Growing Organically

Case Challenge 1

Growing Organically
On a rainy afternoon at the end of October 2018, Chris Abbot sits down to first prepare a report and
then prepare notes for a presentation to the Board of Directors of Oscar’s Organics Ltd. Chris is aware
that the Board of Directors has expressed concerns about future growth potential. Chris has worked for
the company for five years, and has recently been appointed Manager of Strategic Planning. Oscar’s
Organics Ltd. (Oscar’s) is an independent specialty grocery store chain headquartered in Vancouver. The
company currently has fifteen stores in Western Canada located primarily in urban centres.
Oscar’s was founded twenty-two years earlier, and the original vision was to create a ‘bricks and mortar’
farmer’s market, specializing in fresh produce and healthy food choices. Over the years, as it opened
new stores, Oscar’s has become a full-service grocer. Shoppers can do their entire week’s shopping at
Oscar’s and the stores also stock non-food items such as paper supplies, cleaning products, and personal
care items.
Chris knows that the Board will be asking tough questions at the meeting next week. The company’s
long-term strategy has been growth, but slow and careful growth. The company has been successful in
its past expansion, but now faces stiff competition. The food retail business in Canada is changing; large
new competitors are entering the marketplace, and the options for online shopping and home delivery
are changing the relationship with customers and how they get their groceries. Chris knows that the
Board is looking to establish a strategic direction for Oscar’s, to help the company address threats and
best position the company for future success. Chris will need to demonstrate a clear value proposition
for the company, and the Board will also want to see implementation and marketing plans to support
the recommended strategy.
The Industry
The food retail industry is one of the most competitive industries in Canada, dominated by a few large
supermarket and grocery chains. In 2017, Canadian food retail store sales totaled more than $94 billion
Canadian dollars, and the three largest food retailers, Loblaws, Sobeys and Metro, held over 60% market
share.1 Market concentration has been increasing in recent years. The ‘big 3’ had 53.1% of market
share in 2010, and this had increased to 63.4% in 2015.2 Walmart is also becoming a significant
presence in Canadian retailing, with the weak Canadian dollar in 2015 helping fund the U.S. company’s
2015 and 2016 expansion into Canada.3
Anne Macdonald prepared this case for use in the 2018 Bus 201
Case Challenge. Information was taken from a variety of sources
to create a scenario that might be faced by an organization.Bus 201 2018 Case Challenge 2
One of the big news stories to hit the industry in 2017 was Amazon’s U.S. $13.7 billion acquisition of
Whole Foods. Whole Foods has built its reputation on high-quality specialty and organic foods, but this
has come with a perception of high prices. Many consumers jokingly refer to Whole Foods as ‘whole
paycheque’, and the company had been struggling before the Amazon acquisition as larger competitors
were introducing organic product at lower prices. Since the acquisition both companies have learned
from each other. Whole Foods is improving efficiency in its supply chain by centralizing purchase
decisions at its headquarters in Austin, Texas, rather than having purchase decisions made locally or
regionally. Amazon is acquiring data. Many customers browse for groceries online, even though they
shop in person. With data from the browsing activity of its customers, Amazon is able to target ads and
promotions much more effectively than other grocers.4
Consumers
The weak Canadian dollar over the last few years has had an impact on the industry, raising prices.
Canada imports a large volume of consumer products and groceries from the U.S., and some fresh
produce such as apples and oranges.5 Consumers are also impacted by a seasonal effect on Canadian
food prices; prices of fresh produce can rise significantly in the winter, while prices of prepared foods
are more stable.
The increase in Canadian food prices means some consumers are finding it difficult to pay for their
groceries. Surveys in 2016 found that 37 percent of Canadian households claimed that it was
“somewhat difficult to afford food prices”, 63 percent of consumers made a shopping list before going
shopping, and 48 percent looked at flyers for deals and discounts.6 Price is an important consideration
for consumers choosing to shop at a large grocery chain, but location is most important for a customer
when selecting the specific chain.
