SECTION B: CASE STUDY (40 MARKS) READ THE FOLLOWING CASE STUDY AND ANSWER ALL QUESTIONS. AHMAD SUPERMARKET History of the Business In February 1978, Ahmad moved to a town with a population of 25,000 and opened a supermarket called Ahmad Supermarket. Previously, he had operated grocery stores in two other different towns. He owned and managed his first mini market store ten years earlier, at the age of 30. The supermarket was heavily involved in selling on credit, and Ahmads first move was to go into a strict cash sales operation the first of its kind in the town. Ahmads motto was Value For Your Money Every Day. He emphasized friendly, efficient service, high-quality merchandise, and reasonable prices. His competitors were old-line stores that did not welcome the intense competition. Several innovations helped him to get established and increase sales volume. For example, Ahmad Supermarket was the first store in the town to feature advertised weekend and holiday specials. Ahmad was also one of the first stores in that area of the state to give trading coupons. By 1998, his store had become the number one supermarket in the town. By the end of 1998, the store had also outgrown the original downtown location. A modern, 10,000 square-foot store was erected at the east age of the town the direction of the towns growth. Shortly after this move, Ocean, a regional supermarket chain, opened the first real chain store in the town. This competition was of great concern to Ahmad, but he continued to follow his basic business philosophy and to operate even more efficiently. As a result, Ahmad Supermarket continued to show steady yearly growth in sales and profits. Recent Developments in Ahmad Supermarket In January 2000, Ahmad decided to sell a 30 percent interest in the business to his older brother, Ismail, and another 20 percent interest to his younger brother, Adam. Adam had recently been graduated from a local university, and he became an active partner in the business. For many years the store had been recognised as one of the leading independent supermarket operations in the state. Due to rapid economic and social developments in the area, the towns population of 25,000 had grown to 200,000 by the year 2000. Ahmad Supermarket was located in the newest section of the growing town. Residents in the area predominantly in the middle to high-income brackets. However, there was also a substantial amount of lower-income trade from customers living in the nearby villages. Ahmad affiliated with one of the nations largest independent wholesalers in 2000. This affiliation provided Ahmad the opportunity to use many of the private labels as well as help to strengthen his companys competitive edge in the local retailing industry. The wholesaler also provided advertising themes and promotions to member stores. Examples were promotions featuring calendars, diaries, bags, umbrellas, pens, cutleries, towels, and T-shirts. These promotions served as good stimulants for increasing sales of the company and made Ahmad Supermarket more popular among the local retailers. Customers were inclined to say, Something is always happening at Ahmads! Local Market Structure in 2000 FBA/PMS3393/APRIL21 CONFIDENTIAL/5 The Ocean chain store was located at the edge of the downtown section. Initially, Ocean mainly focused on selling its goods to customers in the middle to lower-income brackets. However, more recently, they have also added merchandise that caters to upper-income customers' growing needs in the area. Ocean then became one of Ahmads competitors. Presently, JIMAT Food Store remained Ahmads major independent competitor since he opened his supermarket in 1978. JIMAT Food Store had also moved to the east edge of the town and was still facing limited parking space. The food stores primary appeal was credit offered to regular customers and goodwill built up through years of quality service. However, the companys business has slowly dwindled in recent years. The pricing structure in retailing market could still be described as healthy. Although there was a couple of large food chain store operating in the town, the smaller retailers were still able to mark up their products at reasonable prices. Though there was some competition among the existing companies, the rivalry among the retailers was not intense. Beginning of Discount Store Competition In the middle of 2001, a discount store came to the town and opened its doors to the public. With the new player came a new type of competition in the local retailing market. C-Mart Discount Center, a 20,000 square-foot operation, carried a complete line of non-food items and comprehensive grocery items such as dry groceries, fresh meats, dairy products, fresh fruits and vegetables, and frozen foods. The store was franchised, and the owner operated two other C-Mart Discount Centers in a larger town some 25 kilometers away. When C-Mart Discount Center opened for business, they immediately dropped prices drastically, especially prices of staple items such as rice, cooking oil, and flour. They featured and offered various staple items and branded products priced at 15% to 20% lower than the other retailing stores in the area. C-Mart Discount Center is seemingly using its food operation as a drawing card for its more profitable lines. Increasing Competition Ocean made it apparent immediately that it did not intend to be undersold by the discount store that gave no free coupons and provided no carryout service. Ocean began to offer weeklong specials to its customers. Eventually, the weeklong specials became one of the new rules in the local retailing business. At the same time, competition increasingly became intense among the retailers in the town. The retailers began to compete with each other by lowering their everyday items to near cost or below. K.C. Lim, the owner of JIMAT Food Store, passed away in 2001, shortly after the discount store opening. Without wasting any time, a successful young businessman with international chain store management experience quickly purchased the JIMAT Food Store from the deceased family. The young businessman immediately eliminated credit and free coupons and attempted to start a discount-type operation himself. He bought most of his products directly from the local producers and international manufacturers and sold them at discounted prices. Loss leaders became more prevalent in the local retailing industry. The Ocean chain did not only meet the discount prices but even tried to undersell some of its merchandise. Meanwhile, they further increased their advertising; more newspaper advertising, FBA/PMS3393/APRIL21 CONFIDENTIAL/6 handbills, radio, and some television commercials. JIMAT likewise stayed in the thick of price competition. Ahmads Dilemma The arrival of the discounter marked the beginning of a disturbing period for Ahmad Supermarket. The relatively calm situation that had prevailed for many years was suddenly shattered. For the past three years, Ahmad Supermarket has been experiencing declining sales of about 20 percent a year. As one might expect, Ahmad joined the group by lowering prices. Nevertheless, as he saw prices cut to profitless levels, he questioned the wisdom of such extreme competition. Part of the question was the type of store Ahmad Supermarket should try to be. He began to ask himself whether Ahmad Supermarket could survive if the company projected an image that distinguished it from the discounter. At times, it appears to Ahmad that price competition may be the most effective way to attract customers and necessary in such business. (Source: Strategic Management Text & Cases by Mohd Khairuddin Hashim, 2004)

QUESTION 1 (20 MARKS) a. Assess the external environment and explain THREE (3) factors contributing to Ahmads successful operation and growth in the past. (12 marks) b. Elaborate TWO (2) sources of Ahmads strengths in the current period of intense competition? (8 marks)

QUESTION 2(14 MARKS) a. Suggest ONE (1) most suitable Business Level strategy for Ahmad Supermarket to face current competition. Explain briefly why Ahmad should choose that strategy and how he should implement the strategy. (6 marks) b. Ahmad Supermarket needs to grow in the future. Suggest Ahmad ONE (1) Corporate Level Intensive strategy and ONE (1) Corporate Level Integration Strategy. Explain briefly what Ahmad should do to implement the strategy. (8 marks)