BOOTS PLC

BY:----------------
Executive Summary
This report describe the strategic perspective and current position of Boots plc, a UK-
based company, involved in the beauty and healthcare industries. According to the
PESTEL analysis, the company is properly managing its macroeconomic factors using
its strengths and competencies. It is one of the largest retailers in the United Kingdom,
both in terms of revenue and retail stores, and it enjoys high customer loyalty in the
market. Boots plc is currently considering two options to take a strategic decision. One
option is to go with a physically located store with premium beauty and the other one is
to consider expansion of online sales. The report examine both the options based on
their cost-benefit analysis and attractiveness. Opening a new physical located store with
premium beauty under options 1 and an alternative investment option such as
expanding digital presence under option 2 are considered as strategic options for Boots
Plc. The report has outlined all both of the options in terms of market trends, growth,
profitability, and historical data. While it has also been analyzed financially using NPV
and IRR tools to select one of the options that is better for the company in every way.
The second section of the report outlines how Hinton independent newspapers can
increase their revenue through big data analysis. Hinton independent newspaper is a
privately owned newspaper group that publishes and distributes 10 regular regional
newspapers and 40 weekly regional newspapers. This privately owned newspaper
group is currently looking for strategy in order to increase revenue. The report suggests
predicting consumer behavior to improve sales with the help of using big data
technology.
About Boot Plc
Boot plc is a UK based retailer that deals with the business of healthcare and beauty.
The company is one of the leading retailers in the UK. It is founded by John Boot in
1849. It is headquartered in Beeaton, Nottingham, United Kingdom. Throughout its 178
years of journey, the company has successfully positioned itself in the list of leading
organizations in the United Kingdom. It has more than 2250 locations that manufacture
and offer a large number of healthcare and beauty products to their consumers across
the UK and Ireland. It has 550 boots optician and 553 hearing care locations to reach a
maximum number of locations across the UK and to serve a maximum number of
people of the UK and Ireland. The Company has made a strong and successful
relationship with their customers by providing the quality products and products.
Customers are very satisfied from their market offerings. In this report, we are going to
discuss and analyze the strategic aspect of the company with respect to strategic
alternatives. So let’s start the discussions and analysis.

Strategic Analysis
Strategic analysis of the company include PESTEL analysis which are discussed and
analyzed below.

Political

The political instability around the world causes many businesses to face both strategic
and operational challenges because of the new laws and regulations that are
implemented by government. Boots plc has a full support from government because of
the good relations with government institutions. The company need to act according to
the political region in order maintain and continue cooperation from government side.
Economical

Good economic conditions help the organizations to improve its growth. Same is the
case with Boots Company. Low interest rate and better taxation system at the time of
good conditions enable the company to decrease the price in order to increase sales. It
would also boost the company's profit share in the market. Good economic conditions
also assist the organisation in obtaining the optimum resources for innovation and
development.

Social

Boots target their customers based on their social factors like, life style, routine
problems related to beauty and health, age, gender, attitude and behavior and
acceptable norms of society. In this way, they get customers’ attraction. For example,
today the world is facing pollution that harm or damage the skin of people, taking this
into consideration, Boots provide skin care products that help in fighting against the
pollution to save customer’s’ skin.[ CITATION Jac191 \l 1033 ].

Technological

Upgradation in technology can help the company to produce most innovative and
attractive products for boost customers related to health and personal care. By using
latest software, they can have a better track record of their inventory. In addition to it,
latest technology help the companies to find customers’ preferences related to beauty
and health care products. But, it would be costly for company to install latest technology
that may increase the prices of products. Due to which, sales may decrease [ CITATION
DES21 \l 1033 ] .So, boots need to take effective and efficient investment strategies
related to technology.

Environmental

Environmental factors include weather, climate change, laws related to environment,

recycling and so on that have a huge impact on the profitability of organizations. The
company need to take these factors in consideration in order to sustain the business.
Each country has different environmental concerns and norms even within a state, it is
changing that put pressure on governments to formulate laws related to the protection
of environment. Most of the countries, provide tax benefit to the companies in order to
promote the green environment[ CITATION Fer21 \l 1033 ]. So, Boots should follow the
green and friendly environment in order to take benefit of taxes and community support.

Legal

Boots need to follow all the laws and regulations related to business such as
employment laws, wages laws, consumers’ protection laws, and health and safety laws
and so on in order to protect itself from charges and fines of government [ CITATION
Joh201 \l 1033 ].

Investment opportunities
Boots Plc is currently looking for business expansion. It has two options for its
investment, in which one is to be taken and that one which is beneficial for the company
in every aspect. In option 1, they have the choice to go with a premium beauty retailer
store, located physically in the UK. While in option 2, they can expand the business by
switching the resources from option 1 to e-commerce sales.

