Liesel Grassman PE 2008-0020 Norman T.

Kriel PE 2007-0155 John- Louis van Rensburg PE 2008-0023 Group 1 15 April 2010

` ` The UK supermarket industry is a very competitive and profitable industry. The µBig Four¶ consist of Tesco. It is made up of four main players with significant share of the market. . Sainbury¶s and Morrisons. ASDA. and then various smaller companies who focus on smaller niches in the market such as the bottom of the market discounters and the top of the line speciality stores.

` Are British supermarkets more profitable than their European and US counterparts? .

` The major British supermarkets are confident and successful businesses which have combined an enviable growth record with margins which are three times as high as those of their mainland European counterparts. and the increasingly international nature of their industry. they are in danger of being marginalized within Europe by their reluctance to respond to the creation of the Single European Market. . However.

Labour costs are lower in the UK. and the gross margin higher. British retailers have twice to three times as much money available to spend on taking over a competitor. and higher level of own-label penetration in British supermarkets means that the average cost of goods sold is lower than in the rest of Europe. . (centralized distribution and electronic point of sale (EPoS). because in Britain the proportion of part-time labour in supermarkets is higher than elsewhere. product mix enhancements ) Compared to a similarly sized mainland European company.` ` ` British companies have a lead in applying IT to logistics.

For six British groups. ROCE for six French companies were calculated at19 percent.` ` ` Price plays a much more important role in both the USA and in Continental Europe than in Britain. the average was over 6 per cent . Average Operating margin for six French supermarket groups was 2 per cent. and for six British companies at 21 per cent.

But it must be noted that recent studies have presented that this trend has indeed changed over the following years and that it is not currently as strong as it used to be as recent studies have identified that British supermarkets have the lowest ROCE rate in comparison to France. Belgium. .` In conclusion based on the above analysis and information on the industry and its competitors that British supermarkets were in fact more profitable during the years in question namely 1988-1995. and the United States as at 1997.

` Use the industry analysis framework to explain the profitability of the main supermarket chains in the UK. .

1980 .The Five Forces model Threat of Entry Power of Suppliers Competitive Rivalry Power of Buyers Threat of Substitutes Porter.Industry Analysis .

5. Market challenger ASDA is slightly down-market of Tesco competing closely in price and focuses on delivering low prices to customers. the consumers who appreciate good quality products for a slightly higher price. Sainsbury¶s. . catering to upper-middle class consumers who are prepared to pay premium prices for higher quality products and excellent service. Market leader Tesco. Waitrose is a market nicher and the most up-market of the leading chains. providing both economy and up-scale products at very competitive prices. is pitched slightly up-market of Tesco. also a market challenger.` ` ` ` ` 1. Morrisons competes at much the same level as ASDA. targeting the premium end of the middle market. occupies the largest market share and targets the middle market offering value to consumers. 4. 2. 3.

2. . Competitive Rivalry. 3. 5. Threat of substitutes. 4. Bargaining power of buyers. Bargaining power of suppliers.` ` ` ` ` 1. Threat of new entrants.

. The switching costs are low There are few alternative sources of supply There is a large concentration of buyers There is almost no chance of backward integration. The supermarket chains have a wide variety of potential customers which weakens buyer power.` ` ` ` ` ` Bargaining power of buyers is low.

food processing companies. . Switching costs for suppliers are relatively high as they are doing business on such large scales There are a large number of suppliers and substitute products available. food manufacturing companies.` ` ` ` ` ` Bargaining power of suppliers is low Due to the large size of the supermarket chains their buying power is large Suppliers of the UK retailing industry are farmers. wholesalers. Low potential for forwardintergration.

The lack of suitable sites for new stores Among other barriers to the entrant can be the high capital cost of entering the industry.` ` ` ` ` ` Threat of new entrants is low The power of the µBig Four¶ retailers suggests that attempts to enter the industry are likely to be difficult. Economies of scale. the possible retaliation by existing members and experience in the industry . along with significant brand development. which takes years to establish also creates a barrier to entrants.

Indirect substitute such as eating out may threaten the profit potential of the industry by shifting consumers¶ money from the food retailers to the caterers. so this makes them extremely difficult to substitute.` ` ` The threat of substitutes in the food retail industry can be high among the µBig Four¶ as switching costs are relatively low and products can be similar. 2008). in the eyes of the consumer. However. No other supermarket offers such premium quality products with great service and such a large range of organic products as Waitrose. significantly superior. which are. . (Euromonitor. Waitrose offers unique and differentiated products. such as Sainsbury¶s having more upmarket positioning and Tesco¶s cost leadership. most have their own private labels and also target slightly different markets.

There are a few major competitors. UK retailing industry is believed to operate in a very mature market. Undifferentiated product markets are more price competitive and that the organizations compete fiercely with one another in an attempt to differentiate themselves in any way possible. . (limited or slow growth) as it is a mature market and these four organizations are so well established with large investments in assets and market share that there are extremely high exit barriers as there is a lot at stake.` ` ` ` ` The overcapacity in grocery retailing suggests very fierce competitive rivalry among the members of the industry.

With such products holding a high profit margin it has proven to be a successful company in an attractive industry. . this analysis has proven that smaller niche marketer¶s can be successful and profitable in targeting the uppermiddle consumer by specializing in the sale of quality delicatessen and fresh foods.` Although the UK supermarket industry is both crowded and competitive. that are superior to its competitors products and services. Sainsbury¶s also successfully uses a differentiation strategy to provide unique benefits to its customers.

. Retrieved from Business Source Premier database. (2008. Euromonitor International.United Kingdom Report. Retrieved from Global Marketing Database. (2008. (2008. Euromonitor International. Retrieved from Global Marketing Database. (2008.United Kingdom Report.United Kingdom Report. Retrieved from Business Source Premier database. June 25). Retrieved from Global Marketing Database. Supermarkets. Aug).` ` ` ` ` Datamonitor. Euromonitor International. (2008. Datamonitor. June 25). June 25). Food Retail in the United Kingdom: Industry Profile. Company Spotlight: J Sainsbury Plc. J Sainsbury Plc Retailing. July). Waitrose Ltd Retailing.

Sign up to vote on this title
UsefulNot useful