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“Provide a detailed analysis of the ‘UK food retailing industry’.

* Identify the main op
erators and explore why they are pursuing the strategies they have adopted. Are
any of the strategies likely to be more successful and why?”
Due to the limited word count Morrison, Tesco and Asda have been chosen as the m
ain companies to be compared and analysed in the following report. These three b
usinesses have been selected caused by their high employee figures, the size of
the companies and the information available about their strategies. Nevertheless
, a selected amount of small regional supermarkets or other major national ‘player
s’ have been mentioned as well, in order to fully complete the report. However, it
was not possible to name all UK food retailers in the Strategic Group Analysis.
To give an overview of the environmental issues influencing the ‘UK food retailing
industry’ at first an external analysis, including the PEST, Five Forces and Stra
tegic Group Analysis, was carried out. In a next step, with the help of the ‘Natio
nal Diamond’ the UK market as the home base of the three companies has been examin
ed concerning its supportive role for international expansion. Afterwards, there
has been a focus on the Financial Analysis and the ‘Cultural Web’, both tools of in
ternal measurement. To complete the analytical part, the companies’ major strength
s, weaknesses, opportunities and threats (SWOT) have been defined. Finally, a co
nclusion is given.
3.1 PEST–Analysis

The PEST–Analysis identifies four main categories influencing any organisation, na
mely the political, economic, social and technological factors (2002, p.102). Th
e following section therefore, aims to give an overview of the impacts for the f
ood retailing industry.
Political Influences
Concerning environmental protection the industry has to be aware of several legi
slation e.g. laws concerning emission or waste disposal ( , 2001, pp.4-5). Food,
so as non-food retailers will be influenced by the forthcoming waste management
regulations proposed by EPA (Environmental Protection Agency), which will incre
ase costs of these businesses.
After past food scares such as ‘BSE’ and the ‘Food and Mouth Disease’, new threats by bo
vine tuberculosis and chronic wasting disease will sharpen national and supranat
ional food safety laws and regulations. An animal disease crisis could even “devas
tate milk-and meat-production” and therefore, the production of ice cream, meat, c
heese, etc ( August 2002).
Furthermore, there are standards for nutrient descriptors such as “light”, “reduced fa
t” and “low fat”, set by governmental and European agencies like the European Food
Authority (EFA) (October 20th 2003]). Especially the UK Competition Commission a
nd the Office of Fair trading (OFT) are ‘watching’ the main players of the UK superm
arkets. This is caused by the high cumulative market share of the top five UK su
permarkets (between 14%-24%) ( August 2001, pp. 9-30).

Other problems may arise within the e-business, due to too high fees and too com
plex regulations introduced by the government of the UK and EU compared to other
countries such as the USA ( 2003, p. 25).
Economic Influences