1. Retail store with premium beauty

Under the option 1, boots plc has a choice to open a new retail store with the premium
beauty. The company will charge their consumers based on premium prices. But what
matter for the company is the cost benefit analysis of this option that weather the option
is profitable for the company and whether they should accept it or not? In order to find it,
we have used NPV and IRR method below to check the profitability of the option.

In the below table, we have made first of all some adjustments according to given
instructions and also calculated the figures based on justifiable assumptions which are
given below in the appendix section. We can see below in the table that the NPV of the
project under the option 1 is negative which means that the project should not be
accepted because of the negative NPV. And when the NPV is negative of any project it
generate a negative cash flows for the company in net. The NPV of potential project,
physical retail store with premium beauty, is -£843590. It means that the project cost
more than its benefits that is why it should not be accepted.

Going to IRR calculation, the IRR of project is also negative which is -6% that means
the IRR is below than the threshold of required rate of return of the company which is
12.5%. Therefore it should not be accepted. So, based on both analysis of NPV and
IRR, Boots Plc should not accept the project under option 1.
2. An Alternative Retail Investment
The option 2 is to go with the online expansion of sales. The company would focus on
to sell their products online and increasing their presence digitally. Before going to
discuss the alternative retail investment, we want first to discuss the growth rate of
health care and personal care industries, online vs physically retail stores purchases in
the UK, and then already taken initiatives by Boots and its parent company, Walgreen,
to expand their digital presence.

Growth of Personal Care/ Health care Products

The compound annual growth rate of personal care products is expected to be

increased by 10 percent in the coming four years, from 2021 to 2025, in the UK market. [
CITATION MRi21 \l 1033 ] . While the health care industry is expected to be increased by a
compound annual growth rate of 6.4% in the coming years, from period 2019 to 2026.
This show a better business opportunities for the companies. [ CITATION Fur19 \l 1033 ]

Physical vs Online Shopping

According to survey, the online purchases and store purchases of beauty and health
care products have been changed from July 2019 to July 2020 [ CITATION Sta21 \l 1033 ].
Online purchases has been increased from 18% to 30% in July 2019 and July 2021
respectively. While the purchases of these products in store has been decreased from
63% to 51% in 2019 and 2021 accordingly (See below chart).

It means that the trend of online shopping in UK is increasing for beauty and health care
products. We can all the quarterly figures from July 2019 to July 2021 in the above. One
of the reasons behind this change is Covid-19 impact on the shopping trend. Covid-19
has boost the idea to shift the business trend from physical shopping to online
shopping.[ CITATION Ree21 \l 1033 ]

Initiatives taken by Boots/ Walgreen

Currently in the time of pandemic, boots plc did a very good job to increase their online
sales. They adopted search results based on the seasonality and special situation to
catch the attraction of customers and hence increasing online sales. Like in spring,
people may be searching for allergy pills while in winter season they may be looking for
drugs to fight against flue [ CITATION Alg20 \l 1033 ]. Boots customized their search bar up
to the seasonal change and situational needs. For example, users who looks for face
mask in the time of COVID 19, when they enter it in the search bar of Boots company,
the result show face covering of boots first and then followed by beauty and skin care
mask (See the picture below for better understanding).

This innovative idea increased online sales of Boots by 23% in the second quarter of
financial year 2020 [ CITATION Mel21 \l 1033 ]. Even before the outbreak of Covid-19, the
company were on the frontline of retail industry of pharmacy in the UK. It has been
happened because of the major focus of boots parent company, Walgreen, on the
digitalization. Walgreen in the USA has initiated an innovative idea of digital presence.
They expanded its online presence by adding symptoms and active ingredients to the
search bar in order to facilitate the customers in a more customized and innovative way.

Online pharmacy customers may be familiar with the brands or commercial names of
the products they are searching for. When they visit a traditional drugstore, they may
describe their symptoms to the pharmacist or cite the active ingredients they require in
a drug, and ask for advice on the best product. In the same way, Walgreen enabled the
customers who want to do online shopping of pharmaceutical items. When they enter
“fever” or “acetaminophen” in the search bar of Walgreens, they get the relevant result
(See below pic.).

This most creative and innovative step has increased the digital presence of Walgreen
and expanded its customers base.
Now to provide a more better and customized services to its customers in order to catch
the attraction of potential customers while retaining existing customers and hence
increasing the e-commerce activities and expanding digital presence , boots company
should work on the following alternative retail investment option.

