The Food (Grocery) Industry - Essay Example

Introduction The organisation of businesses is very imperative for any trade establishment. In order for the business to grow and develop, there should be extensive understanding of the factors that affect the business and more importantly the external factor. Basically the business organisation just like any other system is prone to effect of interactions with people, other organizations, and the government. External factors that affect business are evaluated in terms of SWOT, PESTEL, PORTERS FIVE factors and STEER analyses. Zinced the beginning of the new millennium, the world economy has been very unstable, having booms and depression very often. Currently there is a wide spread economic recession that necessitates study of external factors affecting businesses as many of them are closing down due to this. As a management consultant, I will help the United Kingdom’s grocery industry to asses its current competitiveness and its macro environmental position so as to be able to assist in making decision about the possible strategies to be applied in future The Grocery Industry A lot of businesses are venturing in UK grocery industry, in the year 2001, the number of groceries was very high and their operative average value was estimated to be Around 103.4 billion pounds. The food industry has become the core business venture of many supermarkets and expenditure on food stuff in the UK; this growth has been constant since 1990 (Brassington & Pettitt 2006). Analysts have ascertained that the food industry could be the only business that is recessive proof. None the less, the non food articles are responsible for the increasing share. The supermarket especially the grocery industry is led by large supermarkets and groceries namely ASDA, Safeway, Tesco and Sainsbury. Waitrose is one of the leading groceries in the United Kingdom. It has shown considerable growth despite the economic recession that been affecting the industry since the year 2001(Brassington & Pettitt 2006). The industry has been doing very fine with Waitrose operating 137 stores, Tesco operates 146 stores, ASDA operates over 100 stores over UK and the trend is the same for other companies including Safeway and others. The PPG has made it very difficult to access out of town permission for planning. This has actually jeopardised the strategies by some of the businesses which wanted to open new food and home super-centres (Coe 2004). Clients emphasize on healthy eating and this means they purchase more organic foods as opposed to buying genetically modified foods (GM food). Many groceries have worked hard to serve this trend providing fresh quality food stuffs since the customer’s knowledge on environmental awareness has increased (Dixon 2005). The groceries have recently embarked on a range of activities to maintain a greener environment and usually publish reports. The supermarkets dealing in groceries also provide sandwiches and other fast foods that can be taken at ago (Keynote 2002). The increased use of the internet and the development of the information technology, the groceries have ventured to use this technology for offering good and cost effective services since many people are also using the internet (Coe 2004). The quick check system helps the clients to scan the available products and this saves them the time that could otherwise have been lost on queuing. There is lot of diversity in the products being offered by the groceries in the UK. Firms like Tesco offer other services like non food stuffs while others like Waitrose specialize in provision of fresh foods, wines, delicatessen among others. Just to ensure that one really understands the effects of economic recession on the grocery industry in UK I have selected Waitrose groceries to evaluate the environmental factors. This is discussed comprehensively as below (Dixon 2005) The Environmental Analysis Currently, Waitrose is operating over 137 stores in the UK and the company has an employment for over 27,000 employees. In the year 2001, the company’s turnover totalled to about 1.98 Billion pounds. Waitrose and other stores have adopted to focus on differentiation strategy (Morelli 2003 & Thompson 2001). Currently, Waitrose is positioned at a better position as the market segmentation shows that the company is very competitive. The online shopping facility that was set up recently has made very good progress; though this trend should be continued the business should be very careful not to alienate the older clientele (Poole et al 2002). . For future growth and development, I would recommend that the firm should establish the market mix of product and product development strategy. Close to a products that are of a constant high standard, expansion to the north west is very important as the business is currently concentrated in the south east UK (Morelli 2003). Since the world is becoming liberalised and the economy is very unpredictable with booms that are punctuated with recession, it’s very important that the Waitrose groceries and the entire grocery industry in the UK come up with some diversity strategy that will keep them in business even when the other products are not ‘moving’. By this I mean that I support the move for diversifying into the non food industry (Blythman 2004). The company should also seek to merger with other firms which will offer expertise and also carry out some acquisition to increase the rate of expansion