UK Food Retailing Industry'
UK Food Retailing Industry'
* Identify the
main operators 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
main companies to be compared and analysed in the following report.
These three businesses 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 ‘players’ 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.
Afterwards, there has been a focus on the Financial Analysis and the ‘Cultural
Web’, both tools of internal measurement. To complete the analytical part, the
companies’ major strengths, weaknesses, opportunities and threats (SWOT) have
been defined. Finally, a conclusion is given.
3.1 PEST–Analysis
The PEST–Analysis identifies four main categories influencing any organisation, namely the
political, economic, social and technological factors (2002, p.102). The following section
therefore, aims to give an overview of the impacts for the food retailing industry.
Findings:
Political Influences
Concerning environmental protection the industry has to be aware of several legislation e.g. laws
non-food retailers will be influenced by the forthcoming waste management regulations proposed
these businesses.
After past food scares such as ‘BSE’ and the ‘Food and Mouth Disease’, new threats by bovine
tuberculosis and chronic wasting disease will sharpen national and supra-
national food safety laws and regulations. An animal disease crisis could even “devastate milk-and
Furthermore, there are standards for nutrient descriptors such as “light”, “reduced fat” and “low
fat”, set by governmental and European agencies like the European Food
Especially the UK Competition Commission and the Office of Fair trading (OFT) are ‘watching’
cumulative market share of the top five UK supermarkets (between 14%-24%) ( August 2001, pp.
9-30).
Other problems may arise within the e-business, due to too high fees and too complex
Economic Influences
The UK food retailing industry is less influenced by seasonality, except the Christmas times were
usually a growth in sales occurs.
Another important influence can be found in the prediction of an economic growth in the next
years. However, sales have dramatically been decreased in the past three years due to the slowly
economic recovery of the USA. Other factors may be seen in the weak economy of Europe and
other countries which make an upward trend in sales very hard to achieve (ANovember 2003,
p.29).
The UK is experiencing a trend towards healthier food, as well as implying a strong growing
However, since the 21st century there has been an increasing consumer preference for quality
products with good tastes. The UK population is also becoming more and more experimental
within their eating habits. In the past years a trend towards the desire of exotic fruits, fish, etc.
Technological Influences
In the food retailing industry, specialized equipment and trucks, such as freezer trucks are
essential.
Criticism:
For laymen, it is really difficult to filter out the most important influences within the four
categories because there is such a wide range of resources. Hence, without being an”insider” the
Justification:
The PEST–Analysis represents an overview of the food industry which will then be a good starting
will provide the companies with basic information that needs to be considered for future
strategies.
Porter’s Five Forces Model is based on the simple fact that each industry and
market is influenced by several competitive forces namely: threat of entrance,
bargaining power of suppliers and buyers, competitive rivalry and threat of
substitutes. The intensity of competition and therefore an industry’s
attractiveness and profitability will mostly depend on these external factors
( October 4th 2003]).
Diagram: Findings:
First of all, competition within the food retailing industry seems to be large as well as diversified.
Asda, Tesco, Morrison (including Safeway) and Sainsbury’s need to be named as the major
competitors, which have a tremendous range of resources at their disposal. Although, one may
has to mention smaller retailers (Jacksons, Spar, Lateshops, etc.) which are present in regional
areas, e.g. in Northern England and can therefore be seen as competitors, as well.
