South-Western College Publishing - Economics  
Winn-Dixie Loses in Dixie
Subject Equilibrium
Topic Perfect Competition
Key Words Unprofitable, centralizing, financial results, competition, operating margin, market share, restructuring, profitability, competitor
News Story

Winn-Dixie, the nation's sixth largest supermarket chain, based in the southeast, is letting go 11,000 of its 132,000 workers. It is closing 114 unprofitable stores, three regional headquarters, and its soap and bag factories. In addition, it is centralizing its buying and distribution systems, and it is remodeling stores so that they are larger and have service departments. The company is also eliminating certain high-level management positions.

Winn-Dixie has experienced poor financial results in a market characterized by strong competition. Its operating margin in 1999 was only 1.47 percent, compared with 6.23 percent at Albertson's and 6.92 percent at Safeway. Its sales are down. In Florida, it has lost market share to Publix Super markets and Kash'n'Karry.

While the company hopes that restructuring will improve profitability, some observers believe that the key is to get customers back in the store. Others think that Winn-Dixie will end up being sold to a larger competitor.

(Updated June 1, 2000)

Questions
1. Why does the grocery market approximate perfect competition? Refer to the defining characteristics of perfect competition.
2. Draw two diagrams side by side. The left-hand diagram should show the industry demand and supply curves and the equilibrium price and output. The right-hand diagram should illustrate the price that Winn-Dixie can charge and the short-run average total cost and marginal cost curves of three of its stores, one making a profit, another breaking even, and the third incurring a loss.
  a) What criterion should Winn-Dixie use to decide whether a store should be shut down in the short run?
  b) Given this criterion, should the unprofitable store be shut down? On what does your answer depend?
3. Winn-Dixie is eliminating management positions and centralizing its buying and distribution systems. What effect will this have on loss-making stores that remain open? Illustrate on your diagram.
4. Some argue that Winn-Dixie needs to bring more customers into its stores. How will this help loss-making stores?
Source Mark Albright, "Winn-Dixie cutting 11,000 jobs," St. Petersburg Times, April 21, 2000.

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