Despite the focus on price for many Canadian consumers, there is reason for optimism in the specialty
food store market. A recent study found that while retail sales at grocery store chains increased by only
one percent in 2017, specialty food stores saw an increase of up to 7.5 percent that year.7 Trends in
Canadian food are towards organic produce and meats, and healthier options for prepared foods. There
is growing interest in prepared meal kits, where fresh ingredients and instructions can be delivered to
the customer’s home, allowing a ‘home-cooked meal’ to be prepared in 30 minutes. In Vancouver, for
example, customers can order from HelloFresh and Fresh Prep.8 For this share of the consumer market,
price is not the only consideration. Convenience is also key, as well as the promise of nutritionally
balanced, high-quality ingredients, which may be antibiotic and hormone free.
Other trends in the retail food market are online shopping and delivery service. Food delivery had
originally been offered by large retailers as a service for elderly customers. But many customers are
now demanding the convenience of ordering online and home delivery. There are some practical
considerations to grocery delivery with respect to items that require refrigeration. But for staples such
as flour, sugar, and laundry soap, which are heavy, delivery is a service that can attract customers to a
specific store. This is especially true in urban settings where population density is high, and where
customers may walk or take transit when grocery shopping, rather than drive their own car.
Online shopping is expected to be a growing trend in the grocery industry. Although only about 2% of
Canadian grocery purchases were done online in 2017, some experts expect this to rise to up to 70% by
2024.9 Depending on the platform used, online shopping can also help consumers make informedBus 201 2018 Case Challenge 3
purchasing decisions, by providing nutritional information and a list of ingredients used in prepared
foods. Food retailers who want to provide online shopping for consumers do not necessarily need to
develop their own platforms. For example, ShopHero Inc., a U.S. technology company, provides a
platform that can be adopted by smaller U.S. retailers to help them provide an online option for
customers. ShopHero promises that their “proprietary e-commerce platform assists supermarket
operators in expanding their presence online and successfully engaging their customers digitally”. 10
The Organic Food Movement
Organic food is generally understood to be food produced without the use of man-made chemicals. But
it may be more broadly defined as food produced to promote ecological balance, by minimizing the
resources used in food production. Organic food can also be described as encouraging biodiversity, as
currently organic produce is more likely to be grown on small farms, rather than through mass
production.
In 2017, the organic food market in Canada was valued at $5.4 billion Canadian dollars, and there were
4,205 certified primary organic food producers in Canada.11 Federal regulations were introduced in
Canada in 2009 that required mandatory certification for any products labeled ‘organic’. A 2017 survey
found that 82 percent of Canadian consumers purchased organic products on a regular basis, with fruits
and vegetables being the most purchased category.12 The trend to buying organic is also gaining worldwide traction. Estimates put the size of the organic food market at approximately $90 billion U.S. dollars
in 2016, an increase of $10 billion U.S. from 2015 levels.13
Oscar’s Organics Ltd.
Oscar’s currently has fifteen stores located in Vancouver, Victoria, Kelowna, Calgary and Edmonton. The
company grew slowly, opening one store at a time, financing its expansion through retained profits and
short-term bank financing. The company’s current financial position is strong, but the Board is
concerned about increasing competition in the retail grocery industry and changes that threaten to
disrupt the industry. The Board is concerned that the company and the industry are at a crossroads.
The Board needs to determine a strategy going forward for Oscar’s, and is looking to Chris Abbot for
guidance.
The Board has discussed various options over the last few months.
Oscar’s could plan to expand by opening new store locations, and continue with the sale of organic
products as its market niche. That is, continue with the status quo. It has worked for the company in
the past. Oscar’s has a good reputation with its customers, and all of its stores have been profitable
within two years of opening. Perhaps opening more stores is the answer. But would this be a risky
choice? If Oscar’s competitors increase their sales of organic products, these large competitors will
likely be able to undercut Oscar’s price due to their large purchasing power.
