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Appendix A

UNIVERSITI TUNKU ABDUL RAHMAN


FACULTY OF ENGINEERING AND SCIENCE
ACADEMIC YEAR: 2016
OCTOBER 2016 TRIMESTER
UKMM1011 SUN ZIS ART OF WAR & BUSINESS STRATEGIES

ASSIGNMENT COVER SHEET

Subject Code: UKMM1011

Subject Title : SUN ZIS ART OF WAR & BUSINESS STRATEGIES

Lecture Group: L3 (MON 4PM 6PM)

Assignment Details:

Company : The Kroger Company

Product : Retailer

Word Counts :

Due Date : WEEK 7, DURING LECTURE

Students Name Student ID No. Course Year and Sem


(Arrange by alphabetical order)
Chee Kit Mun 1601499 ME Y1S2

Goh Yi Jian 1601526 ME Y1S2

Huan Hee Keng 1602674 ME Y1S2

Kayshni A/P Lingeswaran 1601445 CL Y1S2

Ng You Wei 1602129 ME Y1S2

Yap Kah Yee 1601685 ME Y1S2

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Assignment Overall Marks: Marks
Appendix A

UNIVERSITI TUNKU ABDUL RAHMAN


FACULTY OF ENGINEERING AND SCIENCE
ACADEMIC YEAR: 2016
OCTOBER 2016 TRIMESTER
UKMM1011 SUN ZIS ART OF WAR & BUSINESS STRATEGIES

MARKING SCHEME FOR GROUP ASSIGNMENT


Assignment Assessment Marks Marks
Note: Students must only use information and facts from year 2010 onwards. Allocation Awarded
Section A: Introduction
Brief introduction of the company. 2 marks
Identify companys industry, competitors and market segmentation. 6 marks
Section B: Applications 24 marks
Identify 4 Sun Zis philosophies which have been used by this company and
provide facts or evidences to support your findings.
- You have to indicate specifically, which topic of Sun Zis philosophies and
which verse in that particular topic you are referring to when you quote your
evidences.
Section C: SWOT Analysis
Identify and explain THE RELEVANT strengths, weaknesses, opportunities and 32 marks
threats of the company (4 elaborated points for each segment)
- The RELEVANT of your SWOT analysis will depend on whether the analysis
is able to match your findings in Section D.
- Marks will only be awarded for the relevant analysis.
Section D: Findings and recommendations
Based on the findings from the SWOT analysis recommend 3 strategies that the 21 marks
company should adopt to improve its current businesses
- You are required to link the strategies with Sun Zis philosophies as well.
- Zero mark will be awarded should the finding and recommendation are not
based on the matching of your SWOT analysis.
*All group members must do part C and part D together.
Section E. Conclusion
Conclude what you have learned in this assignment 3 marks
Section F. Executive summary of the report 7 marks
- provide a brief overview of the whole report so that allow the reader to
quickly understand the information contained in the report
- persuade the reader that the document is worthy of being read.
- provide concise, complete, specific and self-sufficient information that can be
understood in isolation.
Section G. Quality of the written assignment
Grammar, language, in-text citation and references. 3 marks
Creativities on group photo and CD cover 2 marks
TOTAL MARKS 100 MARKS
(-) Minus (Non-compliance to structure/formats/instructions as stated in the
unit plan)
NOTE: A total of 24 marks can be deducted from this part. Marks should be deducted (24)
from the total marks of the assignment.

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MARK AFTER DEDUCTION OF NON-COMPLIANCES

Comments:

Name of marker: Ms. Cheah Lee Fong Signature: Date:

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APPENDIX C

UKMM1011 Sun Zis Art of War and Business Strategies (OCT 2015
TRIMESTER)

DECLARATION

We hereby declare that:

1. We have read through, understand and comply with all the


requirements as stated in the unit plan for October 2015
semester before we submit the assignment.

2. This assignment is the end result of our own work and that
due acknowledgement has been given in the preferences to
ALL sources of information be they printed, electronic, or
personal.

3. Equal contribution has been made by each group member in


completing the assignment.

