Final Mock- September 2018

Farmers Market
Question 1 (a)

External factors affecting Farmers Market’s (FM) macro-environment

As requested by the senior management team, an analysis on the external factors affecting
Farmers Market is provided; where 4 distinct perspective is requested namely, the political,
sociocultural, environmental and legal.

Political Factor

The sole political factor affecting the company is the Manifesto pledge issued by the
government, concerning the pension fund. Upon issuance, it is understood that it will be
mandatory for all employers to pay a 5% of their employees’ gross pay in a pension fund of
their choice. Given that FM is aiming to achieve some cost saving, this information issue will
make it difficult for FM to achieve this particular objective. In fact, FM will have to further
spend on its employees, despite paying them a decent wage.

Socio-cultural Factors

Television personalities are promoting smaller local businesses with personalized services.
Some influencers like Alexis Piazzio are urging the Arborian population to think local and
shop local. These influences have a positive impact on FM since it is a local supermarket
chain of Arboria, which comprises a group of farmers. Hence, this promotion will surely
increase the popularity and sales of FM.

Being the only co-operative company among the Top 10 supermarkets in Arboria, FM gains
a significant competitive advantage as compared to its rivals. As mentioned, television
personalities are promoting smaller local businesses with personalized services.
Theoretically, FM is among the best local supermarkets to provide personalized services.
Hence, being the only co-operative supermarket in the Top 10 ladder will further increase its
revenues.

FM is also known to follow its ethical principles. Despite paying its employees more that its
competitors, FM’s customer service performance experience an increase. It was also ranked
first in a survey by Arbor Today in customer service experience. Since customers prefer
having a personalized service, this factor will also increase the popularity of FM among its
customers.

However, it should also be noted that there has been a decline in the ranking of FM in 4
years. In 2012, FM was 8th on the Top 10 list while in 2016 the latter was ranked as 9th.
Furthermore, as compared to the market leader Hypco, FM had a comparatively lower
marginal increase in its revenue, where Hypco incurred an increase in revenue of $4.5 bn
and FM incurred an increase of $1 bn. This issue can mainly be blamed on FM’s cost saving
issues. While the products of FM are provided by the regional group of farmers, other
supermarkets are supplied by cheaper suppliers. Hence, their profit margin is larger than
that of FM. Additionally, most supermarkets are quoted on the stock exchange, which gives
them additional revenues as compared to FM which is not a listed company.

Additionally, most supermarkets in Arboria are promoting cost saving to their customers
while also taking initiatives like loyalty cards and discount schemes to attract and retain
their customers. Nevertheless, FM’s strategy to attract and retain customers is different.
Customers can also become the shareholders of FM, and hence awarded dividends. This is
also a good initiative for customer retention since they would like the company to perform
better in order to get dividends. Therefore, they will continue buying at FM.

Environmental Factors

The rising number of green customers complaining about the environmental impact on
products purchased in supermarkets are becoming more popular. These customers are
concerned about both the packaging and food miles of the products purchased. There is a
rising concern about the miles travelled by the foods before purchasing it. Hence, being a
local supermarket and having local suppliers, FM popularity will increase following these
issues raised. Even though most supermarkets are highlighting cost saving, green customers
have high disposable income. Hence, cost have no effects on the products they consume,
but rather the quality.

Legal Factors

Following the disability legislation issued by the government, assistance should be provided
to disabled people in supermarket stores. If no shop attendant is employed, all products
should instead be easily reachable by them. Following the release of this communique, most
supermarkets will have to incur additional cost on either recruiting more staffs or buying
new shelves. However, FM has an upper hand on the disability legislation in terms of cost
saving. Since FM already has enough helpful staffs for assistance, no additional costs need
to be incurred by them.

Question 1 (b)

State of competition in the Arborian supermarket industry.

This section of the report will discuss about the state of competition in the supermarket
industry in Arboria.

Rivalry among competitors

Most supermarkets in Arboria focus on providing low priced products. They are also focused
on consumer incentives such as discount schemes and loyalty cards. However, the
competitive advantage of FM is that all employees and most customers are shareholders.

Additionally, FM is the only co-operative company, comprising of a group of regional

farmers in the top 10 supermarket chart. Hence, their food miles are very low as compared
to other supermarkets. These characteristics abide to the demand of green customers.
Furthermore, by being a local provider, FM meet the needs of most customers, given the
trend of ‘Think local, Shop local’. Hence, FM has a competitive advantage as compared to its
rivals.

Therefore, the competition and rivalry among supermarkets in Arboria is very high since
each one have their respective competitive advantage.

Threat of new entrants

Supermarkets can be easily introduced in Arboria. A recent example are the two new
entrants; namely Super 24/7 and Letto. Despite being recently introduced to Arboria, the
latters are already on the top 10 chart, with Super 24/7 4 th and Letto 8th on the board.
However, they are threatened, given their impersonal nature. Customers in Arboria are
shifting towards more personalised services on behalf of the supermarkets. Additionally,
customers have adverse reactions against overseas companies.

Hence, despite its easy to enter the market, it is easier to be threatened. A concrete
example of this situation is the two newly introduced supermarkets. Despite making it to
the top 10 chart, their existence are already threatened.

Bargaining powers of customers

Customers have a lot of say concerning the products they consume. To start, green
consumers are highly concerned about the products they are purchasing in terms of its
packaging and food miles. Additionally, television personalities are encouraging local
shopping. Customers are demanding more personal services. Some are even having troubles
on the excessive profits paid to managers and low salary given to employees, despite being
successful supermarkets. Customers appreciate a fair distribution of income; whereby
decent wages are given to employees and the huge profits are not only distributed among
greedy managers.

Therefore, the bargaining power of customers is very high.

Bargaining powers of suppliers

Given that there is a huge pool of suppliers available to provide supermarkets with their
products. Hence, there is an increased rivalry amongst them to be able to supply
supermarkets. Hence, their bargaining powers are low, given this excess in the supply of
sellers.