Mercator Group:

1
Mercator Group Strategic Positioning and
Importance of Human Resources iga Debeljak
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Content

• General Overview of the Mercator Group
• Analysis of the Competitive Environment in the
  Fast Moving Consumer Goods FMCG) Industry
• Strategic Considerations of the Mercator Group
• Strategy and Strategic Objectives of the Mercator
  Group
• HRM Strategy of the Mercator Group

3
General Overview of Mercator Group
4
Organizational Structure of the Mercator Groupas
of June 30th 2007
5
Net sales revenues of the Mercator Group (in EUR
million)
6
Structure of net sales revenues
7
Number of employees in the Mercator Group
8
Market share of the Mercator Group in Slovenia
and foreign markets - FMCG program
Source GfK, 2000-2006 Market share in Bosnia
and Herzegovina until 2004 is estimated.
9
Structure of the Mercator Group retail unitsas
at June, 30th 2007
Note The table also comprises retail units of
the company Presoflex, d.o.o. strategic alliance
with this company was completed on July 18th
2007.
10
Analysis of the Competitive Environment in the
FMCG Industry
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Trends in the FMCG Sector in Europe
Top 3 concentration
1. CONSOLIDATION
12
Trends in the FMCG Sector in Europe
2. INCREASING IMPORTANCE OF PRIVATE LABELS

• Estimation by 2010 27 of all goods sold will be
  private label

13
Trends in the FMCG Sector in Europe
3. DEVELOPMENT OF RETAILS FORMATS
Development of retails formats in Slovenia in
2003-2005
14
Trends in the FMCG Sector in Europe
4. DEVELOPMENT OF LOYALTY SYSTEMS AND
ADDITIONAL RETAIL SERVICES
We have more than 985.070 loyal costumers in all
markets of our operations. Our goal is to have
more than 1,4 million loyal costumers by 2010.
Foreign markets as at June 30th, 2007
BH
Serbia
Croatia
144.276
65.678
Number of MPC holders
60.710
Share of MPC in gross retail turnover
32,64
27,38
35,94
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Trends in the FMCG Sector in Europe
5. DEVELOPMENT OF NEW TECHNOLOGIES

• PSA personal shopping assistant
• Self check-out
• Electronic price labeling
• Digital advertising
• Information points in shops
• Smart shelves (RFID technology)
• RFID in logistics

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Competitive Forces in the FMCG Retail Industry
in the SE European Region

• Entry of new competitots
• International chains (Carrefour, Metro, Lidl,
  Aldi/Hofer)
• Expansion of regional chains (Mercator, Spar,
  Konzum, Delta,)

important
opportunity
threat

• Competition
• Low concentration, fragmented markets
• Inadequate coverage
• Lower quality of services
• Obsolete retail formats

• Purchasing power of suppliers
• Low with local suppliers
• Suppliers power to grow due to concentration in
  the region
• Importance of mutlinationals (PG, Kraft,
  Unilever,)
• Acquisitions of local suppliers by multionational
  chains

• Purchasing power of consumers
• Low in retail, but price and value competition
  fierce
• Wholesale segment diminishing

threat

• Substitutes
• Hard / soft discounts
• CashCarry formats
• Huge shopping centres

opportunity
opportunity
threat
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SWOT Analysis of the Mercator Group
Mercator Group
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Sustainability of Competitive Advantages in
Retail Sector

• Resources and capabilities that are critical for
  value creation are imperfectly mobile and cannot
  be acquired in the open market
• Non-tradable resources
• strong brand,
• customer loyalty built through a loyalty program,
  
• know-how, well educated and motivated employees
• Relationship specific resources
• location of retail outlets,
• effective distribution network,
• preferential relationship with suppliers.

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Sustainability of Competitive Advantages in
Retail Sector

• Isolating mechanisms which work to protect the
  competitive advantage of firms
• Impediments to imitation
• developed retail network,
• economies of scale in purchasing, distribution,
  and marketing,
• economies of scope in retail programmes,
• Early mover advantages
• power of brand, reputation,
• switching costs due to loyalty programmes.