Students Name Student ID No. Signature


(Arrange by alphabetical order)
Chee Kit Mun 1601499
Goh Yi Jian 1601526
Huan Hee Keng 1602674
Kayshni A/P Lingeswaran 1601445
Ng You Wei 1602129
Yap Kah Yee 1601685

Date:

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TABLE OF CONTENT

Topic Page
Section A: Introduction 2-5
Section B: Application 6-9
Section C: SWOT Analysis 10 - 13
Section D: Findings and Recommendations 14 - 17
Section E: Conclusion 17
Section F: Executive Summary 18
References 19 - 22

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Section A: Introduction

Background of The Kroger Co.

The Kroger Co. is one of the largest grocery retailers not just in the United States of America
but in the entire world. It was founded by Bernard Kroger in 1883 in Cincinnati, Ohio, where
its current headquarters is still located at today. Food stores are their primary business and
account for approximately 94% of their total company sales. On the other hand, the
convenience stores, jewelry stores and manufacturing facilities make up the remainder of the
total sales.

At the end of fiscal 2015, Kroger operated 2778 supermarkets (1387 of which has fuel
centers), 784 convenience stores, 323 fine jewelry stores and an online retailer. This company
also manufactures food to be sold at their supermarkets. They operate 38 food production
plants as of 28th February 2015. By 2015, The Kroger Co. has raked in $109.8 billion in
sales.

Retail Industry in the U.S

With its retail market generating more than $22 trillion worldwide in 2014, the U.S. is the
undisputed leader of the retail industry according to revenue numbers alone. Based on the
2015 Global Powers of Retailing report, 76 of the largest retailing companies in the world are
based in the U.S. Approximately two-thirds of the U.S. gross domestic product (GDP) comes
from retail consumption. However, as recently as the year 2016, a tremendous number of
store closings and bankruptcies indicate both shifting consumer preferences and an unsteady
economy. Despite this, according to the U.S. Bureau of Labor Statistics, 15.7 million people
were employed in the U.S. Retail Industry as of May 2015. The following is the recent
figures released by the U.S census board on the sales generated by the major retailing
businesses:

Major type of Retailing business in the % of total sales generated annually in


U.S the U.S

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Motor vehicle & parts dealers 20.0

Food & beverage stores 13.0

General merchandise stores (hypermarkets, 12.5


department stores, discount stores,
warehouse clubs)

Food services & drinking places 11.0

Gasoline stations (and convenience stores) 10.0

Non-store retailers (Internet shopping, 9.2


catalog, direct sales, etc.)

Building material & garden dealers (home 6.0


improvement)

Health & personal care stores 6.0


(pharmacy/drug stores)

Clothing & clothing accessories stores 5.0

Miscellaneous store retailers (specialty 2.3


retailers)

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Furniture stores 2.0

Electronics & appliance stores 2.0

Sporting goods, hobby, book & music 1.7


stores

Competitors
It is certain that a retail company as large as the Kroger Co. will face a lot of challenges
from its competitors such as Walmart, Costco, Safeway, Publix, Alberstons, H-E-B, Whole
Food Market, Target Corp, and many others. Walmart, which is the main competitor of
Kroger Co, has become the leader of the U.S. retail industry market during recent years.

U.S Retail Industry Market Share 2014

OTHERS WALMART
33% 25%

KROGER CO
TARGET CORP
13%
2%
WHOLE FOOD
MARKET
H-E-B 2% ALBERSTONS COSTCO
3% PUBLIX SAFEWAY 8%
4%
4% 6%
WALMART KROGER CO COSTCO SAFEWAY
PUBLIX ALBERSTONS H-E-B WHOLE FOOD MARKET
TARGET CORP OTHERS

Figure 1.1
The pie chart above shows the market share percentage of Kroger Co. and its key
competitors. Walmart has the highest percentage of 25% while Kroger Co. has a percentage
of 13%, making it the company with the second largest share in the U.S retail industry.
Besides that, the other key competitors of Kroger Co such as Costco, Safeway, Publix ,

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Alberstons , H-E-B, Whole food market and Target Crop has a percentage of 8%, 6%,
4%,4%, 3%, 2%, and 2% respectively.

Market Segmentation

For a retail company, the targeted customer range is broad, however they are limited to only
citizens of the United States of America. The main customers mostly earn around $40k to 80k
per year. The Kroger Company intends to attract customers from all genders and all races.
The food and groceries section targets housewives while the electronics and manufacture
section mostly targets professionals. Based on very helpful demographic data provided by
infoscout.co, the company receives a balanced amount of customers from both male and
female, however, there are more African American customers than other races.

