Supermarket Industry in the United Kingdom Analysis

Introduction

The purpose of this report is to analyze the environment of the supermarket industry in the United Kingdom. In light of this, the PESTLE analysis of a specific company in the supermarket industry in the UK shall be studied. For purposes of this report, Waitrose supermarket has been chosen. Further, the Porter’s five forces, as they apply to the supermarket of choice, shall be explored.

The critical success factors of the company shall also be assessed, as well as its SWOT analysis. Finally, the strategic value capability of the Waitrose supermarket shall be explored. Specifically, its competitive advantages, value chain network and competencies shall be examined in details.

Waitrose is a limited company that was founded in 1904. It has its headquarters in Bracknell in England. As a player in the supermarket industry, it has a workforce of 40. The company recorded revenue of 3.7 billion pounds in 2005/06 financial year was 3.7. This was 11 percent increase from the previous financial year. Presently, Waitrose commands a 4 percent market share in the food market. Additionally, the company enjoys a 10 percent market share in the wet fish category, and a further 16 percent in the organic foods.

The supermarket industry in the UK has its origin in the late 1850s. Through an increase in the sophistication of the market, coupled with a rise in the development of national brands, the supermarket industry has tremendously grown since then. According to recent findings from a research carried out on supermarkets in the UK, it emerged that online retail is promising to become an essential form of selling (Hawkes2008 ).

In addition, the study revealed that each of the various supermarkets in the UK have got their individual classes of consumers. Up to 75 percent of the total market share is held by the four supermarkets at the top; Tesco (30.5 per cent), Asda (25 percent), Sainsbury (10 percent) and Morrison (10 percent) (Food Standards Agency 2008).

The reason behind the choice of Waitrose for purposes of analysis is because the company has placed emphasis on customer service through the sale of high quality foods to the middle-class customers. The supermarket industry in the UK has assumed an intense structure. Besides, the industry has enjoyed multiple growths ever since its inception in the 1850s, more than in any other country

Company analysis

Porter’s five forces

The study of forces that affects an organization continues to illicit a lot of interest. This is especially the case with those forces of an organization that if correctly harnessed, have the potential to enhance the competitive advantage of such an organization. The porter’s five forces are concerned more with those external factors of an organization, and which shall have an impact on the internal competitiveness of such an organization.

Additionally, the microenvironment of an organization is also tackled. According to Porter (1980), the author has opined that there are five kinds of forces that impacts on the competitive environment of a business. These includes the supplier power forces, competition from rival firms, potential threats from new entrants into the market, buyer power, and the threats posed by alternative services and products.

Porter (1980) has further observed that for competition to be really intense, this shall be determined by the relative strengths that are possessed by these forces. When organizations have been able to value the nature of the individual forces, then they are better placed to formulate the necessary strategies, in order to ensure success in their specific markets (Thurlby 1998).

Competitive rivalry

The retail market in the United Kingdom is not only crowded, it is also very competitive. For this reason, a lot more of the companies in the supermarket industries are trying hard to get a foothold into the sectors that are not food related (Rigby and Killgren 2008), thus continuing to intensify the competition.

By 2007, Waitrose reportedly had a market share of 4 percent in the food sector. This has been a tremendous rise in the market share for the company over the years (Annual report 2007). Despite the positive trend that Waitrose seems to have set, the company nevertheless is way behind the market leader, Tesco, with a market share of 30.5 percent.

As such, this is an indication that the company still has to cover a lot of ground in order to gain a decent market share. Aside from Tesco, the other top three supermarkets in the UK in order of market share size include Asda (25 percent), Sainsbury and Morrison, both at 10 percent a piece.

Each of these supermarkets tends to exhibit differing competitive advantage relative to their competitors. Waitrose was the first supermarket in the UK to stock organic foods. However, Sainsbury and Tesco both emulated it.

Entry barriers

In the retail market of foods, entry barriers appear to be extremely high owing to a number of factors. For a start, organized retailers like in the case of a supermarket ranks amongst the most complicated industries in the whole of the UK. As such, a lot of investments need to be directed towards such an undertaking. Moreover, there is a dire need for the individual companies to embrace considerable development of own brands, an initiative that requires years of commitment and dedication before it becomes established (Doyle 2002).

