AN ANALYSIS OF THE UK SUPERMARKET RETAIL SECTOR - Case Study Example

AN ANALYSIS OF THE UK SUPERMARKET RETAIL SECTOR Introduction The retail sector is very important for any country. It plays a great role in the economy of any country since it acts as the driving force of the economy. Unlike the manufacturing sector, the retail sector is in direct control of the market and has more influence on the trends in the market. Many countries including UK have pegged the strength and performance of their economies on the retail sector. There is a wide range of investments that are made in the retail sector of any country. Since it links the manufacturing sector with the customers, it assist is giving information on how various products or services should be adopted to fit the needs of the consumers. The retail sector is one of the most competitive sectors in the economy with many players and one of the characteristics of this sector is its innovative nature. Players in the retail sector keep innovation as a way of surviving intense competition that is evident in the market. This paper will analyze the retail sector in the UK. It will look at the structures of the industry in the way it is made up and the way it operates. It will then looks at the forces of demand and supply in the industry and the customers for the sector. Finally it will look at the future prospects of the industry. The UK retail sector Like in other countries, the UK retail sector acts as a Bridgestone which helps investors to cross over to other forms of business. It helps those who are aspiring to enter into business world to experiment it before making huge investments. In the UK, the retail sector employs more that 3 million people which is equal to 11% of the workforce in the UK. It has grown to be a multibillion industry in the recent past valued at approximately 260 billion UK pounds. By 2012, the sector is expected to generate new employment opportunities not less than 27000 most which will be in the management levels. Industry structure - how is it made up' The industry has a centralized structured with clear distribution chains. This structure allows many of the shop owners in the UK to view each store as a standard unit which is serving a homogenous national market. This means that there is some kind of uniqueness of in the industry with each shop having a high degree of specialization. The industry is structured in a way that the supply chain is well defined. However major players in the sector who control its operation are the consumers, suppliers, distributors. However the retailers dominate this chain of supply in the industry. The main structural feature of the retail sector in the UK is the centralized production and a defined distribution chain. (Griffith and Harmgart, 2008) Sources of supply Due to the diverse nature of products that are sold in the retail industry in the UK, there are also various sources of raw material for the industry. These sources are both national sources and international sources. This depends on the nature of the products that are being sold in the industry. There are those raw materials which can be sourced from within the nation but there are others that will have to be important. Although some raw materials can be sourced within the UK, the supply does not equal the demand and hence the industry is forced to import from other countries. Most of the manufactured products are sourced from within the local industry. There are various industries in the UK which produced at a competitive rate in the market. However other sectors like the food sector imports most of its raw material since the UK is not endowed in some of the agricultural products. Most of the agricultural products that are produced in the tropical region are imported into the retail market in the UK which forms another supply chain. Agricultural products like tea, flowers, coffee, and other horticultural products and not produced in the UK and are imported from countries like India, Kenya, and from other countries. The service sector in the UK has been seeking services of professionals from within but there is also an evidenced outsourcing in the market. There has been outsourcing of services from other overseas companies but also from within the country. There is problem in the supply chain currently especially as concern the agricultural products. The issue of global climate has brought about the food miles which are affecting the supply chain of these products as environment campaigners have been calling for banning of all airlifted products to the market since they lead to environmental pollution. This has been causing rise in price as the confidence of supplier in the retail market takes a wait and see approach leading to low supply of products in the market. Products/services There are various products and service that are found in the UK retail market. This ranges from tangible products to services including financial services. There are various choices in the retail market ranging from stores, internet, mail order, TV shopping and other services all offering different goods and services. The good sector in the UK is held by stores which offer a wide range of products. In particular there are several supermarkets which offer several products to their customers. These stores offer products like pharmaceutical products, clothing, foodstuffs, and other manufactured goods. The goods sector has been one of driving force behind the growth of the industry in the UK. On the other hand, the service sector also offers a wide variety of