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Strategic Considerations of the Mercator Group
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Strategic Question Nr. 1What should our
business be?
Programmes
Focus to market (FMCG) programme or Balanced
development of several retail programmes
(clothing, technical, sporting,)
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Structure of market / nonmarket programmes
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Structure fo Food / Non-Food in Europe
Non Food
24
52
25
23
41
19
30
16
16
24
20
84
84
80
Average 28
81
76
75
77
76
59
70
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Food
Intermarche
Carrefour
Schwarz
Mercator
Auchan
Tesco
Casino
Metro
Edeka
Rewe
Aldi
(Year 2005)
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Strategic Question Nr. 1What should our
business be?
Programmes
Focus to market (FMCG) programme or Balanced
development of several retail programmes
25
Strategic Question Nr. 2What should our markets
be?
Focus to limited number of neighbouring
markets or Expansion based on oportunity /
potential
Markets
Programmes
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The SEE Region is Attractive
Source A.T. Kearney, 2005
27
Macroeconomic Conditions are Changing Quickly
of income for food consumption
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Competition is Already There
?
Present
Entry planned
Source Income research, MM Eurodata.
29
Strategic Question Nr. 2 What should our markets
be?
Focus to limited number of neighbouring
markets or Expansion based on oportunity /
potential
Markets
Programmes
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Strategic Question Nr. 3 Which retail formats
to develop?
Multiformat strategy or Uniformat strategy
Markets
Format
Programmes
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Structure of retail formats in different
countries
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High growth in discount segment expected
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Source Planet Retail
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Structure of retail formats in SEE differs
(Source GfK, 2003)
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Structure of retail formats of Mercator Group
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Wholesale
Non-FMCG stores
15
Discount stores
Superettes SupermarketsHypermarkets
26
17
25
2006
Source Mercator.
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Strategic Question Nr. 3 Which retail formats to
develop?
Multiformat strategy or Uniformat strategy
Markets
Formats
Programmes
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Key strategic questions and answers
Multiformat strategy or Uniformat strategy
Focus to limited number of neighbouring
markets or Expansion based on oportunity /
potential
Markets
Formats
Programmes
Focus to market (FMCG) programme or Balanced
development of several retail programmes
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Strategy and Strategic Objectives of the
Mercator Group
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VisionTo become the leading retailer with FMCG
program in the region of South-Eastern Europe.
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Mission
By our business operations we create
Benefits for the employees by providing a safe
and pleasant working environment and a
possibility of personal and professional
development
Benefits for the customers by providing
excellent retail services, high-quality goods and
competitive prices
Mission
Benefits for the wider environment by assuming a
responsible attitude towards the natural and
social environment and by respecting the business
ethics and social values at all levels of
operation
Benefits for the shareholders by attaining a
profitable growth of operations, improving
business efficiency and increasing the company
market value
Benefits for the suppliers by taking part in the
development of high-quality and inovative
products and by providing the possibilities for
growth in Slovenia and in foreign markets
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Strategic policies of the Mercator Group

• LARGEST RETAILER IN SLOVENIATo retain the
  leading market share of market program in
  Slovenia, primarily by the following activities
  (a.) improving the competitiveness of our
  products and services and (b.) development of
  retail network.
• LEADING RETAILER IN THE NEIGHBORING MARKETS OF SE
  EUROPE To become the first or second largest
  retailer with market program in the markets of
  Croatia, Serbia and Bosnia and Herzegovina,
  especially by (a.) strategic partnerships and
  alliances and (b.) development of our own retail
  network.
• ENTERING OTHER SE EUROPEAN MARKETSTo enter or
  enable the entrance to other markets in
  South-Eastern Europe, where we could become one
  of the five leading retailers with market
  program. This will be attained by (a.)
  purchasing land at attractive locations, (b.)
  developing our own retail network and (c.)
  strategic partnerships and alliances.
• DEVELOPMENT OF NON-FOOD PROGRAMSTo develop
  non-market programs that will (a.) enable
  reaping the potential of positive synergies with
  market program and/or (b.) provide a concept for
  development of the second fundamental trade
  program with a long-term potential for growth and
  profitability in the target markets.
• PROFITABLE OPERATIONSTo ensure profitable
  operation by (a.) measures to retain the current
  level of trade margins, (b.) measures for cost
  rationalization and boosting productivity, (c.)
  measures for increasing the yield on invested
  capital.

