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A Retail Food Industry of United Kingdom

Chapter 1 - INTRODUCTION

This report speaks in Volume about the Retail food industry in United Kingdom. The food and retail market in UK is heavily consolidated (Clarke, 2002). There are mainly five companies i.e. Tesco, Sainsbury’s, ASDA, Wm. Morrison and Somerfield that have more than 5% of market share. These companies face extensive competition as well. This report would explore the current trends and happening in the present food retail market of United Kingdom. Further, competitor analysis of TESCO is also being done to know the strategic direction of the UK food retailing sector (Finne, 2008).

TASK – 1 WHAT IS HAPPENING IN THE UK FOOD RETAILING SECTOR?

The UK food retail industry encompasses food, tobacco and alcoholic beverages. All these were worth £88 billion in the year 2002. On adding health and beauty, magazines and newspapers, £108.7 billion rise can be added to it (Huxley, 2003). The market size of UK is very large and it covers almost many countries. The food and retail market in UK is very heavily consolidated. This retail sector of United Kingdom generates around 8% of GDP and provides employment opportunities to almost 2.9 million of the country. There are mainly five players in the market i.e. Tesco, Sainsbury’s, ASDA, Wm. Morrison and Somerfield that have more than 5% of market share (Tesco’s IT strategy to support international expansion, 2008). During the year 1990s, a steady increase in the sales and profits of the leading supermarket chains was being noticed, but by the end of year 2002 a bit slowdown in the retail market was quite apparent. The retail market of UK was reached at the level of maturity and is started saturated. In the situation of saturation, company can achieve growth and success only by capturing the market share of existing dominant player in the market (Huxley, 2003).

In spite of developments of many new stores and innovation in their store formats and new products, they were not able to persuade and encourage people of UK. They fail to motivate people to spend more on food, which can further grow the overall market of the nation. The Food products of UK are quite less vulnerable to the economic cycle and at the same time during the economic slowdown there might be some trading down by the customers (Clarke, 2002). This in turn compels the consumers to cut down their discretionary items and go for only the basic food items. However, it has been forecasted that retail sales of food in supermarkets will nurture significantly from the year 2003 to 2007.

There are many few companies in the retail food industry that enjoys a dominant position in the market (Tesco SWOT Analysis, n.d). These are ASDA, TESCO, Sainsbury and Morrison or Safeway. Among all of them, TESCO enjoys considerably a higher market share of 28.3%. ASDA occupies 16.7% of the market, while Sainsbury and Morrison capture 15.5% and 13.2% market share respectively. There were many changes and trends can be noticed in the retail food industry of United Kingdom (Clarke, 2002). The main drivers for these changes are political structure and trends, change in the environment, demographic factors, innovation in process and product, economic structure and social-cultural and lifestyle aspirations. The detail of all these aspects is being explained below:

  • Political structure and trends: This sector is more likely to be the target of most of the investigations as well as scrutiny (Huxley, 2003). Some of the political trends are land-use planning, public policy and competition commission. Companies need to be more innovative and audacious in terms of their location choices.  
  • Social-cultural and Lifestyle aspirations: This aspect involves attitude and belief of the people, their work and leisure activities and their needs and wants (SWOT, PESTEL, Porter's Five Forces and Value Chain Analysis of Tesco, n.d). Disintegration and polarization will remain in trend in this retail sector. Customers are more likely to become less tolerant and they will be more demanding in regards with the retailers and locations as well.
  • Economic structure and trends: Volume of sales, changing structure of retail market, willingness to invest and social inclusion and wealth are some of the economic trends in the retail food sector of United Kingdom (Newman and Cullen, 2002). The retail market is largely dependent on the economic situation, but it is overlain by the continuous development of large number of retailers.
  • Demographic factors: These factors include several aspects like population structure, location of the masses, age, gender, level of education, and composition of household and marital status (Clarke, 2002). The demographics of United Kingdom are fairly well-known and it can lay emphasis on format attention. In such type of attention people are more likely to face problems and this may influence their behavior (Finne, 2008).
  • Product and process innovation: The main drivers for the change in the retail food sector of UK are E-commerce. The experimentation stage of the E-commerce is now ended and lines are now becoming clearer (Huxley, 2003). However, the main issues in such sector is still home delivery. Innovation in the product and process involves digital revolution, system of home deliveries, e-commerce and e-business and retail organizations (Powell, 1995).
  • Change in the environment: Environmental changes encompass logistics and supply and use of land, space and location. Consumers as well as the retailers of the UK will make more fundamental choice (Newman and Cullen, 2002).

Competition in the retail food industry

This sector of UK is facing immense competition from the leading players in the market. Tesco has overtaken the market share of Sainsbury and is now increasing its lead in this sector. Sainsbury, who once dominated the food retailing for many years in the country, is now replaced by TESCO (Clarke, 2002). From last so many years, Tesco has retained third largest food retailer place in UK and now this company is number one. ASDA is also one of the strong players in the retail market. With the rising trends in the market, Sainsbury has lost all its competitive advantage and market share in the market (Fin

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