What is more, differentiation between the numerous players and their products is scarce. As
expensive equipment, factories and estate are required in the food retailing industry, barriers to
exit are quite high, too. Furthermore, the costs for customers to switch to rival brands are
The group of buyers is formed by individual customers and restaurants. But as the individual
customers represent the most important buyer and therefore, one could speak of a concentration
of buyers. As for an almost endless range of products offered, switching costs to rival brands are
Producers of food and other goods as well as packaging manufacturers have to be seen as the
major suppliers in this industry – i.e. they do represent a fragmented source of supply. Taking
into account that the key players of this industry possess e.g. packaging factories, produce their
own ‘branded’ products and that on the other hand switching costs from one supplier to another
are low and do not involve high risk, the food retailing industry faces little pressure on margins
Diversified products, the offer of different brands within each supermarket and the creation of
supermarket own brands are examples of the wide range of substitutes for products within the
food retailing industry. The almost “non-existence” of switching costs and the fact, of the intense
offer of similar products, both contribute to a quite tremendous threat of substitutes. Even though
these competitive pressures could be by-passed through building up high brand loyalty and close
customer relationships as well as through offering high quality, better taste or innovative
products.
Entry to the industry of food retailing seems to be quite difficult, as high initial investment will be
required for building new stores, manufacturing plants, etc. A relatively strong brand loyalty of
customers also contributes to entry barriers. But as switching costs for buyers are low, the threat
To start off, regarding the circumstances that the key players of the food retailing industry created
their own supermarket brands and the offer of other products may also
It also needs to be considered that the more complicated an industry’s market structures are, the
less applicable this model is. Furthermore Porter’s Five Forces Model
does not take into account non-market forces such as public and stakeholders, which could be
regarded as a “sixth force”. (This force will be briefly discussed at the end of this analysis.)
Justification:
It is essential for any business to have an overview of the forces influencing a company’s
this tool was regarded as offering a good basis for the location of direct competitors as well as
As an analysis of the competitive environment of individual SBUs within the companies has not
needs to be beard in mind, that this analysis therefore, can only be considered as a “starting point
packaging material has a large impact on the companies. In this context, the companies’
individual competitiveness depends on how well they adjust their product range and strategy to
Strategic groups have to be seen as “organisations within an industry with similar strategic
characteristics, following similar strategies or competing on similar bases ( 2002, p. 122).” When
identifying such groups one may refer to a broad range of different characteristics e.g. extent of
Diagram:
The number of groups and different companies which form the single strategic groups depend on
the characteristics, one refers to. As you may see the main competitors in
the UK food retailing industry are Asda, Tesco, Morrisons (including Safeway) and Sainsbury’s,
which are either in the same strategic group or the one next 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 Sainsbury’s stragy is customer focused relying on quality and offering
However, Asda is with the lowest price offers the cheapest one of the three companies but closely
followed by Tesco and then Morrisons ( September 6th 2003). In fact, most of all big
supermarkets lost their strategic position and as well their SCA. Therefore, one may has to point
out that their strategies are easy to imitate and it also makes it much easier for ‘rivals’ to win the
competition battle.
Moreover, whenever a company wants to expand its position and therefore needs a new strategy,
it needs to bear in mind the different strategic groups. The mixing up of these strategic groups
Criticism:
Even though several companies in the same industry may share common characteristics, each
analysis?
In addition, the evaluation of several characteristics may be quite subjective in pointing out the
Justification:
This specific analysis has been applied as “the conceptualization of strategic groups can make the
process of competitor analysis more manageable ( 2001,).” Within the food retailing industry
there are numerous competitors. Therefore, it does not seem to be feasible to analyse all of them
individually.
Furthermore, “a knowledge of the strategic group structure can be extremely useful (Aaker, D.,
2001, p. 61)”, when reviewing a company’s strategy, according to the knowledge gained on the
Diagram:
Criticism:
First of all, as not states but companies do compete against each other, competitive advantage
should therefore be examined on the basis of the company itself rather than on a national basis.
What also seems to be striking is, when having a closer look at the model, the National Diamond
Furthermore, the four factors are not only interdependent but are also influenced by
For achieving competitive advantages, more than just the right policies and
strategies are needed. New inventions by chance, price shocks etc. may largely
influence future developments within a nation ( October 3rd 2003]).
Justification:
In order to examine whether the UK food retailing industry - as the home base of
the chosen three supermarkets – is favourable to achieve competitive advantage
on a global basis, this tool has been regarded as being very useful. This is
particular important as the home base of each company will often largely
contribute to the extent of its international strengths (October 3rd 2003]).