Besides, the retail industry seems to have reached an advanced stage in the UK and in a majority of the Western countries as well. As such, new entrants into this market are left with a limited scope for establishment. In the United Kingdom specifically, the food retail sector demands that the industry players be well versed with a local knowledge. As it were, this is one area that the foreign firms have not been able to adequately duplicate. A confirmation for this is the extremely low numbers of global supermarkets who have established themselves in the UK.

Substitute’s threats

In the retail industry of food, substitute’s threats seem to be extremely low. This is because food is often viewed by consumers as being a necessity. This is particularly the case in both the developed world, a trend that seems to be catching fast within the up-coming markets (Hawkes 2008). In the retail market, there is a common trend of trying to congregate, and incorporate upcoming innovations regarding either food products or different businesses.

This is aimed at ensuring that shopping remains a pleasant experience. For this reason, it becomes quite difficult to substitute food. Nevertheless, a substitute threat could as well occur internal to the industry, in the form of a certain supermarket soaking up the market share of its rival supermarket(s).

Buyer power

In the supermarket industry, buyer power has been estimated to be high, in view of the large number of competitors all offering similar products. The only differentiation that exists is in the form of consumer loyalty and price, as well as environmental compliance aspects.

Furthermore, consumers tend to experience low switching costs. According to industry analysts, there is projected to be a considerable rise in consumer power, following the recent recession on the economy (O’Doherty 2008). The result of this is that the needs of consumers are more likely to receive extra weight.

Supplier power

The categorization of supplier power in the supermarket industry is a complex affair. A majority of the suppliers for example, Cadbury, P& G, and Unilever all tend to command massive brand appeals. The argument then could be that should supermarket fail to stock the products of the suppliers, then the customers will have no choice but to transfer their loyalties (Wiggins & Urry 2007).

On the other hand, a failure of products produced by large companies to get to the supermarkets would lead to massive loses in the sales volumes of such companies. As such, the relationship between the suppliers and supermarkets seems to be mutually exclusive.

Nevertheless, such a relationship is bound to change with respect to the circumstances surrounding those suppliers that enjoy renowned brand (Wiggins and Urry 2007). The supplier powers of smaller players tend to be considerably lower, and their sales volumes are dependent on the success of the supermarkets.

PESTLE analysis

Political Factors

Escalation in globalization is a source of both an opportunity and threat to Waitrose. First, the challenge for the supermarket shall be competing with strange forces, as well as soliciting for products that are financially viable from all over the globe. It is possible for Waitrose to venture into the emerging markets by forming partnerships and joint ventures, with a view to exploring these novel markets.

Currently, there seems to be no plan by the company to embrace this strategy. Of late, speculation has been rife in the supermarket industry that the big four players in the market have been involved in a price fixing scandal. Consequently, this has impacted negatively on the industry as a whole (Rigby 2008).

The UK government is poised to reduce corporate tax to 28 percent, down from 30 percent. This gesture is good news for companies such as Waitrose, as they are bound to save considerable sums of money (HM Treasury 2008).

Economic factors

The world economic crisis has seen the prices of foods skyrocketing, meaning that the cost of purchasing such food at any of the Waitrose supermarkets shall also have risen (The economist 2008). Such an impact will dent the company’s margins, with the result that the cost shall be passed down to consumers.

Moreover, the sharp rise in fuel costs shall also affect the prices of food commodities at the supermarket, and hence the rise in their prices. Furthermore, the current credit crunch shall lead to a decrease in the purchasing power of consumers (Annual Report 2007).

Thanks to stiff competition in the retail sector, a majority of the retailers have resorted to award their customers numerous incentives (Annual Report 2007). The move is bound to impact on Waitrose, seeing that commodity prices have been on a downward trend due to these incentives.

Social factors

Currently, a majority of the customers prefer to purchase healthy foods. Waitrose was the first supermarket to offer organic foods, thus further encouraging this emerging trend. The government too has been on an awareness campaign, encouraging the people to embrace healthy eating, chiefly due to a rapid rise in cases of obesity in the UK (Department of health 2008). Consequently, a majority of the consumers have embraced healthy eating.

Technological

Online shopping seems to be rapidly growing in the United Kingdom. Statistics has it that come the year 2011, sales from online shopping shall have totaled to 263 billion euros. Of these, shoppers in the UK are projected to account for over one third of this revenue. The internet accounts for close to 8 percent of all the advertising costs, and the figure keeps on rising rapidly (The Economist 2007).

A clever use of the internet could see Waitrose gaining leverage relative to its competitors. Such rivals as Tesco have successfully implemented an online mode of product delivery. Besides, Waitrose enjoys a working partnership with Ocado, a delivery company that has been outsource by the supermarket to make deliveries fro them.

