Giant Eagle Corporation

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Giant Eagle Corporation

• Ashley Tarr
• Eric Taslov
• Tori Whittier
• Danielle Witucki

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Table of Contents

• Tori Whittier
• Nature of Firm
• Profit
• Competition
• Danielle Witucki
• Price Discrimination
• Labor Demand
• Unions and Wages

• Ashley Tarr
• History
• Factors of Production
• Opportunity Cost
• Eric Taslov
• Supply and Demand
• Price Floors and Ceilings
• Utility

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History

• 1931- The Shapira, Porter, Chait, Moravitz, and
  Weizenbaum families combined forces to create
  Giant Eagle
• Despite opening during the Great Depression,
  Giant Eagle Corporation flourished throughout the
  1930s and 1940s in the Pittsburgh area
• In the 1950s, product selection and store size
  both increase
• Size increases 15,000 squared feet
• Added gourmet foods and seasonal consumer
  products to its shelves

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History

• During the 1960s, Giant Eagle Corporation
  computerizes its buying system and mechanizes
  order filling and loading procedures
• Buys a warehouse to more than double its storage
  space
• In the 1970s, they respond to inflation by
  helping families cope with the times
• Offers generic products and low prices
• Establishes the first in-store bakeries

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History

• By the 1980s, Giant Eagle has 52 store locations
• Installs efficient barcode system and in-store
  ATMs
• Builds in-store departments including
• Pharmacy
• Floral
• Photo development
• Video rentals

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History

• Throughout the 1990s and 2000s, expanded to
  include stores in PA, OH, WV and MD
• Eagles Nest established, providing child care
  for shoppers children
• Advantage Card introduced, making many activities
  more convenient for customers
• Offer in-store baking in conjunction with
  Citizens Bank, along with dry cleaning services

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History

• Today Giant Eagle has 222 locations throughout
  Western PA, Eastern Ohio, Northern West Virginia,
  and Western Maryland, and they service over 5
  million customers annually

• Giant Eagle is one of the largest, private,
  family owned and operated companies in the
  nation, with sales topping 4.7 billion annually

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Factors of Production

• Land
• Labor
• Capital
• Entrepreneurial Activity

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Land

• Physical space on which production takes place
• Sites for more than 138 corporate and 84
  independent stores warehouses
• Pennsylvania
• Ohio
• West Virginia
• Maryland

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Labor

• The time human beings spend producing goods and
  services
• Approximately 36,000 employees
• region-wide
• 50 375 member teams within each store

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Capital

• Long-lasting tools people use to produce goods
  and services
• Physical capital
• 222 stores tools located in stores such as cash
  registers and shelving units
• Human capital
• Specialized training programs
• Employee education programs

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Entrepreneurial Activity

• When an individual or group recognizes an
  opportunity and then proceeds to take advantage
  of that opportunity
• Eagle Grocery 3 local families join forces
• OK Grocery 2 farm families combine
• In 1931 all 5 combine interests to form Giant
  Eagle

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Opportunity Cost

• The value of the next best alternative that is
  given up when taking action or making a choice
• Decision Giant Eagle decides to construct a new
  store
• Opportunity Cost The money invested in the
  construction and operation costs could have been
  used to remodel or update current stores to
  increase their appeal to customers or to hire
  additional employees at current stores to
  increase productivity

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Demand

• The amount of a good or service that a consumer
  is willing to purchase at a given price, ceteris
  paribus.
• Factors Affecting Demand
• Changes in income
• The prices of related goods
• Population
• Future Expectations
• Tastes

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Normal and Inferior Goods

• Normal goods are goods that people demand more of
  as income increases
• Inferior goods are goods that people demand less
  of as income increases
• Example
• Normal good steaks
• Inferior good ground beef

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Demand for Giant Eagle

• Recent income increases within the population
  have prompted increases in the demand for steaks,
  a normal good
• Giant Eagle is a renown retailer of high quality
  meat products
• Therefore

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Change in Demand

• The change in income increased the demand for
  meat products from Giant Eagle
• This causes the demand curve for Giant Eagle
  products to shift rightward

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Supply

• The total amount of goods or services producers
  are willing to produce at a given price, ceteris
  paribus.
• Factors Affecting Supply
• Prices of inputs
• Profitability of alternate goods
• Technology
• Expectations of future prices
• Number of other firms

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Technology

• Technological advances occur whenever a firm can
  produce a given level of output in new and
  cheaper way than before
• Technology increases supply

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Supply for Giant Eagle

• Significant damages to produce in delivery caused
  the company to lower its supply to the customers
• New packaging materials allowed for less damage
  to the produce upon delivery
• Therefore

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Change in Supply

• The lack of damages to the produce allowed for
  the company to increase its supply
• This causes the supply curve to shift rightward
  as a result of the increase

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Price Ceilings and Floors

• Price Ceiling
• A government imposed maximum price in a market
• Price Floor
• A government imposed minimum price in a market

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Price Floors and Giant Eagle

• Giant Eagle faces various price floors on goods
  imposed by the government
• The most common price floor is on milk
• Under most circumstances, Giant Eagle charges the
  state minimum pricing on this particular good

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Consumer Decisions Budget Constraint

• Ultimate Goal of Consumers
• Maximize their satisfaction
• Consumers face a budget constraint
• The different combinations of goods and services
  a consumer can afford with a limited budget at
  given prices