In addition to key figures e.g. turnover or cost of sales, several ratios such as performance and
activity related ones will be examined in the following analysis.
Diagrams:
Findings:
Even though one might think that the chosen companies are similar in their figures to each other-
First of all, there has been seen a significant deterioration in performance, as the return of capital
(Morrison). This is due to a single factor – that each company has different costs in delivery,
relationship between income and operational assets used to cause this income (Davies and Pain,
2002, p. 159). Therefore, Morrison is showing the best figures and Tesco
the worst.
Similar results are also stated in the capital gearing ratio, which shows that Morrison and Asda
Nevertheless, the current ratio implies that Asda’s financial stability is better than Tesco’s or
Morrison’s.
Criticism:
First of all, it cannot be denied that all the ratios themselves do not say anything about a
company. Ratios will always need to be subject to comparison with ratios from previous years. In
case of a comparison with similar companies, one needs to be aware of probably different
accounting methods and the availability of material (Boczko, T., 2003, Lecture notes), e.g. the
capital gearing number of Tesco differs too much compared to the other companies. Therefore,
Justification:
However, a financial analysis has been regarded as a useful tool to facilitate an understanding of
absolute values, and performance may be seen in context ( 2003,) - but only in comparison to
previous years. It was supposed to help to find out about the financing of the different companies
because then it can be seen as a first step towards a stakeholder analysis, 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.
(Johnson, G. and Scholes, K., 2002, p.230).” It is composed of the following elements: stories,
symbols, power structures, organisational structures, control systems, rituals and routines as well
as the paradigm.
Diagram Morrison:
Diagram Asda: Diagram Tesco:
Findings[2]:
The origins of the companies lay approximately 100 years back in time. However, each business
has its individual paradigm which guarantees either helpfulness or low
prices. Therefore, their business strategies are very similar to each other and represent the overall
Even the companies’ rituals and routines do not show any differentiation from one another. They
all like to help the community with special donations and funds, as well
However, one may has to mention that Tesco with its policy ‘No one sells for less’ may be seen as
the ‘winner’ for consumers in the food retailing industry, due to the
award of best reputation in November 2003. Moreover, Asda following on 2nd place was then
awarded for best management (Simpson, P., November 28th 2003), p.2). In
fact, these leads to result that Asda and Tesco may be seen as the major competitors with offering
the lowest prices in the food retailing industry. On the other 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., December 16th 2003,
p.15).
Nowadays, one may believe that through the remaining and dominant pricing strategies, big
products, so that the smaller supermarkets will not take over their position.
Criticism:
The main problem is that internal analysts have a subjective point of view of a company’s culture
and therefore, they often take rituals and structures for granted. Hence, external consultants
would be more suitable to undertake such an analysis, but on the other hand they often do not
Justification:
The Cultural Web offered a good opportunity to gain useful insights in the characteristics of the
companies, contributing to coherence in their cultures. The analysis points out that every
work towards a single common goal – in this case towards the paradigm “The very best for less” –
Morrison; “Always happy to help” – Asda; “Every little help” – Tesco and “” – Sainsbury’s.
The SWOT-Analysis can be regarded as an essential tool for identifying a company’s strengths
and weaknesses, but on the other hand also the opportunities and threats within an industry.
Diagram Morrisons:
Diagram Asda:
Diagram Tesco: Criticism:
In order to analyse the strengths, weaknesses, opportunities and threats, previous analyses of the
external and internal environment would be a useful basis.
Justification:
This analysis points out the most important issues from the business environment and the
strategic capability of the three companies, which can probably have an impact
Furthermore, it reveals the weak spots, which each individual business has to work on to assure
The UK food retailing industry is characterised by an immense high competition and low-price
strategies.
Nowadays, many of the main competitors such as Asda, Tesco and Morrisons concentrate on good
products.