To reduce queuing for shoppers, use of such technology as self checkout machines could be implemented. Tesco and Asda are already using the technology. Moreover, such a technology could greatly assist Waitrose in its quest to operate 24 hours stores, thus improving sales revenues (Directions magazine 2008).

Environmental factors

Lately, there has been a great deal of emphasis amongst companies in the western countries to amplify the energy efficiency, as well as decrease their carbon footprints (Bream 2008). Given the hype that surrounds this issue, Waitrose too shall have to prove that they are also in compliance with the requirements to reduce environmental pollution. This calls for the company to go green.

There is also the issue of ethics, like organic food sales, and these have an impact on Waitrose. Given the increase importance of such issue in the eyes of the customers, there is a dire need fro the company to consider them, without scaring away customers due to inflated prices.

Legal factors

Laws governing the production, packaging, display and sale of foods are getting stringent by the day. Consequently, Waitrose has no choice but to comply with these laws. Additionally, such stringent requirement means that the company will have to absorb added costs.

Opportunities

Waitrose has an opportunity to expand to the North-west region of the United Kingdom by operating more stores in the region. There is also the option of entering into partnership with other retailers (The Economist 2008).Furthermore, online shopping is a very promising option. The opening of Mark four stores enables the company to greatly tap into the sector of non-foods.

Threats

A major threat for the growth of Waitrose comes in the form of heap-chains that are focused on the high-end market as their target group (The Economist 2008). Moreover, there are also some overseas players entering into the industry. There is also the legal intervention by manufacturers to reduce own brands penetration.

Value chain and network

Porter’s ‘value chain’ could be viewed at as a form of strategic analysis of the internal environment of an organization. By embracing the value chain, a firm is able to exploit its internal strength (Porter 1998). At the same time, an organization shall also overcome its internal weaknesses, thereby effectively competing in certain selected markets.

According to Porter (1985), there are five core activities of a business. These include the operations, inbound and outbound logistics, sales and marketing, and services. Additionally, there are also four activities that support primary activities. These are technology, procurement, firm infrastructure, and the human resource management.

Thanks to advances and the spread of internet technology, a lot more people have come to hold online shopping in trust. As such, Waitrose has enhanced its usage of the latest technology to offer cost effective services, as well as sell goods. For example, one of its branches at Kingston operates a “quick check” system, through the use of hand scanners by customers, reducing on the long queues.

Competitive advantage

Waitrose is dedicated to selling of fresh foods, delicatessen and fine wines. These are usually purchased from specific counters. Out of this range of luxury products, Waitrose is able to make a handsome profit margin. The supermarket has also launched Home & Food centers. These are meant to augment possible target markets, while also helping in risk diversification by the sale of products unrelated top food.

Strengths

Waitrose possesses a strength in its ‘perfectly balanced’ own label range of products, as well as the existence of a work delivery system. In addition, the supermarket usually stocks quality fresh food from their farms. Aside from the wide variety of products stocked by the supermarket, the company offers excellent services.

Weaknesses

Waitrose has not fully exploited the increasing market demand for online shopping. Besides, it has been difficult for the supermarket chain to expand owing to the amount of ground covered by the existing stores (Food Standards Agency 2008). Moreover, Waitrose seems to be extremely reliant on own labels performance.

Conclusion

The UK supermarket industry has its basis in the 1850s. Since then, the industry has expanded immensely over the years. Currently, Tesco, (30.5 per cent), Asda (25 percent), Sainsbury (10 percent) and Morrison supermarkets commands a market share of 30.5 percent, 25 percent, and 10 percent a piece, respectively. Waitrose was the first supermarket to sell organic foods, with the other retail stores such as Tesco and Asda following suit.

The company has invested in information technology, and specifically, the use of online shopping. This is with a view to increasing its sales volume and the market share as well. However, the current credit crunch has also affected the supermarket sector, with the buyer power waning by the day. There seems to be a mutual relationship between the supermarket industry and their suppliers, with Waitrose having outsourced the supply contract to a private firm to cut down on cost.

If at all Waitrose hopes to gain a competitive edge in order to survive in this dynamic industry, then it has to capitalize on such unique strategies like use of own brands, and differentiate products range. Besides, there is a need to diversify their operation to include even non-food items. This would act as a cushioning effect against slowed growth in the sector.

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