Grocery retailers competition in the UK - Free Essay Example

Sample details Pages: 10 Words: 3078 Downloads: 5 Date added: 2017/06/26 Category Economics Essay Type Analytical essay Did you like this example? Introduction à ¢Ã¢â€š ¬Ã…“Demand for food and drink remained relatively stable during the recent economic slowdown. Prices of food have not experienced any major changes, and in fact have been rising steadily. A major trend in food retailing has been the move towards convenience and towards premium products, which has been a feature of many of the major sub sectors and a driver of product development, as well as sales and marketing strategy.à ¢Ã¢â€š ¬Ã‚  (Global Market Information Database, October 2004) The move towards convenience and premium products has been fuelled by various aspects of the competitive environment, thus a PEST analysis of the grocery market will be undertaken to determine these factors. Equally, despite the strong performance of the sector as a whole, Sainsburys has been experiencing relatively poor performance for several years now and thus Porterà ¢Ã¢â€š ¬Ã¢â€ž ¢s models and theories will be used to analyse why this might be the case. Finally, this piece intends to look at the role and purpose of scenarios in helping organizations to manage uncertainty, and the extent to which scenarios can be used for this purpose. Analysis of the competitive environment of the grocery retailing sector in the UK Politically, the main impact on the grocery sector is on the so-called à ¢Ã¢â€š ¬Ã…“functional foodsà ¢Ã¢â€š ¬Ã‚  (Global Market Information Database, December 2003) sector, which covers organic foods, fresh foods and similar types, and which, in the UK, has for most of its existence had relative freedom away from legislation. Whilst functional food has been subject to the same regulations regarding standard food, the sector has been able to make health claims on its packaging which has previously been unregulated by independent bodies. This has now changed significantly, and EU legislation has lead to much tighter controls over what manufacturers can claim, with all health claims made needing to be bac ked up by scientific research. For some smaller manufacturers this is making producing these foods increasingly cost prohibitive, particularly if the active ingredients in their functional products are herbal and therefore difficult to prove scientifically. Another political impact, of potentially even greater importance, is that the fruit and vegetable sub sector received powerful backing in the form of supermarket promotions, echoing the governmentà ¢Ã¢â€š ¬Ã¢â€ž ¢s health message about eating five pieces of fruit and vegetables each day, in order to increase intake of essential nutrients necessary to maintain health and protect against cancer and heart disease.. As a result, sales of fruit and vegetables grew solidly between 1999 and 2003, with vegetable sales increasing by over 38%. (Global Market Information Database, December 2003) Pre-packed vegetables and salads, in particular, have become much more popular recently, with a greater variety on offer, including more exotic foreign types; however this is more of a social effect, similar to those covered below. Economically, in terms of basic food commodities, meat continues to be popular in the UK, with beef having recovered from the downturn caused by the BSE crisis around the end of the 1990s. The supply of lamb was, however, hit hard in 2001 by the foot and mouth crisis in British farming, and has yet to recover fully in terms of supply and consumer demand. A similar but less severe problem exists in the pork market, while poultry sales are currently being threatened by cheaper imports. On the whole, however, value has been maintained despite drops in volume, and more recently the sector has benefited from increased uptake prompted by the popularity of the Atkins diet. Sales of dairy products have also been boosted by the Atkins diet, which advocates a high intake of eggs, in particular. According to industry sources, sales of eggs rose by 4% in 2003, compared with only 1% in the previous yea r. (Global Market Information Database, December 2003) However, in general, economic effects have minimal impact on grocery retailing in the UK, occasionally leading to changes in supply, but generally not significantly affecting the size of the market as much as other effects. (Morrison, 2002) In particular, social effects had major impacts, with the largest growth rates from 1999 to 2003 being evident among prepared foods, as increased sophistication and awareness of food quality, combined with a need for meals requiring minimum preparation, drove the market for these types of products. British consumers are now the largest eaters of ready made food in Europe, with chilled food sales seeing rises of over 90% between 1999 and 2003. (Global Market Information Database, December 2003) Sales of biscuits and bakery products also showed healthy growth, with biscuit sales growing by 5% a year, according to industry sources, (Global Market Information Database, December 2003) as