Section B: Applications

Sun Zis Philosophy 1: Chapter 3 (Strategic Attacks)


One of the subtopics of Chapter 3 is To Capture the Whole Intact. This can be seen as aiming
for the perfect acquisition, that is, to acquire an entire company in its original form, without
damage whatsoever, in order to fully capture the market of a business.

"Capturing an entire company intact is a better strategy; destroying it is a weaker option."


- Line 3.4

Sun Zi Art of War translated by Chow Hou Wee

After 43 years of absence in Wisconsin, US, Kroger Co. had made a huge comeback on
November 2015 by choosing to merge with Roundys Inc, a supermarket chain that includes
stores and pharmacies which are primarily Wisconsin based. A merge such as this has
brought stores that are operated by Roundys such as Pick n Save, Copps Food Center,
Metro Market, and Marianos Fresh Market under Krogers ownership, at a value of $800
million with debt included. Chairman and CEO of Kroger, Rodney McMullen had stated that
the aim of the acquisition is to blend Roundys complementary market with Krogers strength
in scale and merchandising. The acquisition had successfully made Kroger top 1 in metro

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Milwaukees grocery market share. Aside from that, Krogers presence in Chicago was also
amplified with the help of Marianos Fresh Market.
This example shows how important it is for a company to conquer its competitors while
preserving their original form, preferably in the form of purchased acquisition, instead of
wasting resources to destroy them.

Sun Zis Philosophy 2: Chapter 4 (Disposition of the Army)


Chapter 4 stresses the importance of secrecy in defence and creativity in offence. A
successful company must always show flexibility and adaptability in formulating strategies,
and must be able to constantly come up with new ways to expand their influence so as to be
unpredictable by their competitors.

The adapt person at offence is able to deploy his troops in ways that are beyond the
imagination of anyone. Line 4.10

Sun Zi Art of War translated by Chow Hou Wee

The Kroger Co. has noticed the internet as a growing platform that can be
advantageous to their influence on the market, therefore they have decided to build up their
own internet operations. In year 2014, Kroger has acquired Vitacost an experienced online
health and wellness product retailer, with a price of $280 million. This acquisition provides a
platform for Kroger to start its online business and also to offer health care product to its
existing customers. The strong foundation of Vitacost in online retail enables Kroger in
offering its shoppers more shopping channels.
Kroger see this merging as an opportunity to adapt the online business and start to sell their
own fresh food online. For instances, Kroger has launch its own online retail service- Kroger
Clicklist in year 2016 and widened its market successfully. With this Kroger was able to use
creative and versatile methods to defend its market from its main competitor, Walmart, in all
section and get out ahead of other retail companies like Safeway.

Sun Zis Philosophy 3: Chapter 5 (Forces)


A part of chapter 5 focuses on the creative interplay of direct and indirect approaches,
strategies and forces. This can be interpreted as showing the significance of creativity and
innovativeness in business.

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There are only five basic musical notes but their combinations and permutations produce
music scores so varied that it impossible to hear all of them.-Line 5.12

There are only five primary colours but their mixes and matches produce so many visuals
that it is impossible to view all of them.-Line 5.13

There are only five basic flavours but their blends and mixtures produce so many tastes
that it is impossible to savour all of them.-Line 5.14

However, the possible combinations, changes and manoeuvres between the direct and
indirect (approaches and forces) are limitless and beyond comprehension.-Line 5.16

Their interactions and combinations are like two never-ending interlocking rings where
the possibilities of their beginnings and endings can never be determined.-Line 5.18

Sun Zi Art of War translated by Chow Hou Wee

One of Kroger Co.s most creative decisions was to work with dunnhumby (now known as
84.51o), a customer data specialist to track each and every customer as an individual. By
working with dunnhumby, Kroger has the exposure to know what customers might be
interested in. Too many companies emphasise demographics which are not very informative.
Kroger, however, chooses to understand individual customers. dunnhumby creates a DNA on
each customer instead of cramming customers into segments. With this information on hand,
Kroger sends 11 million pieces of direct mail to customers who are on their mailing list each
quarter. Each mail contains 12 coupons carefully tailored to each individual household. 71
percent of households will redeem at least one coupon in the store. The coupons have
successfully generated $10 billion in revenue for Kroger.
For the point-of-sale coupons, dunnhumby insists that Kroger Co. should not try to convert
customers to switching to other brands. This is unlike other grocery stores that try to offer a
Pepsi coupon to a Coke buyer, for example. The redemption rate is very low in switcher
campaigns like this.
Another creative strategy of The Kroger Co. is their implementation of Kroger Plus
Card. According to a study by Maritz Loyalty Marketing of New York, Krogers loyalty