On the other hand, Oscar’s has developed a loyal customer base. Oscar’s locations are much smaller in
footprint than the competition. Some customers have described the stores as ‘food boutiques’ –
everything you want or need, but not a large number of choices in any food category. The feedback
from customers is that the care and attention demonstrated by store employees and the high quality
and careful selection of the merchandise makes the experience of shopping at Oscar’s much more
enjoyable than pushing a cart through seemingly endless aisles of product in one of the big chains.Bus 201 2018 Case Challenge 4
One or two Board members have also mentioned that they believe the ‘boutique’ ambiance, and the
focus on organic produce, suggest that industry trends such as online shopping and delivery may not be
as important to Oscar’s customers, as they would be for customers of large grocery retailers. After all,
how can you squeeze tomatoes online, or smell the perfume of fresh strawberries? Store managers
report that many customers shop every few days in order to access the freshest fruits and vegetables.
If Oscar’s does open new stores, should they continue to be located in the downtown core of larger
urban centres? Or should Oscar’s target smaller cities? Or move to the suburbs? Opening stores in a
city centre is expensive due to lease and rental costs. Opening stores in small cities or the suburbs
would reduce costs. As the footprint of Oscar’s stores is not large, if the location of new stores was
moved away from cities Oscar’s could open more new stores.
But rather than consider physical expansion, should Oscar’s develop a strategy to counter disruption in
the retail grocery industry? Should they adopt a platform for online shopping? Should they offer
delivery services to customers? Should they take advantage of changes in consumer demand, and sell
meal kits? Or rather than react to what is currently happening in the industry, should they develop a
strategy to get out ahead of the competition and provide the ‘next big thing’? Whatever that might be.
Chris Abbot knows that whatever strategy is proposed to the Board, it must be well-thought out and
supported by research. The Board will also want to know how the proposal can be implemented and
any related financial considerations. Chris is also aware that the Board needs a clear recommendation
that will have a positive impact to the company’s future, but that the recommendation cannot be ‘to do
everything’. The company has limited resources, and the Board will be reluctant to try too many
initiatives. The company’s workforce is small, so any major initiatives would require hiring additional
staff.
Your task
Chris is feeling overwhelmed with the need to formulate a clear strategic direction for Oscar’s and to
develop a plan to support and accomplish these goals. Chris needs assistance and is asking your team to
analyze the situation and provide recommendations. Your report should provide alternatives, explain
the decision criteria used to arrive at your recommendation(s), and describe how your
recommendation(s) would be implemented, including any personnel required, financial considerations
and timeframe. A value proposition for Oscar’s needs to be clearly described in your team’s
recommendation.
Electronic Sources:
1. https://www.statista.com/topics/2874/supermarkets-and-grocery-stores-in-canada/
2. https://www.statista.com/statistics/461397/distribution-of-the-supermarket-and-grocery-store-industrycanada/
3. https://www.euromonitor.com/grocery-retailers-in-canada/report
4. Hirsch, L, “A year after Amazon announced its acquisition of Whole Foods, here’s where we stand”, CNBC,
June 15, 2018. Retrieved https://www.cnbc.com/2018/06/15/a-year-after-amazon-announced-whole-foodsdeal-heres-where-we-stand.htmlBus 201 2018 Case Challenge 5
5. https://www.euromonitor.com/grocery-retailers-in-canada/report
6. https://www.statista.com/topics/2871/food-shopping-behavior-in-canada/
7. https://storesupport.ca/retail-trends-canadian-grocery-industry/
8. “5 Vancouver meal kit delivery services that will change your life”, The Daily Hive, June 4, 2018. Retrieved
http://dailyhive.com/vancouver/local-meal-kits-delivery-fresh-prep-vancouver
9. Drewa, A, Global News, April 25, 2018. Retrieved https://globalnews.ca/video/4168976/grocery-industrypredicts-explosion-of-online-shopping
10. Source: ShopHero company website. Retrieved https://shophero.com
11. https://www.statista.com/topics/4235/organic-food-market-in-canada/
12. Ibid.
13. https://www.statista.com/statistics/273090/worldwide-sales-of-organic-foods-since-1999/