MINISTOP

PHILIPPINES
I. CASE FACTS
Main problem

Ministop is losing money, and hasn't earned a decent net

income since it started its operations. While it has achieved its
target of becoming the fastest growing convenience store in
the country, adding by an average of 37 stores per year in 10
years, it has never reached its target in terms of return on
investment.
Related Issues and Possible Causes
■ In 2008, net income dipped to record low; Ministop President responded by stating that increased
operational expenses brought about by the changing dynamics of store operations and escalating utility
rates, has deeply affected the previously forecasted payback period of the Ministop investment.
■ Out of the 50 managed stores, only half are making money, with the other half either breaking even or
losing money. Contract pre-termination is very common among losing franchisees.
■ Losing franchisees have complained about Ministop’s low level of support for their stores. Late,
incomplete and no-deliveries are rampant. Head Office people they complained were also non-responsive
to some of their requests.
■ Franchisees complained about Ministop putting up another store near their location which eats up a
portion of their daily sales. They now wonder if the company is planning properly their expansion.
■ Ministop Operations Department from their end has also complained about franchisee selection.
Franchisees commit various violations such as:
– Not supervising the store for 8 hours as stipulated in the contract
– Misrepresentation of operational expenses like one who declares high salaries for store personnel
but pays way below minimum wage, as reflected by the high turnover of personnel.
Management’s Proposed Solution:

Launch an aggressive expansion program to increase its number of

stores by 80-100 per year, to exact 7-Eleven’s number by 2015 which
currently stands at 700 and growing by 30-50 per year. Ministop
management believed that it will deliver desired earnings if it it’s the 200
–store mark. Unfortunately, it didn’t.
II. PROBLEM
STATEMENT
Problem Statement

After two years of launching the expansion program, Ministop

is still losing money. Given its current condition, should the
company still continue with the business? What strategies can
it apply to improve its own profitability and that of its
franchisees?
III. ANALYSIS
Comparative Analysis using 5 Rules for
Hypergrowth Management
■ According to the article, Managing Hypergrowth by Alexander Izosimov,
hypergrowth refers to that steep part of the S – Curve that most young
markets and industries experience at some point, where the winners
get sorted from the losers.

■ In the Philippines, It can be said that the convenience store industry is

in a stage of hypergrowth when Ministop entered the industry. The
incumbent leader, 7-11 continues to expand exponentially while there
are also many other convenience store brands such as Ministop trying
to take a portion of the market share.
Comparative Analysis using 5 Rules for
Hypergrowth Management
■ To survive this phase, the author proposes for companies to sort of
comply with a set of rules formulated to manage this phase. The five
rules for hypergrowth management are said to be the following:

– Focus first on sales (Sell first and ask questions later)

– Innovate with caution (Don’t try too hard too innovate)
– Standardize structures and processes (organize like McDonald’s)
– Delegate decisions to field managers (push decisions out in the
front-line)
– Reward action and initiative (foster a can-do culture)
Hypergrowth Management Rule/Strategy
Focus first on sales
(Sell first and ask questions later)
Innovate with caution
(Don’t try too hard too innovate)
Standardize structures and processes
(Organize like McDonald’s)
Delegate decisions to field managers (Push
decisions out in the front-line)
Reward action and initiative (Foster a
can-do culture)
Ministop’s Strategy (What did they do?)
Ministop had very aggressive growth targets
such that they indeed became the fastest
growing company in the convenience store
segment.
One successful innovation that Ministop did
was to introduce fast-food in its store.
Stores had similar formats and design.
However certain critical processes, like order
management, logistics, in-store promotion and
marketing, while probably standardized might
not be working as efficiently or effectively.
The general feeling among franchisees was
that their views, opinions and ideas were not
being listened to.
Not much information can be obtained from
the case write up.
STRENGTHS WEAKNESSES
INTERNAL ADVANTAGES INTERNAL DISADVANTAGES
 Customer Service; complaints of poor service
 Relatively low franchising fees; major from the stores
enticement for would be franchisees  Perception of being not “profitable”
 Existence of a Central Distribution Center;  Lack of clear marketing and merchandising
should enable purchasing in bulk and with the focus/direction
appropriate IT system an effective inventory  Poor use of point-of-sale information
and distribution monitoring process. management system
 Ability to conceive and implement product  Sub-optimal distribution processes, on-time
differentiation, such as the incorporation of delivery not achieved
fast-food items in the store  Perceived lack of “empowerment” by
franchisees and partners
OPPORTUNITIES THREATS
EXTERNAL ADVANTAGES EXTERNAL DISADVANTAGES
 Expansion of residential areas
- Other convenience stores (7-11, small
(subdivisions and condominiums)
neighborhood groceries)
 Booming call-center industry which translates
to more potential customers especially in the
central business districts
S-O Strategies
■
■ Revamp the operations of the DC so that it can tailor its services to efficiently and effective
service the requirements of stores located in different areas
■ Improve its IT infrastructure so that more meaningful data can be derived from each store.
Thorough analysis can be done which can lead to more effective instore offerings, stock-
keeping and promotions specifically targeting customer requirements in each location
■ Continue with implementing product/service differentiation albeit in a careful manner.