services including financial services, advisory services and others. The service sector has been supportive of goods sector especial the financial sector which has provided loans and funds for the growth of the industry. Research into the retail industry shows an increased borrowing for the goods sector from the financial sector within the retail industry. The products and service in the industry are marked by cheap products and no-frills services. There is a trend and powerful brand image in the sector which shows the high level of marketing that is used in the sector. There has also been rise in the offering of home deliver services which is resulting due to intense competition of players in the industry. A new trend in the industry has been witnessed in the goods sector where there has been increased setting up of factory shops which are opened by manufactures and are new comers in the retailing trade. This has been descried as a breakdown of the traditional centralized supply chain. (McKinsey, 1998) Anther marked change in the sector has been rise of convenience stores which are becoming very popular with consumers. The number of forecourt convenience stores has been on the increase. However their growth is being affected by the growth in shopping at cross-channel hypermarkets which are offering goods at cheap prices owing to their low rates of duty charged on them. Demand Like in other part of the world, there has been increasing spread of spending culture in the UK. The tradition culture of spending on what is required is slowly dying away and there has been evidenced increase purchase from consumer. This has been enabled by increase in disposable income as more and more people shift their livelihood upward. As a result there has been increased demand for goods at the retail level. One of the peculiar characteristics that have been witnessed in the UK retail industry is the change in loyalty that customers had earlier held to certain brands of commodity. Apparently, there is a change in the way customers are buying goods and the increased entrance of many players in the retail market has affected the way retail traders conduct their business. Increased competition has seen increased innovation in the industry with shops struggling to hold customers. Customers to the retail industry include those coming from the middle class. Apparently the middle class has been described as the driver of economies since it takes less measures in the way it consumers. Improved economy has seen increased income in the middle class which ahs continued to change with the changing global culture. Like in all other countries, the tide of globalization has brought a change in the culture of the people and more and more people are becoming conscious of what the market can offer. The global culture has also changed towards a spending culture and more and more people are spending in the market. Apparently there has been increased demand in some product while there is decreasing demand of other products. There has been increased demand of products which are coming with the change in global culture like clothe, flowers and others and at the same time a decrease in demand of things considered a bit traditional. Influence of prices The price of the products in the market is influenced by the forces of demand and supply. This means that the demand of products in the market will affect the way they will sell. Though there are other factors that have been affecting the price of commodities in the market which can be directly attributed to global changes like the fuel prices, the force of demand and supply still plays a crucial role in determining the price of products in the market. At the same the price is being affected by demand of the product which has of late become a subject of scrutiny by the consumers based on the issues of environmental concerns, ethics and fair trade issues, health issues, and others. The advent of Euro has also made it easier to compare prices and make choice where to buy which is affecting the setting of prices. (UK Statistics Authority, 2008) Competitor products Products from the retail industry have been facing stiff competition from product produced in other countries. There have been issues of concerns on the way products imported from developing countries like China and other have been competing with products produced in the retail sector in the UK market. But on maters on substitution, there have been fewer products which can be substituted for the products produced in the UK and hence they have maintained their share of market. (Bertrand and Kramatz, 2002) What factors will affects the industry in future' In the future the industry is expected to be affected by a number of factors. One of the greatest factors that will affect the industry will be the change in global culture which has been changing on daily bases. Government regulations especially in effort to streamline the operation of the industry with the new laws of the EU are also expected to affect the industry in the future. Reference: Bertrand, M. & Kramatz, F. (2002). Does Entry Regulation Hinder Job Creation' Evidence from UK Retail Industry. The Quarterly Journal of Economics, November, 1287-1345 Griffith, R. & Harmgart, H. (2008). Supermarkets and planning regulation. CER Discussion Paper 6713 McKinsey, (1998). Driving productivity and UK economy: Retail industry. McKinsey Institute , October 1998 UK Statistics Authority, (2008). Prices. Retrieved on 4th April 2008 from, http://statistics.defra.gov.uk/esg/index/list.asp'i_id=052 Read More