The merger was expected to help the combined company to The Chairman recently blamed the group’s poor performance on

Today’s case study concerns a merger between two supermarket chains, and subsequent problems. Before I hand out the’ documentation, here’s a quick overview.
     Five years ago, Kelway Supermarkets merged with ’its low-cost rival Duncan, to form a company called KD. Although the new business was still far smaller than the chief players in the retail food sector, analysts believed its increased size would allow KD to put pressure on its suppliers to keep their prices down. However, Duncan and Kelway both had strong, rather different images, and doubts were expressed about how well they fitted together
     The merger wasn’t Successful. The company maintained both chains, while converting some of the low-cost Duncan stores to the Kelway format, which meant these rebranded stores took on Kelway’s name, product range and higher prices, The conversion was possible once the supply chains of the two brands had been unified. But this policy seriously underestimated the difference between the customers of the two chains, and the rebranded stores lost customers. However, fears of competition from foreign supermarkets moving into the country failed to materialise.
      Another problem resulted from the new structure introduced after the merger With two sets Of senior managers competing for positions, there was a risk of allocating them equally to the two chains, rather than on merit. The negotiations led to a satisfactory outcome, however, which included Kelway’s former chief executive becoming responsible for stores, and Duncan’s taking charge of systems, supply chain and logistics. Both worked conscientiously for the good of both chains. However, certain problems slipped between the two of them and failed to be resolved.
      After two years of poor results, increasing KD ’S debt burden, the company decided to sell off a number of stores, particularly on out-of-town sites, which were too large to fit its new concept. The sale was intended to fund the transformation of both chains into convenience retailers, operating particularly in town centres, on petrol forecourts and within department stores. Unfortunately, though, few companies were interested in purchasing the sites which were for sale.
      KD believes its appeal to customers is the fact that it’s a discounter, and hopes that the resulting high sales volume will compensate for its thin profit margins. This is a strong feature of its advertising, which even makes direct comparisons with its competitors, and the company has never felt the need to follow other supermarkets in setting up loyalty schemes to encourage repeat custom.
     Despite its efforts, though, sales are still falling. Last month the Chairman admitted that this wasn’t caused by the general market slowdown, as KD is underperforming most other supermarket chains. While rejecting claims that the company is still suffering from internal stresses, he acknowledged the chief cause by launching a change of philosophy: for the first time the company will find out what purchasers actually want in its supermarkets.
      The Chairman also announced several further moves to turn round the company’s performance. One is to examine new ways of promoting .the brands, in order to spend the advertising budget as effectively as possible, Secondly, the company will take a close look at all its suppliers, to ensure that they are the best ones to use: And thirdly, the range of goods on offer will be significantly broadened, to attract a wider spectrum of customers.
      OK; that briefly is the recent history of KD. Your first task is to identify all the factors which have contributed to the company’s troubles since the merger, and assess how it dealt with each of them. Take the merger itself as given. Alter that we’ll look at where the company goes from here. So could , you pass round these papers, and then start work.