How Tesco, Sainsburys and Morrisons Have Coped with Recession - Literature review Example

How Tesco, Sainsbury’s and Morrison’s have coped with Recession Due Literature review Introduction Supermarket is one of the recent concepts in UK. Since supermarkets first developed, there have been enormous changes in the environment of the food sector as a whole. The literature review part is based on academic journals, articles, books and reports written on grocery supermarket retailers. The research is on the Supermarkets in UK. In this chapter, I have studied and analyzed the works that has been done previously on this topic. In the literature review part I will analyze the companies’ performance in last five years. The companies selected are Tesco, Sainsbury and Morison. I will analyze those data along with the theoretical aspects of that. This part will contain the consumer behaviour towards the retail chains for the last five years, brand loyalty of them. The companies’ strategy for maintain the loyal base of customer will also be analyzed as well as analyzing the impact of the strategies on the customers. The Problem: Consumer Behaviour after the recession and Brand Loyalty The recession witnessed from the year 2008 to 2011 had a greater impact on the UK chain and retail market in general. Consequently, leading players in the retail market such as Tesco, Sainsbury and Morrison’s were equally affected. The general impact was occasioned by public (consumer) response to the imminent financial and economical changes. The global recession was characterized by increased prices due to inflation, higher oil prices from exporting countries in Asia and North Africa. Due to the overall changes, the consumers have become value based in terms of key commodities they value with view to the available disposable income (Gbadamosi and Nwankwo 2010). The implication of this change in behavior is that consumers are willing to pay higher prices for valuable commodities if they meet the required standards of quality. Further, the consumers seek to find alternative products which are affordable where quality is not their main concern. The chain stores have been forced to respond to this change in consumer behavior which is actively evident in their promotional strategies. Retail companies carry promotion with the view of convincing the consumer of the intended quality at low cost. Such is the need that Tesco announced an investment of £500m to facilitate price cuts, Sainsbury has been forced to change from their long term slogan of trying something new to living well at low cost with the view of maintaining customer loyalty. There is low consumer confidence in the UK economy which is expected to fall further. This offers a great challenge to retail stores especially, Tesco, Sainsbury and Morrison’s. Consumer confidence and spending has been squeezed further down by the government tightening policy on budget hence the consumer is constantly feeling the increase in taxes. Source: Retail Analysis Datacenter, Calculated in 2011 Source: Retail Analysis Datacenter, Calculated in 2011 The changing aspect of the UK population is also a key factor for the retail stores. There is a decline in the ageing population with the general population growing at 0.6%. This implies that the retail starts must repackage their products to meet this changing aspect of the population. The Solution: The Strategies employed by the three Supermarkets over the last 5 years In the wake of the recession, the various retail chain stores have had to adopt various strategies to meet the changing consumer behavior and maintain consumer loyalty. Tesco Strategy Tesco has its focus on quality and simplicity for its customers. This is evident in its slogans such as ‘no one tries harder’, ‘treat people as we like to be treated’ and ‘every little helps’. The retailer also ploughs back profit into the business to reduce operating costs. Tesco constantly checks the prices to ensure it offers the best price in the market. Notably, Tesco performs over 10,000 price checks every week on both local and national basis where consumers are refunded double the amount of difference from purchase of similar product at a competitor. Further, Tesco endeavors to offer the leading range of commodities compared to its competitors. Other strategies include special label, branding and maintaining high consumer profile (Schnedlitz, Morschett and Rudolph 2010). Extensive marketing and advertisement coupled with great global presence also champions the course for brand loyalty in Tesco. Tesco also employs numerous micro strategies such as direct sales and online marketing has increased their market share and sales volume. Its strong corporate social responsibility which has seen greater involvement in community activities and mitigating climate change has endeared the company to most consumers. Sainsbury’s strategy Sainsbury considers providing great food at affordable prices to gain advantage in the food market. The retailer also accelerates the growing preference in non-food while also developing its services and non-food ranges (http://www.j-sainsbury.co.uk/about-us/financial-performance/5-year-summary/). Further, Sainsbury has been increasing its presence through more stores and acquisitions to counter competition from other leading stores. Morrison’s Strategies Morrison’s