S-T Strategies

■ Play on the strengths of Ministop to mitigate the external threats:

– Reputation as having lower franchising and start-up costs versus rival companies
– Pioneering product differentiation like offering fast-food service in the stores
■ Try to provide distinct advantages/differentiation from the rest of the competition in order to
spur customer interest and continued patronage
■ Make sure each store’s offerings match what most of its customers want. Obviously, stores
located in CBDs would have different clientele from stores located at or near residential
areas.
W-O Strategies

■ Ministop’s ability to exploit the opportunities will be severely hampered if it cannot

fix its weaknesses.
■ Ministop should address the following issues (weaknesses) immediately:
– Poor customer service both in distribution and in addressing complaints o
Laxity in in-store operational controls
– Marketing and in-store promotion focus

W-T Strategies

■ Competitors will start to wean away potential franchisees and business partners
from Ministop stores if the weaknesses continue unabated.
■ Profitability is the main come-on for potential franchisees. Therefore, Ministop must
address this firs and foremost
Porter’s 5 Forces
1. Threat of Potential Entrants
Barriers to entry into the retail industry are high. Barriers to entry are
high when putting up a convenience store as it requires a huge amount
of capital. Putting up a convenience store does not happen overnight.
Aside from being capital intensive, it also requires a huge amount of
effort, from getting business permits, hiring people, to running the store
itself.
Porter’s 5 Forces
2. Bargaining Power of Suppliers
Bargaining power of suppliers is weak. This is because there are
many competitive suppliers and the products are mostly standardized.
Suppliers cannot charge excessively high prices.
Moreover, the degree of differentiation of inputs is not that high.
There is also a good number of presence of substitute inputs.
There is high concentration of purchasers than supplier
concentration
Porter’s 5 Forces
3. Threat of Substitutes
There is a high threat of substitutes because there are a lot of
sari-sari stores everywhere.
Convenience stores will be competing against the fast food chains
for meal options and grocery stores for dry goods.
Porter’s 5 Forces
4. Bargaining Power of Buyers
The bargaining power of buyers is high. Buyers can just switch
from buying from convenience stores to grocery stores
because it provides a wide array of products. They can also buy
from sari-sari stores which can be even closer to their homes.
There is not much significant switching cost for buyers.
Porter’s 5 Forces
5. Industry Competitors
There is a high intensity of rivalry due to a lot of existing
convenience stores.
There is also a high fixed cost. When total costs are mostly fixed
costs, the firm must produce near capacity to attain the lowest unit
costs. Since the firm must sell this large quantity of product, high
levels of production lead to a fight for market share and results in
increased rivalry.
There is a high storage cost or highly perishable products in
Ministop. This causes them to sell goods as soon as possible. If
other producers are attempting to unload at the same time,
competition for customers intensifies.
IV. RECOMMENDATIONS
1. Top Management
Get a competent CEO/president who has the necessary skills and
experience to overturn the company’s situation. Ministop needs a CEO
with a more “entrepreneurial” management style. With a new CEO, the
company can re-visit the business’ VMOs through thorough strategic
planning. Simulated monthly income and other targets used as bases for
payback should be re-evaluated.
2. Maximize Store Revenues
■ The franchisees are important stakeholders in the business model.
Management should involve them in decision-making. One way of
doing this is by formalizing feedback mechanisms where franchisees
can report operational issues. This includes the formalization of
escalation procedures and service level agreements (SLAs). We
believe that in this manner, stores can be made more responsive to
the demands of their local customers and therefore offerings and
inventories can be tailored to be more specific to customers.
■ Increase management control over the franchisees. Conduct periodic
appraisal programs to ensure the expected performance of the stores.
Management should enforce stricter policies when it comes to
franchisee selection.
3. Improve Efficiency and Effectiveness (Cut
Costs)
■ Invest in IT, especially in the ability to gather, process and use point-of-sale
information. This can lead to understanding which products sell in a particular
store. Distribution can then be specifically tailored to maximize revenue from fast-
moving products and reduce the carrying costs of slow-moving inventories in each
store. Marketing can use the info to tailor in-store promotion or merchandising.
Purchasing can also use the info to drive negotiations with suppliers using
economies of scale as a bargaining point. Logistics can also use the information to
better plan replenishment orders and manage inventory. All these would lead to
lower costs.
■ Review the operations of the distribution center. If necessary replace the manager.
On-time-delivery is a very critical KPI in this type of industry. Stockouts / late
deliveries mean lost sales opportunities. Rush orders, unnecessary or redundant
deliveries increases the cost of operations. Reducing the turnaround time of trucks
reduces costs. All these entails detailed planning and tight control of DC operations.