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Harvard Case - OXXO's Turf War Against Extra (A)

"OXXO's Turf War Against Extra (A)" Harvard business case study is written by Tatiana Sandino, Gerardo Perez Cavazos, Annelena Lobb. It deals with the challenges in the field of Strategy. The case study is 19 page(s) long and it was first published on : Mar 15, 2017

At Fern Fort University, we recommend that OXXO adopt a multi-pronged strategy to counter Extra's aggressive expansion and maintain its market leadership in Mexico. This strategy will involve a combination of defensive measures, offensive initiatives, and strategic partnerships to secure OXXO's position as the dominant convenience store chain in the country.

2. Background

This case study examines the fierce competition between OXXO and Extra, two leading convenience store chains in Mexico. OXXO, the incumbent leader, faces a significant challenge from Extra, a rapidly expanding competitor backed by Walmart. Extra's aggressive expansion strategy, leveraging its parent company's resources and expertise, threatens OXXO's market share and profitability.

The main protagonists are OXXO, a Mexican convenience store chain with a strong brand and extensive network, and Extra, a Walmart-owned convenience store chain rapidly expanding its presence in Mexico.

3. Analysis of the Case Study

To analyze the situation, we can employ several frameworks:

a) Porter's Five Forces:

  • Threat of New Entrants: High, due to low barriers to entry in the convenience store industry.
  • Bargaining Power of Buyers: Low, as consumers have limited options for convenience stores.
  • Bargaining Power of Suppliers: Moderate, as OXXO and Extra rely on a wide range of suppliers.
  • Threat of Substitute Products: Moderate, as consumers can choose alternative options like supermarkets or online retailers.
  • Rivalry Among Existing Competitors: High, as OXXO and Extra are engaged in a fierce battle for market share.

b) SWOT Analysis:

OXXO:

  • Strengths: Strong brand recognition, extensive network, loyal customer base, efficient operations.
  • Weaknesses: Limited product differentiation, reliance on traditional retail model, potential for cost overruns.
  • Opportunities: Expanding into new markets, leveraging technology for enhanced customer experience, developing strategic partnerships.
  • Threats: Aggressive competition from Extra, changing consumer preferences, economic instability.

Extra:

  • Strengths: Strong financial backing, extensive supply chain network, access to Walmart's expertise and resources.
  • Weaknesses: Limited brand recognition in Mexico, potential for cultural misunderstandings, over-reliance on parent company.
  • Opportunities: Rapid market expansion, leveraging technology for competitive advantage, building brand loyalty.
  • Threats: OXXO's established market position, potential for backlash from local communities, economic volatility.

c) Value Chain Analysis:

Both OXXO and Extra operate along a similar value chain, encompassing activities like sourcing, logistics, store operations, marketing, and customer service. However, OXXO's focus on efficiency and cost optimization contrasts with Extra's emphasis on scale and aggressive expansion.

d) Business Model Innovation:

OXXO needs to explore business model innovation to counter Extra's aggressive strategy. This could include:

  • Digital Transformation: Integrating online ordering, delivery, and mobile payments to cater to tech-savvy customers.
  • Product Diversification: Expanding product offerings beyond basic convenience items to include fresh food, prepared meals, and personalized services.
  • Strategic Partnerships: Collaborating with local businesses, food vendors, and technology providers to enhance offerings and reach.

4. Recommendations

OXXO should implement the following recommendations to maintain its market dominance:

a) Defensive Measures:

  • Strengthen Brand Loyalty: Enhance customer loyalty programs, offer exclusive promotions, and focus on personalized customer service.
  • Optimize Operations: Streamline operations, reduce costs, and improve supply chain efficiency to maintain competitive pricing.
  • Focus on Core Strengths: Leverage existing strengths in network density, operational efficiency, and customer relationships.

b) Offensive Initiatives:

  • Embrace Digital Transformation: Invest in technology to enhance customer experience, improve inventory management, and optimize pricing.
  • Expand Product Offerings: Introduce new product categories like fresh food, prepared meals, and personalized services to cater to evolving consumer preferences.
  • Target Niche Markets: Focus on specific customer segments like young professionals, families, and tourists with tailored offerings.

c) Strategic Partnerships:

  • Form Alliances: Collaborate with local businesses, food vendors, and technology providers to expand product offerings and reach new customer segments.
  • Leverage Technology Platforms: Partner with delivery services, online payment providers, and loyalty program platforms to enhance customer experience.
  • Explore Joint Ventures: Consider joint ventures with other companies to enter new markets or develop innovative products and services.

5. Basis of Recommendations

These recommendations are based on the following considerations:

  • Core Competencies and Consistency with Mission: OXXO's core competencies lie in its extensive network, operational efficiency, and customer loyalty. The recommendations leverage these strengths while embracing innovation and diversification.
  • External Customers and Internal Clients: The recommendations cater to evolving customer preferences, including convenience, value, and digital integration. They also empower employees with new tools and technologies to enhance customer service.
  • Competitors: The recommendations aim to counter Extra's aggressive expansion by leveraging OXXO's existing strengths, embracing innovation, and building strategic partnerships.
  • Attractiveness: The recommendations are expected to enhance OXXO's profitability and market share by increasing customer satisfaction, operational efficiency, and revenue growth.

6. Conclusion

OXXO faces a significant challenge from Extra's aggressive expansion, but by adopting a multi-pronged strategy that combines defensive measures, offensive initiatives, and strategic partnerships, it can maintain its market leadership in Mexico. By embracing innovation, diversifying its offerings, and leveraging its core competencies, OXXO can secure its position as the dominant convenience store chain in the country.

7. Discussion

Alternative strategies include focusing solely on cost leadership, pursuing a pure digital transformation strategy, or acquiring smaller competitors. However, these options present significant risks and may not be as effective in countering Extra's aggressive expansion.

Key assumptions include:

  • Consumer preferences: The recommendations assume that consumers will continue to value convenience, value, and digital integration.
  • Technological advancements: The recommendations assume that technology will continue to evolve and provide opportunities for innovation and efficiency.
  • Economic stability: The recommendations assume a stable economic environment in Mexico.

8. Next Steps

To implement the recommendations, OXXO should:

  • Develop a comprehensive strategic plan: This plan should outline the specific actions, timelines, and resources required to implement the recommendations.
  • Allocate resources: OXXO should allocate sufficient resources to support the implementation of the recommendations, including financial investments, human capital, and technology infrastructure.
  • Monitor progress: OXXO should regularly monitor the progress of the implementation and adjust the strategy as needed based on market dynamics and competitive pressures.

By taking these steps, OXXO can effectively counter Extra's aggressive expansion and maintain its position as the leading convenience store chain in Mexico.

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Case Description

In 2006, Mexican convenience store chain OXXO faced a threat from a formidable competitor, the rival convenience chain Extra. OXXO had embarked on an initiative to fortify its corporate culture and operating system, but the threat of Extra raised the question of whether they should focus on opening as many stores as possible and as quickly as possible, in order to maintain market leadership. CEO Eduardo Padilla had to define his strategy and decide whether to focus on improving culture and operations or on relentlessly beating its rival.

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