"Our total sales have increased this year by 20 percent since we added a pharmacy section to our grocery store. Clearly, the customer's main concern is the convenience afforded by one-stop shopping. The surest way to increase our profits over the next couple of years, therefore, is to add a clothing department along with an automotive supplies and repair shop. We should also plan to continue adding new departments and services, such as a restaurant and a garden shop, in subsequent years. Being the only store in the area that offers such a range of services will give us a competitive advantage over other local stores."
The plan created by Megamart grocery store, to expand its business through diversification, looks very appealing at the first look. However, a thorough scrutiny will reveal not only logical flaws but also lack of business acumen.
Megamart states that the sales of the company have grown up by 20% in one year after adding pharmacy section to the grocery store. This is a very vague evidence for the subsequent conclusion since the sales growth could've come solely from the grocery department and not much from the pharmacy section. Moreover, increase in sales doesn't provide any information about the profitability of the pharmacy section. It is absolutely possible that the costs from pharmacy department might not be compensated from the increased sales and hence forcing company to bear losses for the pharmacy department. Quantitative split of sales and cost from each of the departments will definitely help strengthening Megamart's plan.
Let's for a moment assume that the pharmacy departments are in fact profitable. This, by no means, allows Megamart executives to generalize that inclusion of additional departments of clothing, automotive supplies, repair shop, restaurants and garden to their grocery departments will increase the profits over the years. Although it is true that consumers love the comfort of one-stop shopping, consumers have different mindsets while shopping for abovementioned services compared with grocery and pharmacy. They might have their favorite auto-mechanics. They want to go and try different brands before buying any clothes. Megamart will need to make a huge capital investment for land, skilled workers and inventories if they want to be successful in these new proposed products and services. Information about the details such as the companies doing businesses in these products, their cost-revenue structure, sources of extra capital for Megamart, a metric of all non-tangible elements and demonstration that the position of Megamart is really dominant will support Megamart's plan.
Finally, the last assumption that uniqueness being the store with all the products gives a competitive edge is outright wrong. The plan overlooks the simple fact that consumers get cheaper products and services outside, they will not shop at Megamart. It is very difficult for a company with a single store to make profits by cutting cost. One needs to have retails to do that. That's the reason Walmart is successful.
Megamart's plan for increasing its profitability is not at all sound. It has made a lot of assumptions which without any relevant, powerful evidences can be broken plummeting
The plan created by Megamart grocery store, to expand its business through diversification, looks very appealing at the first look. However, a thorough scrutiny will reveal not only logical flaws but also lack of business acumen.
Megamart states that the sales of the company have grown up by 20% in one year after adding pharmacy section to the grocery store. This is a very vague evidence for the subsequent conclusion since the sales growth could've come solely from the grocery department and not much from the pharmacy section. Moreover, increase in sales doesn't provide any information about the profitability of the pharmacy section. It is absolutely possible that the costs from pharmacy department might not be compensated from the increased sales and hence forcing company to bear losses for the pharmacy department. Quantitative split of sales and cost from each of the departments will definitely help strengthening Megamart's plan.
Let's for a moment assume that the pharmacy departments are in fact profitable. This, by no means, allows Megamart executives to generalize that inclusion of additional departments of clothing, automotive supplies, repair shop, restaurants and garden to their grocery departments will increase the profits over the years. Although it is true that consumers love the comfort of one-stop shopping, consumers have different mindsets while shopping for abovementioned services compared with grocery and pharmacy. They might have their favorite auto-mechanics. They want to go and try different brands before buying any clothes. Megamart will need to make a huge capital investment for land, skilled workers and inventories if they want to be successful in these new proposed products and services. Information about the details such as the companies doing businesses in these products, their cost-revenue structure, sources of extra capital for Megamart, a metric of all non-tangible elements and demonstration that the position of Megamart is really dominant will support Megamart's plan.
Finally, the last assumption that uniqueness being the store with all the products gives a competitive edge is outright wrong. The plan overlooks the simple fact that consumers get cheaper products and services outside, they will not shop at Megamart. It is very difficult for a company with a single store to make profits by cutting cost. One needs to have retails to do that. That's the reason Walmart is successful.
Megamart's plan for increasing its profitability is not at all sound. It has made a lot of assumptions which without any relevant, powerful evidences can be broken plummeting