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program is rated the highest in the grocery industry. Ninety-seven percent of Kroger
transactions use loyalty cards. This gives the chain a leg up on Wal-mart which prioritises
everyday low pricing but does not offer loyalty cards which can favor one customer over
another. The cards make customers eligible for discounts, including fuel savings at Kroger
gas stations and Shell gas stations. Kroger also utilises technology by creating a smartphone
app that offers promotions and keeps track of customer rewards.
These kind of creative initiatives gives Kroger unprecedented access into the behavior of
its customers, and allows it to design promotions to individual shoppers.

Sun Zis philosophy 4: Chapter 7 (Military Maneuver)


One of the subtopics of this chapter relates to the prerequisites for combat and how more and
better equipment and supplies will boost the chances of victory.

It follows that an army without heavy equipment and supplies will perish - Line 7.21

Kroger Co. takes forging strong supplier partnerships as an important part in their business.
To suit the wants and needs of customers in their stores, Kroger works with supplier
companies of all sizes and varying geographies as long the suppliers retail items meet their
requirements. Kroger reviews their potential suppliers from time to time, which is needed to
renew their products and suppliers list based on the latest trend of their consumers needs and
desires.
To simplify the process of identifying qualified suppliers, Kroger manages their database
of diverse suppliers with the help of CVM Solutions, a third party provider of supplier
management software. This allows Kroger Co to gain immediate access onto the vendors
information and quickly identify qualified suppliers that meet the current consumer demand.
Another application of this philosophy that made Kroger Co. one of the leading grocers, is
their usage of modern equipment and systems. For example, the implementation of store-
ready mixed pallets in an automated environment for grocery distribution. Starting around
year 2003, Kroger Co. began to implement new designs to automate its grocery distribution
centers. A automated system that can receive and put away full pallets, break them down,
rebuild them into store-ready mixed pallets and arranging them according to their respective
shelf locations.

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As a result, the requirement of manpower in this process was decreased to a minimum
value. This technology replaced the labor intensive and traditional system of grocery
distribution centers, making the process of loading and shipping much shorter and efficient.

Section C: SWOT ANALYSIS


Strengths

(S1) Vast Manufacturing Plants Increase Quality and Distribution


The Kroger Co. operates around 40 manufacturing plants for processing, packaging and
manufacturing their very own private label products. Kroger has manufactured approximately
43% of its 14,400 private label items in its plants. Krogers inventory of manufacturing plants
include 18 dairies, 10 deli or bakery plants, five grocery product plants, two beverage plants,
two meat plants and two frozen dough plants. These plants allow for more efficient quality
control and efficient distribution to stores.

(S2) Strategic Acquisitions Dictate and Manipulate the Retail Industry


The Kroger Co. has made many calculated strategies over their rich history. One example
stands out in which Kroger acquired Harris Teeter for $2.5 billion. Harris Teeter announced
that for locations will be closed off and three of those will be converted to Kroger stores.
Kroger has also encouraged Harris Teeter employees to apply for jobs at local Kroger stores.
By doing so, Kroger has eliminated competition within itself while at the same time acquired
the loyal customers of Harris Teeter and also its employees.

(S3) Market Share Increments from Fill-in Marketing Strategy


Kroger performs a fill-in marketing strategy to increase its market share. This strategy
includes widening square footage, making investments in new stores, remodeling markets
they have already entered, and most importantly, acquisitions. In the past four years, Kroger
has acquired Harris Teeters, Roundys, Hillers and others. This strategy allows the company
to gain higher profits along with lower costs and risks, since it can cut down overhead
expenses on warehousing, transportation, and advertising.