one may has to mention smaller retailers (Jacksons. But as the individual cust omers represent the most important buyer and therefore. differentiation between the numerous players a nd their products is scarce. may be noted ( August 16th 2003. Other factors may be seen in the weak economy of Europe and other countries which make an upward trend in sales very hard to ach ieve (ANovember 2003. as well. However. specialized equipment and trucks. The UK population is also becoming more and more experimental within their eating habits. The intensity of competition and therefore an industry’s attractiveness and pr ofitability will mostly depend on these external factors ( October 4th 2003]). 43). Tesco. Another important influence can be found in the prediction of an economic growth in the next years. etc. Justification: The PEST–Analysis represents an overview of the food industry which will then be a good starting point for deeper macro-. fish. e.g. barga ining power of suppliers and buyers. as well as implying a str ong growing awareness of environmental friendly packaging. competition within the food retailing industry seems to be large a s well as diversified.29). 3. Furthermore. one could speak of a con centration of buyers. p. a we ll–trained workforce is essential. it will provide the companies with basic information that needs to be considered for future strategies. Criticism: For laymen. switch . except the Chr istmas times were usually a growth in sales occurs. such as freeze r trucks are necessary to guarantee exclusive taste and quality. Lateshops. p. etc. Morrison (including Safeway) and Sainsbury’s n eed to be named as the major competitors.2 Five Forces Model Porter’s Five Forces Model is based on the simple fact that each industry and mark et is influenced by several competitive forces namely: threat of entrance. Technological Influences In the food retailing industry. In the past years a trend towards the desire of exo tic fruits. competitive rivalry and threat of substitut es. Fur thermore. As expensive equipment. the costs for customers to switch to rival brands are relatively low. However. micro-environmental as well as internal examinations. Although. in Northern England and can therefore be seen as co mpetitors. Hence. it is really difficult to filter out the most important i nfluences within the four categories because there is such a wide range of resou rces. Therefore. What is more. sales have dramatically been decreased in the past three years due to the slowl y economic recovery of the USA. since the 21 st century there has been an increasing consumer preference for quality products with good tastes. Social – cultural influences The UK is experiencing a trend towards healthier food. The group of buye rs is formed by individual customers and restaurants. Spar. factories and estate are re quired in the food retailing industry. As for an almost endless range of products offered. barriers to exit are quite high. rivalry may therefore be characterized as intense.) which are pre sent in regional areas. All in all.The UK food retailing industry is less influenced by seasonality. too. Asda. which have a tremendous range of resou rces at their disposal. Diagram: Findings: First of all. without being an”insider” the analysis of the business environment appe ars to be much generalized.

packaging factories. A relatively strong brand loyalty of customers also contributes to entry ba rriers. the less applicable this model is. It also n eeds to be considered that the more complicated an industry’s market structures ar e. the food retailing industry faces little pressure on margins from the suppliers. But as switching costs for buyers are low. As an analysis of the competitive environment of individual SBUs within the companies has not b een possible. etc. Diversified products. Criticism: To start off. So it needs t o be beard in mind. as high ini tial investment will be required for building new stores. the bargaining power of buyers is rela tively high. Taking into account that the key players of this industry pos sess e. Producers of food and other goods as well as packaging manufacturers have to be seen as the major suppliers in this industry – i. The almost “non-existence” of switching costs and the fact.g. competitive factors. wh ich could be regarded as a “sixth force”. pp. the offer of different brands within each supermarket and the creation of supermarket own brands are examples of the wide range of substit utes for products within the food retailing industry. better taste o r innovative products. .” The “Sixth” Force: Public and Stakeholders The current trend towards an increased demand of healthier food and environmenta l friendly packaging material has a large impact on the companies. produce their own ‘branded’ products and that on the other hand switching costs from one supplier to another are low and do not invol ve high costs to rival brands are low. regarding the circumstances that the key players of the food retai ling industry created their own supermarket brands and the offer of other produc ts may also represent potential competition within the company itself. 112-113).) Justification: It is essential for any business to have an overview of the forces influencing a company’s competitiveness. this tool was regarded as offering a good basis for the location of direct compe titors as well as further forces such as the powerful customers. As there is a wide range of environmental. it was carried out at a level of the whole business. the threat of new entrants co uld be characterized as moderate. Furthermore Porter’s Five Forces Model does not take into account non-market forces such as public and stakeholders.e. Hence. both con tribute to a quite tremendous threat of substitutes. Even though these competiti ve pressures could be by-passed through building up high brand loyalty and close customer relationships as well as through offering high quality. In this conte xt. (This force will be briefly discussed at t he end of this analysis. Entry to the industry of food retailing seems to be quite difficult. the companies’ individual competitiveness depends on how well they adjust thei r product range and strategy to these new customer needs. of the intense offer of similar products. that this analysis therefore. can only be considered as a “sta rting point in understanding the competitive forces (2002. manufacturing plants. they do represent a fragmented source of supply.