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Consumer Decisions Utility

• Utility
• The satisfaction obtained by consuming goods and
  services
• Marginal Utility
• The change in total utility a consumer obtains
  from consuming an additional unit of a good
• Decision making
• A consumer will always choose a point where the
  marginal utility per dollar is the same for both
  goods

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Giant Eagle and Consumer Decisions

• Giant Eagle realizes the constraints facing
  consumers
• Income
• Time constraints
• Opportunity cost
• They help to maximize utility for each consumer
  by offering a wide variety of products at
  affordable prices

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The nature of the firm

• Importance of Employees
• Allow for an increase in production and
  performance
• Specialization of Labor
• Lowers Transaction Costs

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Giant Eagle Employees

• Increased Production
• Help to get the stock to the shelves
• Faster check out
• Customer Service
• Specialization
• Butchers, Bakers, Gift Specialists, Photography,
  etc..
• Transaction Cost
• Numerous employees take care of small work so
  managers can concentrate on the
  behind-the-scenes work

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Profit

• Goal of any firm is to maximize profit
• Sales Revenues - Costs of Production
• Accounting
• TR Accounting Costs
• money profits received
• 4.7 billion annual sales
• Economic
• TR Opportunity costs of production
• Returns to factors of production Implicit costs

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Long-Run Vs Short-Run

• Long-Run
• Period in which all inputs can be varied
• Example
• Period needed to build a new store
• Short-Run
• Period in which at least one input is fixed
• Example
• Period in which the number of deli slicers or
  cash registers remains fixed

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Profit Maximization

• A firm wants to operate in the area in which
  their profit is maximized
• slope of TR slope of TC
• Marginal Revenue Marginal Cost
• As long as P Average Total Costs --- the
  firm is earning an economic profit
• Whether or not they remain in business depends on
  if P, , or
• Giant Eagles Marginal Revenue must exceed its
  AVC because they are still in business.

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What is the determined price?

• The price used in profit maximization depends on
  the competitive market structure
• Competition
• Perfect Competition
• Monopoly
• Oligopoly
• None of these will work for Giant Eagle Corp.

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Monopolistic Competition

• Giant Eagle and the competing grocers fall under
  this category because
• Components of 2 types exist
• Perfect Competition
• Monopoly
• Many buyers and sellers
• Sellers offer a differentiated product
• Sellers can enter or exit easily
• Produce less and charge a higher price
• Giant Eagle is so expensive these days.

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What does this mean?

• Tendency toward zero economic profit in Long-Run
• Still have accounting profit on the books 4.7
  mil.
• Buyers have the option of purchasing good from
  another similar firm if Giant Eagle raises its
  price
• Krogers lowers the price of Christmas hams,
  Giant Eagle will have to lower its price as well
  to attract the lost customers
• The MR curve lies halfway between the Y-axis and
  the demand curve
• Price searchers!
• Must find where MR MC and move up the demand
  curve

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Price Discrimination

• Occurs when a firm charges different prices to
  different consumers for reasons other than costs
• Requirements
• Downward sloping demand curve
• Identify consumers who are willing to pay more
• Prevent Resale

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Price Discrimination Giant Eagle Advantage Card

• Consumer Benefits
• Lower prices
• Sale prices
• Video Rental
• Travel Discounts
• Check Cashing

• Giant Eagle Benefits
• Track consumer purchases
• Identify consumers willing to pay more
• Cards cannot be traded or sold

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Price Discrimination Giant Eagle Advantage Card

• Application
• Consumers can be rejected for card membership in
  application process
• Lower Prices
• Allows members to purchase products at lower
  prices than non-members
• Tracking
• Identifies those willing to pay more based on zip
  codes or questionnaires
• Sends coupons to members who do not pay more for
  products regularly

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Labor Demand

• Labor demand is a derived demand meaning that the
  demand for labor depends on the demand for the
  products of the company

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Labor Demand for Giant Eagle

• Demand for products
• Food is always in high demand
• Labor Demand at Giant Eagle
• Labor is always demanded in order to satisfy the
  demand for the product
• Special Times
• The labor demand for Giant Eagle increases during
  holidays when the demand for food and other
  services is higher

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Income Inequality Unions

• Labor unions
• Protect employees
• Fight for wages and benefits
• Effect on Corporations
• Set minimum wage requirements
• Lowers profits
• Decreases employment

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Giant Eagle and Unions

• All corporate Giant Eagle stores are protected by
  labor unions
• Set a minimum wage rate and benefit plans
• Does not significantly impact profits and
  employment for Giant Eagle

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Recent News

• This past summer, Giant Eagles contract with the
  labor union Local 23 expired. The new contract
  agreement set the minimum wage at Giant Eagle to
  6.00 per hour, provided raises for current
  employees, and a wider variety of health care
  options. The contract was voted on 3 to 1 and
  put into effect by mid-July.

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What have we learned?

• History of Giant Eagle
• Factors of Production
• Opportunity Cost
• Demand and Supply
• Price Ceilings and Floors
• Utility

• Nature of the Firm
• Profit
• Competition
• Price Discrimination
• Labor Demand
• Unions and Wages

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Any Questions?
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THE END

• Have a Happy Thanksgiving!!!