(S4) Diversity in Business Gains More Customers


Kroger expands their business in many different areas in order to fulfill the customer needs. It
operates a variety sort of business including 2,781 grocery retail stores, 785 convenience

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stores, 38 manufacturing facilities, 323 jewelry stores, 1,423 supermarket fuel centers and
2,240 pharmacies. This diversification has fostered the growth and development of Kroger
and proven their business capabilities in different field of industry.

Weakness

(W1) Burdensome Unionized Workforce


Kroger is at a competitive disadvantage when compared with its peers Wal-Mart, Sears or
Target due to their unionized workforce. The absence of unions allow these competitors to
enjoy lower labor costs and other operating efficiencies. The unions present an environment
in which time-consuming labor negotiations and the formulation of agreements are necessary
in order to avoid work stoppages. This work stoppage comes with the potential to impact the
bottom line.

(W2) Heavy Debt Decreases Profits


Krogers debt-to-equity ratio is higher compared to other peer groups. A huge percentage of
its debt went to restructuring, remodeling, and opening new stores. If they fail to maintain a
leverage ratio, its ability to borrow may be affected and they might be forced into a situation
where a significant amount of its cash flow must be used to pay the debts. This will definitely
slow down growth opportunities.

(W3) Underdeveloped Toxin Filtering System Causes Many Chemical Outbreaks


Kroger have yet to fully develop a system that could fully screen out and remove toxins and
other hazardous chemicals from their products. While its competitor retailers like Walmart
and Target have already implemented plans to screen out over 1,000 chemicals.
Kroger has been reported for selling over 150 products with hazardous chemicals that are
harmful to people. For example, Kroger was reported for selling canned food that contains
over excessive Bisphenol A, and Halloween trick-or-treat bags sold by Kroger were reported
to have been laced with dangerous flame retardants. Being unable to guarantee the safety of
their products will affect Krogers competition significantly in the future.

(W4) Limited Distribution of Stores Prevents Reaching Out to More Customers


As the nations largest grocery retailer, Kroger has a significant lower numbers of stores
compared to other large retailers. Kroger itself has only 2781 stores including supermarkets

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and multi-department stores, which cover 35 states in total. However, its main competitors
Wal Mart Inc, has a total of 5229 stores in U.S. The limited presence of Kroger stores making
it unable to access by customers of certain areas and caused it to lost part of the business
opportunities.

Opportunity

(O1) Huge Automation Potential in Manufacturing Plants


Computers and technology have penetrated the manufacturing industry and has enabled
automation to become the competitive advantage in todays manufacturing world. Since the
Kroger Co. is operating many facilities to manufacture their own products, automation can be
easily implemented to allow Kroger to mass produce products at outstanding speeds and with
great repeatability and quality.

(O2) Rapid Growth of Organic and Natural Food Market

Consumers grow more and more concerned for wellbeing and health every year. Organic and
natural products are being adopted into their day-to-day requirements. Kroger as quite well
known in the natural foods market and has a huge variety of natural and organic items. Its
brand Simple Truth is highly favored among millennials and is worth billions of dollars and
is rising up with the potential to challenge its rivals for dominance in the organic food
market.

(O3) Strategic Expansion Plans Potential to Reach Global Consumers


Kroger has the possibility to implement an expansion plan which entails store relocations and
remodeling. By enhancing the scale and productivity of their stores and entering new
markets, the company will reach a larger customer base. They can start off by opening
supermarkets in the entire North America region or form other international operations. To
merge with other companies such as Ahold NV, a global supermarket operator from
Netherlands, or Luckys Market, which has chain of 17 organics stores will be a possible
approach to expand Krogers territory.

(O4) Demand for New Ways to Pay Increases

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According to a recent study, customers are calling for a transformation for new convenient
and innovative ways to pay in the retail industry. Shoppers prefer to go on shopping trips
without necessarily bringing along their wallets and being able to make mobile payments.

Threat

(T1) Increased Labor Costs Dampen Profits


Most of Krogers employees are covered by collective labor agreements negotiated with local
unions that have affiliations with one of several different international unions. This means
that Kroger is obligated to ensure their employees have benefited from recent increases in the
federal minimum wage and the health care reform. These changes present financial burden
for Kroger and have the potential to hurt their operating costs and profitability.
(T2) Unstable Economy Could Hurt Business
After many political turmoils such as Brexit and the unexpected USA election results,
analysts and investors are skeptic towards the economic outlook. Inflation due to a recovering
economy will also affect food prices and cost of transportation. Kroger Co. might end up
getting lower profit and customers who are on a tight budget might look elsewhere to buy
food that costs less.