according to the knowledge gained on th e current and future profitability within the different strategic groups. following similar strategies or competing on similar bases ( 2002. 61)”. However. Therefore. the evaluation of several characteristics m ay be quite subjective in pointing out the ‘leader’ of the special category. 122).3 Strategic Group Analysis Strategic groups have to be seen as “organisations within an industry with similar strategic characteristics. Diagram: a) Size of organisations according to employee numbers b) Extent of geographical coverage Findings: c) Extent of product diversity The number of groups and different companies which form the single strategic gro ups depend on the characteristics.” When identifying such groups one may refer to a broad ran ge of different characteristics e. when reviewing a company’s strategy. p . perceived product quality etc. Moreover. D.g. Furthermore. whenever a company wants to expand its position and therefore needs a new strategy. p.. company sizes. it needs to bear in mind the different stra tegic groups.3. one may has to point out that their s trategies are easy to imitate and it also makes it much easier for ‘rivals’ to win t he competition battle. it does n ot seem to be feasible to analyse all of them individually. which are either in the same strategic group or the one ne xt to it. However every supermarket has its own implemented strategy but one may has to mention that each one is mostly (low)-priced based and that only Sainsbu ry’s stragy is customer focused relying on quality and offering outstanding value (F October 23rd 2003). Asda is with the lowest price offers the cheapes t one of the three companies but closely followed by Tesco and then Morrisons ( September 6th 2003). Criticism: Even though several companies in the same industry may share common characterist ics. As you may see the main compet itors in the UK food retailing industry are Asda. most of all big supermarkets lost their strategic position and as well their SCA.” Within the food retailing industry there are numerous competitors.4 Porter’s National Diamond The model of “determining factors of national advantage suggests that the national home base of an organisation plays an important role in shaping the extent to w hich it is likely to achieve advantage on a global scale (October 3rd . 3. In fact. Tesco. extent of product diversity. Justification: This specific analysis has been applied as “the conceptualization of strategic gro ups can make the process of competitor analysis more manageable ( 2001. So how can one figure out the “right” set of characteristics as the basis for an analysis? In addition. one refers to. 2001.). “a knowle dge of the strategic group structure can be extremely useful (Aaker. Morrisons (including Sa feway) and Sainsbury’s. Therefore. The mixing up of these strategic groups could have tremendous effe cts on each individual success. each organisation itself may be shaped by more or less specific and origina l characteristics.

factor conditions as well as firm structure and rivalry. Lecture notes). as not states but companies do compete against each other. when having a closer look at the model. This is parti cular important as the home base of each company will often largely contribute t o the extent of its international strengths (October 3rd 2003]). Diagrams: Findings: Even though one might think that the chosen companies are similar in their figur es to each otherthis assumption will be proven as wrong. this tool has been regarded as being very useful. p. the return on capital employed considers the relationship between income and operational assets used to cause this income (Da vies and Pain. four basic factors have to be examined – demand conditions. Similar results are also stated in the capital gearing ratio. related and supporting industries. For achieving competitive advantages. the four factors are not only interdependent but a re also influenced by governmental action and chance. competi tive advantage should therefore be examined on the basis of the company itself r ather than on a national basis. However. 13. several ratios such a s performance and activity related ones will be examined in the following analys is. a nd a complete examination of a company’s competitive advantages should require mor e specification. Th is is due to a single factor – that each company has different costs in delivery. there has been seen a significant deterioration in performance. Therefore. Ratios will always need to be subject to compar ison with ratios from previous years. 4.g.24% (Morrison). the capital gearin . Nevertheless. price shocks etc. 2003. Diagram: Criticism: First of all. etc.1 Financial Analysis [1] In addition to key figures e. First of all. Justification: In order to examine whether the UK food retailing industry . the current ratio implies that Asda’s financial stability is better than Tesco’s or Morrison’s. it cannot be denied that all the ratios themselves do n ot say anything about a company. Criticism: First of all. In case of a comparison with similar compa nies.” In this context. the home base of the chosen three supermarkets – is favourable to achieve competitive advantage on a global basis. turnover or cost of sales. Morrison is showing the best figures an d Tesco the worst. one needs to be aware of probably different accounting methods and the ava ilability of material (Boczko.23% (Tesco). New inventions by chance. may largely influ ence future developments within a nation ( October 3rd 2003]). T. What also seems to be striking is. 2002. 159). the National Diamond seems to be quite generalized.2003]).g. more than just the right policies and stra tegies are needed. e. as the return of capital employed differs between 12..03% (Asda) and 21. which shows that Morrison and Asda are less financed by borrowing than Tesco. production.

