How is Mercadona able to provide the lowest price to customers and at the
same time invest heavily in its store employees? What are some of the
strategy, supply chain, and operations choices they made that allows for
this to happen?
Mercadona has developed a model where it calls its customers as Boss and does everything to satisfy their
needs at lowest possible price without any hassle and discomfort.
To provide the highest quality at the lowest cost, Mercadona developed a line of own-brand products
(Hacendado, Bosque Verde, Deliplus, and Compy), which are consistently ranked #1 in terms of value
for money by clients and are up to 40% cheaper than its competitors. The goal is to offer a total
shopping model which meets all the ‘food, cleaning, hygiene, and pet care needs’ of The Boss.
This focus on The Boss’ needs is the source of most of the competitive advantages of Mercadona’s
model. For instance, Mercadona noticed that there were some products of which clients were
regularly purchasing more than one unit per checkout. Mercadona designed a solution for The Boss
by grouping those products in multiple-unit packages and, on average, these products showed an
increase in sales of 12 units per store per day. This strategy allowed Mercadona to lower the cost of
The Boss’ shopping cart preserving the highest quality.
Another key element of Mercadona’s operating model is its close relationship with suppliers. The
company focuses on a limited number (120) of integrated supplier-manufacturers, with whom it
holds a relationship of trust and a model of ‘virtual integration’. Mercadona invests in them and
purchases the products directly from them, eliminating any additional costs from intermediaries and
often signing long-term offtake agreements. For instance, Mercadona holds guaranteed contracts at
stable prices with the farmers supplying agricultural products. This close, long-term relationship
allows the company to squeeze its suppliers and demand the highest level of quality from them.
Mercadona’s operating model also has a strong focus on innovation. The company is the leader in
R&D in the food and personal care industry in Spain, with an average of over 400 innovations per
year. In fact, Mercadona was the first retailer in Spain to use barcode scanners. The company has a
pragmatic approach to innovation, always pursuing the interests of The Boss.
For instance, sticking a plastic lid on the tuna cans to make them easier to open translated into a 60%
increase in sales. Of the total 450 innovations in 2014, 100 innovation products came from ‘co-
innovation’ developed in collaboration with clients. The company has 12 ‘co-innovation’ centers,
where it held over 6,000 sessions with The Boss only in 2014
Mercadona’s marketing model is also designed to reduce costs. The company does not invest in
marketing campaigns nor advertising. It just focuses on word of mouth and social media, where it
shares photos and videos with thousands of followers. Plus, the chain doesn’t have specific sales or
discounts since all the products are sold at the lowest possible price, which also simplifies the
operations and reduce marketing expenses
The company has a workforce of over 70,000 employees, all of whom have permanent contracts and
salaries above the industry average, including inventive bonuses. Furthermore, Mercadona invests
heavily in its employees’ training: over 11,000 of them received training only in 2014. Staff turnover
is consistently below 5% per year. This human capital strategy is also designed to serve Mercadona’s
business model: “to satisfy The Boss you must be 100% satisfied and 100% committed”