Enabling search bar with typo mistakes

Boots plc can have an alternative retail investment strategy to enable search bar with
typo mistakes. Online shoppers do mistakes in entering the name of drugs and active
ingredients when they enter their queries to search their required items or products.
Because the name of drugs and ingredients are generally complex and long in nature
and the customers do not spell and read it properly. In addition to it, the online users
may also enter typo mistakes during the search of products. This feature would enable
the users even to do mistakes of typing and spelling but getting the actual result that
they want, when they search for pharmaceuticals and beauty products on the e-
commerce platform of Boots Company.

Boots would add this feature, type tolerance, in its search bar to assist its customers in
getting the quick and right result. For example the drug rivaroxaban is sold under the
brand name of Xarelto that is one of the top 10 drugs sold globally. When people
search for it they often do mistake of typing or spelling. They enter it as “rivoxaban” and
the search without type tolerance do not trace it. But when the boots search bar have a
feature of enabling the search success bar with type mistakes, it would easily trace the
spelled mistake and will interpret correctly to provide the exact search that users want.
This feature in the search bar would enable the boost plc to expand its online presence
and hence increasing the online sales.

Macro sensitivity analysis

The most two sensitive factors for Boost Plc are the purchasing power of consumers
and their preferences towards natural ingredients that may affect the business of
company.

1. Purchasing Power of Consumers

Purchasing power of the consumer is very crucial and sensitive factor for all type of
businesses especially for the personal care businesses. People will spend on personal
care products especially on premium products when they have growing buying power.
Boots plc, in the area of personal care especially in the premium beauty, will be strongly
affected, if their customers faced a declining buying power. Because people often think
related to necessity items rather than beauty, if they have declining purchasing power.
Therefore, receiving a steady income and expecting increasing one will lead the
consumers to make discretionary spending purchases. So, boots plc should make
appropriate strategy accordingly related to buying power of the consumers in both
increasing and decreasing situations.

2. Consumers’ Consciousness toward Natural Ingredients

Consumers’ consciousness towards natural ingredients is increasing because they are

fatigue from toxic and artificial ingredients in the personal care products. It is very
sensitive factor for the Boots Company because it would affect the brand image of
organization, once users perceive the artificial and toxic ingredients in personal care
items of boots. The company should avoid the toxic standards and should promote
natural, organic and clean products. Otherwise, skin care and health care oriented
customers will strongly affect the business sustainability of boots plc. In addition to it,
using natural ingredients in product is a good opportunity for the business to be long
lasting. Because the growth of natural product is increasing over the years according to
Statista.com (see the figure below).

The figure in 2018 was $34.58B while this would be increased to 54.5B that shows
customers’ preference for natural products. [ CITATION Rob21 \l 1033 ]. Therefore, Boots
Plc should go with the customers’ preferences in order to sustain the business in long
run.

Final Decision
As we saw in option 1 that the NPV of the project is -$843590, which means that the
project is not profitable for the company due to which, it should not be accepted based
on the criteria of NPV analysis. If we talked above the IRR of project, the IRR of project
is -6% that is far below than the required rate of return of 12.5%. It means that the
project should be rejected based on the criteria of both IRR and NPV analysis.
Therefore, the company should not go with the option 1, retail store with premium
beauty. Coming to option 2, retail alternative investment, which is expanding the e-
commerce business. Based on the findings in option2, the Boots Plc has a great
opportunity to go with expansion of digital presence, if they enable their search bar with
type tolerance and facilitating their customers by a great means. The company would
see a strong surge in online sales by doing it. Because the trend of online shopping is
increasing over the coming years based on the data as mentioned above. So, the
company, facilitating its customers with a good search bar features would enable the
company to provide a better customers experience and hence ensuring the business
sustainability in the long run.
Literature Review of NPV and IRR
Generally project is accepted and rejected based on the most often used tools that are
NPV and IRR. In this section we are discussing the NPV and IRR, its limitations, pros
and cons and its evaluation criteria for project decisions

NPV
NPV stands for net present value which is defined as the difference between the
present value of cash inflows and the present value of cash inflows. It is widely used in
capital budgeting and investment planning to analyze and decide the projects
acceptance and rejection.

Criteria of acceptance/rejection

The criteria of NPV to accept the project is the positive result of future stream of
payments, means that the project should be accepted if the discounted present value of
future cash flows is positive related to investment of project. While it should be rejected,
if it is negative. NPV is very useful tool that help in the decision of investment and tells
us that whether the project is attractive or not.

Limitations

The biggest limitation of using NPV is that it can be difficult to calculate a discount rate
that truly reflects the investment's true risk premium. Another disadvantage of using
NPV is that a company may choose a cost of capital that is either too high or too low,
causing it to miss out on a profitable opportunity.