and when this is achieved, the company will enjoy the economies of scale in its operations. As already identified earlier, the analysis of the environmental factors that affect a business include the SWOT analysis, PESTEL among others. Below are these analyses. The PESTEL Analysis This is the pestle analysis of the grocery industry in the United Kingdom; PESTEL analysis is one of the tools that are used by businesses to evaluate the external environmental factors (Blythman 2004). It is an acronym that means Political factors, Economic factors, sociological factors, environmental factors, and Legal factors. Table 1. Pestel Analysis: Grocery industry in UK These are basically the external factors that affect the grocery industry. Political factors Economical factors Government insistence on genetically modified foods The guidance on policy planning The European Union law on competition The economic depression, though the grocery industry is relatively recession proof The market value has increased from the 2001 (103.4bn GBP) Social Factors Technological Factors Increased healthy eating and Organic foods Reduced cases of take-away and eating out. conscious on Conservation of Environmental advent of IT has improved Communication and operations Optimized Chains of supply Better transportation/ and cold storage Environmental Factors Legal Factors The development of greener environment Regulation of environmental conservation The regulation by the food standards act The law on expansion of the businesses The competition commission Table 2.0 SWOT analysis: UK Groceries SWOT analysis discusses the external and internal factors that have been affecting the grocery industry in the UK during this time of economic recession. Strengths and weakness are internal factors while opportunities and threats are factors from outside (Snir 2008). Strengths Weaknesses Many firms have their own entirely balanced Labels Some operate delivery work system Provision of quality fresh foods Provision of a variety of products Online shopping has a lot of limitations Lack of space for expansion as there is more stores in existence Dependence on operation of own labels Opportunities Threats There is possibility of mergers and acquisition (Partnerships) Introduction of e-commerce (online shopping) Expansion to non food ventures Several firm from outside UK are entering the market There are some smaller stores that target high end market Penetration of own brands is slow Boston Consulting Group Matrix This is the analysis of the business products ranging from the cheap ones to the premium brands. They are analysed on a grid that evaluates market share and growth. There three four of categories of products; stars- show high share and high growth; Cash cows- high share and low growth; question marks- low share and high growth and dogs- low share and low growth (Poole et al 2002). Table 3.0 Boston Consulting Group Matrix Relative Market Share High Low Rate of Market Growth High Stars Question Marks Organic product of food E-commerce Sandwiches and Sushi Own food brands Better Services Low Cash Cows Dogs Own product brand Products Wines and Delicatessen Frozen raw foodstuff Flowers Products for Entertainment Marketing Despite Recession; Analysis of the business environment is very important before coming up with a marketing strategy. The marketing style adopted by groceries and supermarkets. The most important players to consider when designing a marketing scheme are the clients and the competitors so that the buyer behaviour can be manipulated to benefit the business by purchasing more while keeping a competitive advantage over competitors (Creevy 2008). Basically the current business environment shows that the number of buyers is reducing as the credit crisis has led to loss of jobs and the consequence of this is reduced purchases as many people cut down of some expenditure (Wrigley 2002). The current estimated consumer cut down is about 57%. The prices of basic products increased considerably over the past few years according to the Mysupermarket.co.uk it was estimated at 11% per year. Groceries and supermarkets are struggling very had to stay at the top of the business and also venturing into other countries like Germany where they have already won the war. The risk of recession presents an opportunity and the supermarkets have advertised their land requirements in the media and have predicted an enormous increase (Creevy 2008). Top groceries and supermarkets (Aldi, Lidl and Netto) should strife to maintain and increase the market share which is currently at 40% combined with over 500 stores. The marketing mix has been very unique approach as the supermarkets stock assortment of well recognised brands like Nescafe and Heinz plus other Dutch and German products. Over the next twelve to eighteen months, the groceries and supermarkets should improve on their display of products to add glamour (Wrigley 2002). The products range from alcohol brands, bakery, cereals, desserts, sweets, fruits and vegetables, pasta and dried foods, pets and health and beauty. The foods are displayed in fridges and this offers wide-ranging effects of sausage and other snacks. The aisles should be designed in attractive manner in that the discount tags are colourfully displayed with the clothing stacked in an organized manner (Leroux 2009). To diverse the product portfolio, the supermarkets should provide seasonal delicacies like barbecues. The groceries should adopt