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First three strategic policies define the future
strategy of the internationalisation of the
Mercator Group, which is focused and two-tiered.
1. To remain the largest retailer with market
program in Slovenia
3. To enter other markets of SE Europe where we
could potentially become one of the five leading
retailers with market program in the long term
2. To become a leading retailer with market
program in the markets of Croatia, Serbia and
Bosnia and Herzegovina
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HRM Strategy of the Mercator Group
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Mercators Corporate Values
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Strategic Policies in the HRM

• INTRODUCTION OF DEVELOPMENT PROGRAM FOR KEY
  EMPLOYEESTo identify and assess the key
  employees and their capabilities, to motivate
  them and retain them in the company, to introduce
  a career planning system, and to obtain new
  employees on the key postes.
• IMPROVEMENT OF INTERNAL COMMUNICATION To use
  various channels and techniques to communicate
  better with employees, both formal and informal,
  to maintain a professional communication with all
  workers organisations (trade unions, workers
  council, etc.)
• STIMULATION OF TRANSFER OF KNOWLEDGE AMONG
  EMPLOYEES
• To implement appropriate education and training
  systems, both functional and general, to
  stimulate the transfer of knowledge and
  experiences among employees to transfor implicit
  (tacit) knowledge into the explicit (symbolised)
  knowledge.
• DEVELOPMENT OF EFFECTIVE INTERNAL AND EXTERNAL
  STAFFING SYSTEMTo develop appropriate
  methodologies, techniques and procedures for
  internal and external staffing and human
  resources acquisition. To improve the
  satisfaction of employees through improved
  transparency of internal promotion opportunities.
  To obtain new employees with fresh ideas,
  knowledge, and experience from other business
  sectors.

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Strategic Policies in the HRM

• IMPLEMENTATION OF EFFECTIVE COMPENSATION
  SYSTEMTo introduce a compensation system, which
  will better align the efforts and results of
  employees with their compensation, and improve
  their motivation.
• UNIFICATION OF CORPORATE CULTURETo unify and
  strengthen the corporate culture and corporate
  values within all parts of the group, taking into
  account the cultural, social, and demographic
  differences between employees to improve the
  organisational climate.
• STIMULATION OF CREATIVITY AND INNOVATIONS
• To foster creative and innovative behaviour of
  employees, to stimulate internal
  entrepreneurship.
• MAINTENANCE OF HEALTH OF EMPLOYEES AND SAFE
  WORKING ENVIRONMENT
• To introduce measures to maintain the health of
  employees and to obtain a safe and stimulative
  working environment for all employees, to become
  a family friendly organisation, to implement
  measures to improve working conditions for
  handicapped workers.

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Mission
By our business operations we create
Benefits for the employees by providing a safe
and pleasant working environment and a
possibility of personal and professional
development
Benefits for the customers by providing
excellent retail services, high-quality goods and
competitive prices
Mission
Benefits for the wider environment by assuming a
responsible attitude towards the natural and
social environment and by respecting the business
ethics and social values at all levels of
operation
Benefits for the shareholders by attaining a
profitable growth of operations, improving
business efficiency and increasing the company
market value
Benefits for the suppliers by taking part in the
development of high-quality and inovative
products and by providing the possibilities for
growth in Slovenia and in foreign markets
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Thank you for your attention