Mercadona, where’s the secret?

Hypermarkets in Spain are suffering from the same illness that any other business: crisis. However, not all the hypermarkets are implementing the same financial strategy, as is shown below:

Mercadona is the hypermarket with the highest turnover in Spain. But it is much more than this. The company is present in 46 provinces from 15 Autonomous Communities with 1338 supermarkets (September 2011), with an average of between 1,300 and 1,500 square meters of sales area, representing a market share of the total power in Spain 13.1%.

Since 1993, the company began a special philosophy entitled as ‘Total Quality’. This decision stands out that they think first on Client (which internally is known by the nickname “The Boss”), employees, suppliers, Society and then, Capital.

Some interesting figures about Mercadona’s activity (2010):

As if this were not enough, they also invested € 23 million in environment. They promote the combined use of truck, train and boat to reduce environmental impact as well as what they called ‘Silent Night Download’ for 407 stores. In fact, Mercadona has been recognized in 2010 by the European Commission as an example of a company that promotes good environmental practices.

So maybe we ask ourselves, how do they do? Here are Mercadona’s balance sheet highlights:

In order to evalute Mercadona’s activity, here are some economic indicators which could help:

Despite the working capital is negative and the current ratio lower than one, as Mercadona pays late to their suppliers (around 85 days) and gets money from their clients very fast, there is no problem in maintaining this low level of liquidity.

The values for Assets and Inventory Turnover Ratios show the high efficiency of this business: they collect three times the assets they have, and also need to replace the inventory twenty times.

 

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