December 16th 2003. On the othe r hand Morrison’s new offer for Safeway will create the 3rd largest supermarket in the UK and therefore an immense threat for Asda and Tesco (Voyle. S. of an organisation and the physical manifestations of orga nisational structure (Johnson. Moreover. Justification: The Cultural Web offered a good opportunity to gain useful insights in the chara cteristics of the companies. external consultants would be more suitable to undertake such an analy sis.. G. and Scholes. It was supposed to help to find out about the financing of the different companies because then it can be seen a s a first step towards a stakeholder analysis. they often take rituals and structures for grante d.2). “Every little help” – Tesco and “” – Sainsbury’s. control systems. Criticism: The main problem is that internal analysts have a subjective point of view of a company’s culture and therefore. supported by several o rganisational and control systems. Diagram Morrison: Diagram Asda: Diagram Tesco: Findings[2]: The origins of the companies lay approximately 100 years back in time. but on the other hand they often do not have access to all of the necessary information. a financial analysis has been regarded as a useful tool to facilitate a n understanding of absolute values. Therefore. rituals and routines as well as the paradigm. each business has its individual paradigm which guarantees either helpfulness or low prices. However. Even the companies’ rituals and routines do not show any differentiation from one another. November 28th 2003). p. p.2 The Cultural Web „The concept of the Cultural Web is a representation of the taken-for-granted assu mptions. Hence. their business strategies are very similar to each other and represent the overall same goal – ‘low prices for good value’. They all like to help the community with special donations and funds. 4.230). as well as they giv e money to special charities. so that the smaller supermarkets will not take over their position. o ne may conclude that there is no ‘real’ use of this analysis. “Always happy to help” – Asda. Asda following on 2nd place was then awarded for best management (Simpson. symbols. or paradigm. The SWOT-Analysis can be regarded as an essential tool for identifying a company’s . and performance may be seen in context ( 200 3. contributing to coherence in their cultures. power structures. Justification: However. p. due to the award of best reputation in November 2003. I n fact. these leads to result that Asda and Tesco may be seen as the major competi tors with offering the lowest prices in the food retailing industry. one may has to mention that Tesco with its policy ‘No one sells for less’ m ay be seen as the ‘winner’ for consumers in the food retailing industry. However.) ..” It is composed o f the following elements: stories. as the tool reveals dependencies on creditors but with not being an ‘insider’ of the companies and not knowing their special assigned accounting methods this analysis failed to meet its objectives. Therefore. K. organisational str uctures. 2002. Nowadays.. should work towards a single common goal – in t his case towards the paradigm “The very best for less” – Morrison.15). P. big companies can only succeed with better and quicker availability/value of products.but only in comparison to previous years.g number of Tesco differs too much compared to the other companies. one may believe that through the remaining and dominant pricing strate gies. The an alysis points out that every employee of an organisation.

strengths and weaknesses. G. as well as their great variety of non-food products. weaknesses.. Te sco and Morrisons concentrate on good value with cheap offers. Justification: This analysis points out the most important issues from the business environment and the strategic capability of the three companies. 2002. The UK food retailing industry is characterised by an immense high competition a nd low-price strategies. and Scholes. many of the main competitors such as Asda. previo us analyses of the external and internal environment would be a useful basis. which can probably have an impact on their own strategy (Johnson. p. which each individual business has to work on to assure its future competitiveness.134). Nowadays. opportunities and threats. but on the other hand also the opportunities and thre ats within an industry. K. Furthe rmore. it reveals the weak spots. Diagram Morrisons: Diagram Tesco: Criticism: Diagram Asda: In order to analyse the strengths. .

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