(T3) Refusal to Adapt New Visa Debit Card Rules Might Hurt Krogers Image
Starting 2016, Visa introduced a new Visa debit card transaction system, which forces
merchants to verify purchases with two different ways: their customer signature or personal
identification number (PIN). Kroger refuses to apply the new debit card verification system
as Krogers new terminals were not setup in compliance with these rules, and would take a
lot of time and resources to reprogram every single terminal. Kroger is also concerned with
the safety of their customers, as a system that allows both PIN and customer signature is less
secure compared to their previous PIN-only verification system.
Having Kroger to perform this system in the future will increase the risks of fraud and theft,
as signatures are easily imitated, and only Kroger will lose credibility over their customers.

(T4)Merging of A Traditional and NonTraditional Retailer Presents More


Competition
The merger of the two of the worlds biggest supermarket which are Royal Ahold AV and
Delhaize Group is predict to become a biggest threat to the Kroger in the future. This merger

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will give a total of 2,034 supermarket in the U.S market which is comparable to Krogers
2,625 supermarkets in total. Besides traditional retailer, Royal Ahold AV also operates an
online grocery service called Peapod which with 25 years of experience. This could also give
a big impact to Kroger as it do not have a strong foundation in online services.

Section D: Findings and Recommendations

Finding 1:
(W1) Burdensome Unionized Workforce
(T1) Increased Labor Costs

(S1) Vast Manufacturing Plants Increase Quality and Distribution


(O1) Huge Automation Potential in Manufacturing Plants

The increased labor costs (T1) caused by the burdensome unionised workforce (W1) and
federal laws can be overcome by implementing more automation in the manufacturing plants
(O1). Due to the presence of many facilities (S1) owned by The Kroger Co., there is plenty of
room to put machines into action. This can cut down labor costs tremendously and fend off
debt woes.

Recommendation:
Investing in more machines in each production plant.

One must not rely on the failure of the enemy to attack, but on the ability of oneself to
build an invincible defence.(8.23)

Sun Zi Art of War (ed. 2003), by W. C Hou

This statement applies if war breaks up. It argues for the need to be proactive in offence as
well in defence. To excel in military warfare, the general must proactively build up his
defences in anticipation of where and when the enemy would be coming and attacking.
Conversely, in attacking, he too must predict where the defences of the enemy are.

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The Kroger Co. must proactively handle the increased labor cost by investing in more
automation at each and every production facilities. This will cut down on labor costs as
smaller workforce is only required. Kroger should invest in technology like the fully
automated milk case distribution room in their dairies and the palletizing robot. Cutting ties
with some unions means that Kroger does not have to deal with the headache of strikes and
decreased human resource control. In addition to that, automated productions and processing
operations usually have higher production rates and labor productivity compared to manual
labor. Although, Kroger traditionally has used manual labor over automation, it is important
for Kroger to adapt in order to tackle the ever-increasing labor cost problem or drown in more
debt.
Finding 2:
(W4) Limited Distribution of Stores Prevents Reaching Out to More Customers
(T4)Merging of A Traditional and NonTraditional Retailer Presents More
Competition

(S2) Strategic Acquisitions Dictate and Manipulate the Retail Industry


(O3) Strategic Expansion Plans Potential to Reach Global Consumers

Through dictating and manipulating the market by acquisitions of companies (S2) like Harris
Teeter, Kroger is able to defeat its enemy and overcome the competition in the form of the
merging of traditional and non-traditional competitors (T4). On the other hand, the weakness
of limited distribution of stores (W4) can be overcame easily as some of the acquired stores
will be converted to Krogers after the acquisition. Through acquisitions of international
companies, Kroger can expand their businesses on a global scale (O3).

Recommendation
Adopt strategy of acquisition of international companies that based in different
countries.

Thus, the person adept in warfare seeks to control and manipulate his enemy instead of
being control and manipulated. (Line 6.3)

Sun Zi Art of War (ed. 2003), by W. C Hou

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This Sun Zis philosophy states that in order to win in a battle we should always dictate the
enemy first rather than be dictated in any situation. It is an essential underlying philosophy in
war.