uses low pricing, strategic advertisement to create and maintain a steady and loyal customer base. It also uses loyalty cards and consumer profiling while also providing specific types of products especially in food stuff. Proper labeling of food as well as branding such as food and fish has also served to attract and glue a section of consumer base. Advantage of the Strategies utilized Based on the strategies as highlighted in the section above, Tesco has been able to retain its market share amid the recession. However, this market share has recently declined to just below 30%. The philosophy of easy access and affordability ensure that such customers are able to return and do purchases with the company (McCrorey 2012). Loyalty cards and customer profiling strategy has been equally important. The decline however is as a result of changing consumer need where disposal income has been on the decline. With the focus on production of quality food at affordable prices, Sainsbury has been able to increase its market share in the food market. However, the retailer has lost a significant share in non-food market with the overall result being that the company has a constant market share between 2010 and 2011 (Varley 2013). The greatest beneficiary in the market over the five year period has been Morrison which employs the strategy of local advertisement, provision of specific services and products such as fish and bakery stuff. Consequently, Morrison has been able to increase its market share annually (http://www.morrisons.co.uk/corporate/2012/annualreport/financial-statements/5-year-summary/Default.aspx). 5 years market share of the supermarkets From the UK Economic Overview, the grocery market has been on the increase though at a lower rate compared to the expectation of the marketing industry (Chesbrough 2011). The average market growth rate has been 5% while inflation has been growing at 7%. Morrison is leading the way in terms of Growth of market share among the three retailers at 6%. This can be attributed to lower price outlets and cheap prices across its outlets. Tesco had its market share decline from 31% but it remains the leading chain store in terms of market share which can be attributed to online retailing and brand loyalty (http://www.tescoplc.com/index.asp?pageid=30). Sainsbury has had its share of market remain constant amid the 5 year crisis period and is bound to rise according to market projections. Source: Kantar Worldpanel Retailer Share Track (RST) Impact of Recession as a whole on Tesco, Sainsbury’s and Morrison’s The impact of the recession has been so severe on the retail companies which have meant increased cost of doing business, low turnover below expectation though profits have been on the increase (Dodds 2009). The companies have been forced to increase marketing strategies while ensuring steady market share. 5 years performance of Tesco, Sainsbury’s and Morrison’s financially Whereas the sales and revenue for Tesco Plc have been on a steady increase, its profitability has leveled off. This is due to the increased cost of doing business occasioned by the recession. In the last two years, Tesco has witnessed a stagnated profit while it remains the market leader in terms of sales. Morrison’s on the other hand have been on the rise in terms of profit while it still has the lowest market share and low sales. The recession therefore has helped Morrison’s to cover ground in terms of market share, sales volume and profitability. Sainsbury have profits increasing, albeit at a lower rate compared to the other two competitors in this category. These trends are depicted in the figures below. Source: The Business Journal, 2013 Source: The Business Journal, 2013 References Chesbrough, H. 2011. Open services Innovation: Rethinking your business to grow and compete in a new era.. San Francisco, Calif.: Jossey-Bass. Dodds, A. 2009. Recessionary strategies for food and drinks companies : the impact on NPD, price architecture and future developments. London, U.K.: Business Insights Ltd.. Gbadamosi , T, and Nwankwo, S. 2010. Entrepreneurship Marketing: Principles and Practice of SME Marketing J Sainsbury plc / 5 year summary. (n.d.). J Sainsbury plc / Home. Retrieved April 14, 2013, from http://www.j-sainsbury.co.uk/about-us/financial-performance/5-year-summary/ Li, Adriana. 2010. Recession: The Impact in the UK Middle market Fashion Industry. Lowth, G., & Prowle, M. 2010. The impact of economic recession on business strategy planning in UK companies. London: CIMA. McCrorey, D. 2012. Innovation in a reinvented world 10 essential elements to succeed in the new world of business. Hoboken, N.J.: Wiley. Morrisons AR2012 | Five year summary of results. (2012, January 29). Home - Morrisons. Retrieved April 14, 2013, from http://www.morrisons.co.uk/corporate/2012/annualreport/financial-statements/5-year-summary/Default.aspx Richardson, J. 2011. From recession to renewal: the impact of the financial crisis on public services and local government. Bristol, UK: Policy Press. Schnedlitz, Peter, Morschett, Dirk, and Rudolph, Thomas. 2010. European Retail Research Tesco PLC - Investors - Financial performance - Five year summary. (n.d.). Tesco PLC. Retrieved April 14, 2013, from http://www.tescoplc.com/index.asp?pageid=30 Varley, Rosemary. 2013. Retail Product management: Buying and Merchandising Read More