IRR
IRR stands for internal rate of return. It can be defines as the internal rate of return that
an investment or project is expected to generate. It is also widely used by companies in
the decision of project acceptance and rejection. It is calculated similarly as NPV but
here the NPV is set to be zero in order to find IRR.

Criteria of acceptance/rejection
Generally, higher internal rate of return is good, but project is accepted based on the
rate of return that is higher than the required rate of return of an investment while
rejected if lower than the required rate of return. It is very attractive tool when the
decision o investment is made. Because, it help the investors to analyze the capital
budgeting projects in order to compare and understand the potentials rate of annual
return.

Limitations

The biggest limitation or challenge of IRR is the multiple rates that may be generated,
when cash flows are positive, followed by negative and then positive. Which miss
interpret the project. Another limitation of the tool is the same sign of cash flows, when
cash flows have the same sign, the project would never turns a profit and no discount
rate will calculate a zero NPV

Task 2.

Recommendation to Hinton
Big Data is a large number of information or data that prevents it from being managed in
the traditional way. It assist businesses in data maintenance and allows them to make
strategic decisions. It also aids in the resolution of issues ranging from customers to
businesses. Hinton can increase revenue by predicting buyer behavior with the help of
big data analytics. Hinton can increase its revenue by using big data technology to
predict consumer behavior. It would aid in determining reader priorities and
preferences, such as what news readers want and how much they liked it. For example,
if readers want celebrity news and sports news on the front page of a newspaper or
magazine, Hinton would follow the same progression, which will increase the readers’
loyalty and would expand the consumers' reading habits. And when a company get
customer’ loyalty improves, it improves and sustain the revenue of that company. Same
would be happened with Hinton, if they do accordingly.
Appendices

1. Calculations

Expected Sales per

Potential sales per week Probability week

1900 0.4 760

2800 0.55 1540

3500 0.05 175

Total expected weekly sales   2475

     

Calculations of Depreciations    

Total Preliminary cost   2500000

Useful Life   10

Per year depreciation   250000

2. Adjustments and Assumptions

Adjustments/Assumptions Reasons
made
1. Potentials sales per Potentials sales per week is calculated based on the
week of premium expected value principle. Means multiplying
beauty probabilities of sales to be occurred in each possible
economic condition with the value of sales in the
respective condition in order to get most reliable and
nearer figure to potential value of sales of premium
beauty.

2. Cannibalization Adjustment of cannibalization is mandatory. Because

project would reflect the practical and real measures if
we consider the impact of proposal on other existing
stores.

3. Property lease rental After 5 years the lease rental is assumed to be 400,000
after negotiation. Because company have no other
premises or any alternative to continues its operations
after five years.

4. Depreciation Depreciation cost is calculated based on the straight

line method. Means that dividing the total preliminary of
project by the useful life of project.

5. Tax Since the project generate positive cash inflows to the

overall profit of company in year 2 and onwards
therefore, they would pay tax on these profit. In year 1,
the tax will be zero because of the loss for company.
 6. Working capital cost Working capital cost is calculated by multiplying the
given rate of 10% with the sales of both standard and
premium beauty.

References

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12.

DESKLIB, Feb 2021. Swot and Pestel Analysis of Boots. DESKLIB, p. 11.

Dhingra, R., Jun 2021. Evolving consumer behaviour in the multi-million personal care industry. Your
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Fern Fort University , 2021. Boot (Henry) Plc PESTEL & Environment Analysis. [Online]
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[Accessed 15 Dec 2021].

Furtune Business Insight , July 2019. The U.K home healthcare market size was valued at USD 1,192.6
Million in 2018 and is projected to reach USD 1,951.7 Million by 2026, exhibiting a CAGR Of 6.4% in the
forecast period (2019-2026), United Kingdom: Furtune Business Insight .

Jack, 2019. Swot and Pestel Analysis of Boots. desklib, p. 30.

John, 2020. Boot (Henry) Plc PESTEL & Environment Analysis. Fern Fort , p. 25.

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market share in the United Kingdom in 2021 and 2025, s.l.: Statista .

Repko, M., 2021. Passport photos and makeup sales may help Walgreens drive sales beyond the Covid
vaccination bump. CNBN, III(6), p. 15.

Roberts, R., Dec 2021. 2022 Beauty Industry Trends & Cosmetics Marketing: Statistics and Strategies for
Your Ecommerce Growth. Common Thread, II(10), p. 17.
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store in the United Kingdom from June 2020 to June 2021 , s.l.: Statista Research Department.