Kroger should acquire or merge with companies that are based outside of the U.S. before its
main competitors adopt this strategy in order to step up their position in the market. The
acquisitions of other companies will help Kroger to expand its distribution area and set up its
business in many other countries. This will allow a broader reach of consumers and make The
Kroger Co. a household name all over the world.

Finding 3:
(W2) Heavy Debt Decreases Profits
(T3) Refusal to Adapt New Visa Debit Card Rules Might Hurt Krogers Image

(S4) Diversity in Business Gains More Customers


(O4) Demand for New Ways to Pay Increases

Continuing their trend of promoting diversity in business (S4), Kroger can increase their
profits and therefore lighten their debt (W2). On the other hand, they should realise that the
demand for new ways to pay have increased significantly (O4). This will allow to handle the
latest struggle with new visa debit card rules (T3).

Recommendation
Implement alternate ways to pay.

Just as water controls its flow according to the characteristics of the terrain, an army
should create its victory according to the situations of the enemy (Line 6.60)

Sun Zis Art of War translated by Chow Hou Wee

Sun Zi had stressed the importance of adaptability in the above quote, using water as a clever
form of metaphor.
Kroger needs to adapt to demands of shoppers that want simpler and faster ways to pay. They
can do this by increasing the number of ways a customer can choose to pay. This will lighten

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their debt by cutting their human workforce as business transactions online are all automated.
In addition, more customers will choose to shop at Kroger as it more convenient and this will
increase profits in the long run. To adapt to Visas changing rule regarding its debit card,
Kroger should look to other methods of payment for their stores, particularly online ones.
Some interesting alternatives include: Paypal, Dwolla, Bitcoins and others. Kroger can also
reward its customers that choose to use this newer system of payment.

SECTION E: Conclusion
From this assignment, we have discovered the importance and relevance in the
application of Sun Zis principles in modern business. According to Sun Zi, flexibility and
creativity in planning or strategizing is crucial in building a successful company, defending or
attacking in a formulaic manner will only lead to defeat. He had even stated that Strategy
without tactics is the slowest route to victory. Tactics without strategy is the noise before
defeat. Kroger Co. had demonstrated this by conquering their enemies through acquisitions
after meticulous planning and also by seizing opportunities to develop their company in
imaginative ways, such as merging with companies that already hold a certain influence
online so that they can jump onto the online market with ease.

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Section F: Executive Summary of Report
As Sun Zi once said, He who knows the other side (the enemy) and knows himself will not
be defeated in a hundred battles. This report aims to inform the readers on the foundations of
The Kroger Co. as well as the outside factors that play a role in their business. Philosophies
from Sun Zis Art of War were extracted and correlated to Krogers business principles and
used to help highlight recommendations to take their business to a higher level.

The heart of Kroger lies in their humble beginnings in Cincinnati, Ohio. The current state of
the retail industry in the U.S. is overshadowed by the numerous business closures.
Nevertheless, The Kroger Co. has generated $109.8 billion in sales by the end of 2015.
Kroger has many competitors, both old and new, to fend off. However, Krogers biggest foe
is Wal-Mart, the undeniable leader in the retail industry.

Many of Sun Zis philosophies can be drawn parallel to Krogers business practices:
Chapter 3 (Strategic Attacks) - To Capture the Whole Intact
Merging with Roundys Inc.
Chapter 4 (Disposition of the Army) - Secrecy in Defence and Creativity in Offense
Launching Online Retail Services
Chapter 5 (Forces) - Interplay of Direct and Indirect Approaches, Strategies and Forces
Working with Customer Data Specialist
Chapter 7 (Military Manoeuvres) - Prerequisties for Combat
Good Partnerships with Suppliers and Utilising High Quality Equipment

SWOT Analysis was conducted in conjunction with stating the recommendations to help
Kroger put some valuable strategies into action. The weaknesses and threats faced were
nullified by their strengths and opportunities available. Suggestions to solve each challenge
are as follows:
Implement automated system to solve the problem of rising labor costs
Acquisitions on a global scale to broaden customer base and overcome fierce
competition
Adopting simpler and faster methods of payments to decrease their debt and overcome
the new Visa Debit Card rules

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