cha nging lifestyle attitudes among women: fewer are fulfilling the traditional full-time wife and cook role, have contributed strongly to this growth, as well as the tremendous prepared food growth. Equally, the increasing number of single person households makes cooking a lonely option, and increased ownership of microwave ovens is also an important factor. In all, retailers are enhancing the image of ready meals with premium ingredients and packaging, and pushing up value in the sub sector in response to the social changes. One final social change is the growth of the organic food industry in Europe, with great changes brought about by the entry of supermarkets; however this sector is still limited by problems in the production of organic foods, and complying with legislation. (Sahota, 2004) As such, these social effects are greatly overshadowed by the drive towards convenience. The UK retail environment is currently extremely competitive, forcing retailers to constantly develo p and enhance both their offerings and their technology. Probably the most significant changes taking place are coming from not the products being sold themselves, but rather when, how and where they are being sold. For example, new technologies such as the Internet, electronic kiosks and digital television are opening up new opportunities for retailers through remote purchasing and delivery. Thus, major UK grocery retailers are now using the Internet to create value for their users over and above that which is offered by bricks and mortar stores, and the growth of internet shopping is seen as the largest technological development in the industry since the advent of refrigeration. (Bevan and Murphy, 2001) Analysis of J Sainsburyà ¢Ã¢â€š ¬Ã¢â€ž ¢s market position and segmentation in 2005 The idea that successful companies should pursue only one strategy and avoid being à ¢Ã¢â€š ¬Ã‹Å"stuck in the middleà ¢Ã¢â€š ¬Ã¢â€ž ¢ between several strategies, originally articulated by Mi chael Porter, has become an important tenet of corporate strategic thinking. It is sometimes interpreted as advice about market positioning in a narrow sense; it is sometimes presented as prescribing broad strategic clarity; and it is sometimes viewed more descriptively as a scheme for classifying firms by strategic outcomes. When interpreted narrowly as referring to the appeal of a product to its target buyers, the proposition that firms should not be à ¢Ã¢â€š ¬Ã‹Å"stuck in the middleà ¢Ã¢â€š ¬Ã¢â€ž ¢ has often been taken to imply that companies must be down market or up market, but nothing in between. (Johnson and Scholes, 2003) Such a view was previously belied by the evident success of Sainsburyà ¢Ã¢â€š ¬Ã¢â€ž ¢s, which traditionally made substantial revenue in a mid market position in the grocery sector. As such, Porter can he interpreted more broadly as suggesting that firms need strategic clarity and that they will do better to pursue one or other of cost or quality object ives than to seek a mix of the two. However, Sainsburyà ¢Ã¢â€š ¬Ã¢â€ž ¢s has since fallen far behind Tesco, and even Asda, in grocery retailing, and this can be analysed, using Porterà ¢Ã¢â€š ¬Ã¢â€ž ¢s model, as being a result of lack of strategic clarity. In 2004, a retail food analyst issued a stark warning to the company that putting its store image ahead of a price focused marketing strategy was damaging its market share. Goldman Sachs Co. executive director of food retail Nick Jones said although Sainsburyà ¢Ã¢â€š ¬Ã¢â€ž ¢s had reduced the cost of 150 products by 2% since 2001, research by the investment bank found that 23% of shoppers thought value for money had got worse, while 57% said it remained the same. (Barne, 2004) However, Sainsburyà ¢Ã¢â€š ¬Ã¢â€ž ¢s has now refocused its marketing on improving its value perception, and thus is looking to improve its performance amongst its middle class target segment. Consumers will not come into large stores unless it is primarily to buy groceries. As a result, the multiples are expected to continue focusing the majority of their retail space on food. Other value increases, where they do occur, will continue to be achieved through an emphasis on convenience: takeaway food, higher quality gourmet ingredients, and premium snack items. Equally, the dominance of the big supermarket retailers is set to grow: many supermarkets can now undercut specialist greengrocers and butchers in the sale of basic commodities, although, as retailers consolidate their control of the UK food market, this price erosion may stabilise. As a result of this, Sainsburyà ¢Ã¢â€š ¬Ã¢â€ž ¢s is gearing itself up to focus intensively on the revival of its UK supermarkets business during the period from 2004 to 2008, having streamlined its business and announced the introduction of a price-cutting policy. Such activity will be necessary for the company to meet the challenges presented by the aggressive discounting strategies of t he UKà ¢Ã¢â€š ¬Ã¢â€ž ¢s two leading supermarket chains, Tesco and Asda, and the increased threat resulting from Morrisonà ¢Ã¢â€š ¬Ã¢â€ž ¢s takeover of Safeway. Sainsburyà ¢Ã¢â€š ¬Ã¢â€ž ¢s more aggressive approach to growing sales and its new, streamlined structure, which makes it more flexible and better adapted to the demands of the modern market are expected to underpin sales growth during the 2004-2008 period. Turnover is forecast to rise by 14% over 2004-2008 in constant value terms. (Global Market Information Database, October 2005) Critically evaluate the role and purpose of scenarios in helping organisations to manage uncertainty. In general, the future is uncertain, with the only certainty being that it will definitely be different from the past, however we have no knowledge in what way the future will be different from the past or the present. It is this uncertainty which makes decision making such a difficult task, although decision making lies at the basis of eve ryday life; every businessperson, government, household and company have to take decisions in certain points in time. The starting point for making these decisions is information about the possible choices, and only when information is valid and complete, may we assume that the à ¢Ã¢â€š ¬Ã‹Å"rightà ¢Ã¢â€š ¬Ã¢â€ž ¢ choices will be made. Unfortunately, existing information is often incomplete and sometimes not valid, and it is this lack of information needed, leads to a certain amount of uncertainty. To reduce these uncertainties, decision makers need decision support tools, and one way to deal with uncertainty is to construct several scenarios and examine the way that the different options perform in each of them. A scenario is a description of a hypothetical future state of the world, including consideration of major uncertainties encountered in moving far into the future. Scenarios are neither predictions nor forecasts about the future, nor do they represent the most likely fu ture developments; rather they tell us what might happen. Wright (2005) undertakes a critical consideration of the role of scenarios as prospective à ¢Ã¢â€š ¬Ã‹Å"sensemakingà ¢Ã¢â€š ¬Ã¢â€ž ¢ devices through the dual theoretical perspectives of social constructionism and narrative. Primarily, the scholarly literature in the fields of strategy and scenario thinking, à ¢Ã¢â€š ¬Ã‹Å"sensemakingà ¢Ã¢â€š ¬Ã¢â€ž ¢, social construction and narrative are analysed and critically discussed, with their major contributions to the debate identified. The main findings of this research suggest that transformational change is observed to occur through inductive strategising at the organizations periphery, in contrast with deductive strategy making at its centre, thus supporting the view that scenarios will provide realistic views of the more uncertain parts of organisations. Wrightà ¢Ã¢â€š ¬Ã¢â€ž ¢s theory proposes that adopting a scenario outlook and developing the capacities that comprise à ƒ ¢Ã¢â€š ¬Ã‹Å"sensemakingà ¢Ã¢â€š ¬Ã¢â€ž ¢ should enhance the abilities of the inductive strategist. This, in turn, should enable strategists to better anticipate uncertainty, and thus react better to it when it does occur. Through this, managers are more open to the unexpected and are able to construct meaning from uncertainty and ambiguity, laying the foundations for transformational strategising, and managing said uncertainty. Of course, all organizations and communities are strongly influenced by factors and events that lie outside their boundaries. A shared understanding of these environmental influences: in the past and the present, has been an important aspect of popular large group decisions and management techniques. Traditional scenario planning has long been a way of confronting uncertainty and complexity about the future of environmental influences, and large group scenario planning is an adaptation of traditional scenario planning. Meeting for two or three days, a c ritical mass of an organisation or a community can use scenarios of the future environment to move beyond their natural tendency to think of the future as an extrapolation of the past, and thus manage uncertainty on large scales. (Steil Jr. and Gibbons-Carr, 2005) Scenarios may in fact be conceived of as imaginary future case studies, given that they neither claim realism nor predictability: they are just pictures of the future which map out hypothetical potential occurrences. Case studies, in general, aim to enable people to acquire generalized or transferable knowledge with the purpose to understand complexity, thus for scenarios, they help understand a complex and uncertain future world in order to create a reference framework for action or obtain a communication tool for decision making under uncertainty. (Nijkamp et al., 1998). In recent years scenarios have become a more popular scientific instrument to explore uncertain futures than conventional forecasting models, such as statistical extrapolation or mathematical simulation models, especially in situations with many degrees of freedom and of uncertainty regarding the future (Masser et al., 1992). Equally, Nijkamp et al. (2000) claim that, as the future effects of globalization on transportation and the environment are not certain, and it is difficult to predict which