price cuts and give offers in order to keep up with the competition from each other players in the market like Tesco, Aldi, Lidl and Netto which are highly competitive. The current statistics reveals that the value line of Tesco products is lower making these goods cheaper than those offered by Aldi, Lidl and Netto (Leroux 2009). These supermarkets should now realise that customers are very informed and they a understand that discounts do not imply poor quality hence if the use of offering discounts as a marketing strategy is implemented, then the supermarkets are bound to increase their sales by a greater margin, Duxbury (2008). Lidl property director has confirmed that the supermarket is ready to take an extra mile in order to keep competitors at bay and this would include stocking and dealing in any product that would make commercial sense (Duxbury 2008). For this purposes the supermarkets have placed their interests to purchase land on the media as mentioned before, this is as a result of property slump. The Waitrose groceries need to maintain good working relationship with financial institutions like banks because they are very critical players to the business especially when they need to keep up the expansion that has been recorded over the past years or improve on it (Keynote 2002). It’s recorded that in the year 2006 Lidl alone opened 625 stores such an enormous increase cannot be made without collaboration with bankers. The supermarkets should strife to maintain the reputation they have earned over the past few years by providing quality products from reputable suppliers and carefully select their market target (Creevy 2008). The past drastic expansion has partly been attributed to the type of customers the three supermarkets are targeting; the customers are more wealthy and confident clients. Currently the supermarkets are appealing to even a much broader base of clientele than the market share indicates (Creevy 2008). Competitive Advantages Different groceries and supermarket have different competitive advantages; Kroger is a widely known to be a low cost operator. This firms offers food products to clients at relatively low price and be able to make profits based on the financial operation structure. This has actually been referred to as the number one competitive advantage. It usually results in the benefits of economies of scale enabling the firm to provide low prices that do not seriously affect the financial returns, Competition Commission, (2000). Safeway has a unique strategy where by it has differentiated itself from the rest as it improves the shopping experience. This has placed the firm at an advantaged position in terms of competition. The main aspect of this strategy is the way it has utilized the lifestyle format for supplying goods (Morelli 2004). The company also concentrates on differentiating itself by ensuring that it’s the first one to be dealing in superior quality perishables like seafood, bakery, deli, meat and flowers. Some groceries usually operate without clear strategy but still the manage to have a competitive advantage because of varied marketing strategies. Supervalu for instance operates in merchandising and consumer know kedge. They brag of achieving their competitive advantage (and economies of scale) by applying a combination of strategies particularly being both a wholesaler and a retailer, Competition Commission, (2000). Conclusion The grocery industry has been referred to as recession proof but there is evince of reduced expenditure on these products. References 1. Brassington F. & Pettitt (2006). Principles of Marketing. Prentice Hall 2. Blythman J, (2004) Shopped. The Shocking Power of Supermarkets. Fourth Estate, London 3. Creevy J (2008). Netto effects. Retail week. Retrieved on 3rd May 2009 from http://www.retail-week.com/Food/2008/08/netto_effects.htmlCoe N M (2004). The Internationalisation/Globalisation of Retailing: Towards an Economic – Geographical Research Agenda. Environment And Planning A 36 1571 – 1594 4. Competition Commission, (2000). Supermarkets. A Report On The Supply Of Groceries From Multiple Stores In The United Kingdom (The Stationery Office, London) 5. Dixon, T J, (2005), the Role of Retailing in Urban Regeneration. Local Economy 20 168 – 182 6. Duxbury N. (2008). Bargain Britain. Propertyweek.com retrieved 3rd May 2009 from http://www.propertyweek.com/story.asp?sectioncode=38&storycode=3112432 7. Keynote, (2002). Supermarkets & Superstores, Market Report 8. Leroux M (2009) Discounters Aldi And Lidl Storm World Retail Top Ten. Times online retrieved on 7th March 2009 at 5.43 pm from http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article5505312.ece APA Style Citation. 9. Morelli C J, (2003). The Politics of Food. International Socialism Journal 101 45 – 64 10. Morelli C J, (2004). Explaining The Growth Of British Multiple Retailing During The Golden Age 1976 – 94" Environment And Planning A 36 667 – 684 11. Poole R, Clarke P C, & Clarke D B, (2002) Grocery Retailers and Regional Monopolies. Regional Studies 36 643 – 659 12. Snir, N. (2008). Preparing For a Recession - Grocery Shopping Online. Retrieved 3rd May 2009, from http://ezinearticles.com/?Preparing-For-a-Recession---Grocery-Shopping-Online&id=1678719 13. Thompson J.L (2001). Understanding Corporate Strategy. Engage Learning EMEA 14. Wrigley N, (2002). Food Deserts in British Cities. Policy Context and Research Priorities. Urban Studies 39 2029 – 2040 . Read More