scale and decentralized structure.

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Walmart’s objective of maximizing sales in the short run and rigid organizational structure has made it vulnerable to encroachment by more innovative competitors in the U.S., such as Amazon. However, its large scale facilitates the company’s diversification into other markets, specifically, digital distribution and entertainment. In contrast, Kroger’s strategy of focusing on its core market of retail and wholly-owned production facilities allows it to pivot towards process innovation in the ways that its goods are sold, marketed, and delivered. Its smaller revenue means that it cannot afford as many risky investments and diversification. The two retailers are similar in their costs of production and resource inputs, although Kroger maintains a larger part of its supply chain through wholly-owned manufacturing plants and distribution channels. Both heavily rely on subcontractors and private-label brands to maintain their supply and marketing.

An interesting distinction between the two is the difference in their social and environmental impacts. While both are large corporations, Kroger maintains a favorable reputation and an overall positive impact. Walmart’s strategies have led it to multiple controversies over its business practices and overall impact on the regions surrounding its larger hypermarkets. Its influence is so significant that it can be considered the sole buyer of labor and wholesale groceries in such regions, significantly reducing both prices and wages, and driving away smaller competitors.

Both retail corporations are facing significant competition from new entities that have entered the market through innovation. Most notably, Amazon is quickly increasing its market share through its e-commerce and delivery services, which compete with traditional physical retail locations. This fact has forced those retailers to adapt and adjust their corporate strategies to incorporate these elements or expand into other markets. While Kroger focused this expansion on process innovations in its delivery service, Walmart has invested in different markets, notably, video digital distribution services.

Apple, Inc. is, in contrast to retailers, a corporation that amasses significant profits with relatively few physical assets. It sources the components for its devices, as well as their assembly, from subcontractors, while directly providing its customers with their software products and digital services. Apple’s market presence is directly dependent on invention and innovation, and its centralized organizational structure allows it to quickly pivot its R&D towards lucrative new products. Owing to these facts, it is capable of outperforming competitors in the smart device and computer markets by introducing new devices to the market.

Apple also differs from the other two companies in this comparison in the fact that its products are significantly differentiated from those of its competitors, qualifying it as being in monopolistic competition with them. This is achieved through unique software solutions that are exclusive to Apple products and have limited compatibility with the hardware supplied by other providers. This approach improves Apple’s profits by limiting its customers’ options of opting into competing providers’ ecosystems.

Overall, the three firms selected represent different approaches to competition in an oligopoly. Walmart relies on its heavy influence to control the prices of its retail goods, rendering small firms unable to compete and maximize their sales. Kroger focuses on a more personalized approach to its customers, increasing its favorability in the long run. Finally, Apple relies on innovation and differentiation from its competition to provide unique products and solutions. The three firms’ organizational structures are crucial parts of their approaches, allowing them to emphasize their strategies’ strengths, gain a competitive advantage, and increase their profit.

Works Cited

Conway, Jan. “Online and offline grocery market share of leading food retailers in the United States in 2017.” Statista, 2020. Web.

Fortune. “Apple.” Fortune. Web.

Fortune. “Kroger.” Fortune. Web.

Fortune. “Walmart.” Fortune. Web.

Kroger Corporate. Kroger, 2019. Web.

Kroger Precision Marketing. “Customer-First Approach.” Kroger Precision Marketing. Web.

Kroger. “We Are Local.” Kroger. Web.

Lombardo, Jessica. “Walmart: Organizational Structure & Organizational Culture.” Panmore Institute, 2019. Web.

McConnell, Campbell, et al., Economics: Principles, Problems, and Policies. 21st ed., McGraw Hill Education, 2018

Meyer, David. “Meet Ocado, Kroger’s Newest Weapon in Its Grocery Delivery War with Amazon and Walmart.” Fortune, 2018. Web.

Meyer, Pauline. “Apple Inc.’s Organizational Structure & Its Characteristics (An Analysis).” Panmore Institute, 2019. Web.

PR Newswire. “Kroger Launching Our Brands Internationally.” PR Newswire, 2018. Web.

Walmart. “Our Business.” Walmart. Web.

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