developments are likely in the future and why this is the case, scenarios are vital to predict how the globalization process will develop. Rienstra et al. (1996) distinguished five functions of scenarios, including the à ¢Ã¢â€š ¬Ã…“signalling functionà ¢Ã¢â€š ¬Ã‚ : where scenarios provide better insight into uncertain situations and the à ¢Ã¢â€š ¬Ã…“communication and learning functionà ¢Ã¢â€š ¬Ã‚ : where scenarios stimulate thinking about alternative futures. According to these functions, scenarios can be a useful tool to analyse possible futures, and enable us to compare strategies and facilitate discussions on possible fu ture events. They are a tool for exploring the uncertain future, and, for example, policy scenarios will provide us with information on the consequences of different policies and may contribute to the quality of decision making. Conclusion and Future Developments The competitive environment in the UK grocery sector is likely to continue to be determined by the dominance of the big supermarket retailers: many supermarkets can now undercut specialist greengrocers and butchers in the sale of basic commodities. In the short term, Morrisonsà ¢Ã¢â€š ¬Ã¢â€ž ¢ increased power in the marketplace through its acquisition of Safeway could put further pressure on prices, especially as Morrisonsà ¢Ã¢â€š ¬Ã¢â€ž ¢ ownership of subsidiary food manufacturers, which gives it lower operational costs than other retailers. Equally, Tesco is increasingly sourcing produce from Eastern Europe, in an attempt to main its market leader position. These trends may, however, be offset by the growth of inter est in higher quality organic produce, an interest which is likely to develop in different directions over the forecast period. Local sourcing by supermarkets of organic meat, vegetables, and even manufactured or convenience products will become more evident, and this new emphasis could encourage consumers to spend more as they aspire to a healthier lifestyle. As for Sainsburyà ¢Ã¢â€š ¬Ã¢â€ž ¢s market position and segmentation, the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s brand is focused strongly on food, with the weekly grocery shop the prime reason why customers visit its stores. In future, one would expect a traditional focus on fresh and private label products to be increased, in order to restore the retailersà ¢Ã¢â€š ¬Ã¢â€ž ¢ reputation for innovative and quality products at fair prices. In particular, through sub brands like à ¢Ã¢â€š ¬Ã‹Å"Taste the Differenceà ¢Ã¢â€š ¬Ã¢â€ž ¢ and à ¢Ã¢â€š ¬Ã‹Å"Be Good to Yourselfà ¢Ã¢â€š ¬Ã¢â€ž ¢, premium and health ranges appear to be being increasi ngly marketed as a significant point of difference between the company and other mass-market operators, and product ranges have also been reviewed to make them more relevant to all Sainsburys customers. All stores now carry the same core product offering, with a à ¢Ã¢â€š ¬Ã‹Å"good, better, and bestà ¢Ã¢â€š ¬Ã¢â€ž ¢ hierarchy, allowing the company to focus its targeting on its traditional middle class customer base, whilst still having economy (à ¢Ã¢â€š ¬Ã‹Å"goodà ¢Ã¢â€š ¬Ã¢â€ž ¢) and premium (à ¢Ã¢â€š ¬Ã‹Å"bestà ¢Ã¢â€š ¬Ã¢â€ž ¢) offerings to widen its appeal and broaden its target segments. As for the role and purpose of scenarios in helping organisations to manage uncertainty, this is hampered by the fact that scenarios cannot be used in all situations. This means that it is necessary to justify their use, in terms of fulfilment of various criteria. In general, scenarios can be used if uncertainty about the future is high, historic patterns are shaky and it is very likely that the future will be influenced by events which did not exist before. One thing we can be sure about is that scenarios will always be wrong to some extent; however, scenarios may give us insight into possible ways to deal with serious problems that might occur in the future. As such, scenarios are vitally important to organisations seeking to manage uncertainty and should be used wherever possible, however it is important that organisation recognise the limits of scenarios, and use them only to extrapolate and hypothesise, rather than make concrete predictions and decisions. References Barne, R. (2004) Sainsburys image slated. Marketing (UK); p. 14. Bevan, J. and Murphy, R. (2001) The nature of value created by UK online grocery retailers. 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Innovation: The European Journal of Social Sciences; Vol. 13, Issue 1, p. 11. Rienstra, S., Smokers, R. T. M. et al. (1996) Scenarios in Decision-making; Amsterdam, Vrije Universiteit, Petten, ECN-Policy Studies. Sahota, A. (2004) Changing Retail Landscape for Organic Products. European Retail Digest; Issue 44, p. 50. Steil Jr., G. and Gibbons-Carr, M. (2005) Large Group Scenario Planning. Journal of Applied Behavioral Science; Vol. 41, Issue 1, p. 15. Wright, A. (2005) The role of scenarios as prospective sensemaking devices. Management Decision; Vol. 43, Issue 1, p. 86. Don’t waste time! Our writers will create an original "Grocery retailers competition in the UK" essay for you Create order