Question

A company that used to be exclusively a large market grocery retailer has been gradually acquiring other retail businesses including auto parts, hardware, and craft store chains. All of the mentioned retailers were failing family-owned small businesses. By attaching its big brand name and placing key managers in charge of each of the businesses, all of them have become successful. Based on this information, what type of diversification strategy did the company use?

a. Related diversification
b. Joint venture
c. Internal capital market
d. Unrelated diversification

Answer 1

The company used an unrelated diversification strategy by acquiring businesses in different industries such as auto parts, hardware, and crafts, and used its brand and management to make them successful.

Step-by-step explanation:

The company's strategy described in the question is an example of unrelated diversification. This approach involves a company expanding into industries that are not related to its current line of business. In the scenario presented, the grocery retailer acquired businesses in auto parts, hardware, and crafts, which are not related to groceries. By utilizing its strong brand name and management practices, the company turned these unrelated businesses into successful ventures. Unlike related diversification where a company expands into areas that have some connection with its existing business lines, the company here expanded into wholly different sectors, thus classifying their approach as unrelated diversification.