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 (Finne, 2008).

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The UK retail Food market is being dominated by Supermarkets, with around 56% of sales. However, there are many key issues, which are faced by the food retailers of UK is the problem of differentiation. This means that none of the store in UK has made itself distinctive in comparison with the other stores or in other words they do not have anything different to offer to their customer (Huxley, 2003). At the same gaze, fresh food and all convenience foods were now overviewed as a competitive battleground. Many stores have developed mini bakeries and fishmongers within their stores. All these moves by the retailers are easily imitable and copied by the competitors.  However, there is one area, which can be used by the companies to gain competitive advantage is the use of Information Technology (Powell, 1995). For instance, Tesco has adopted the power of IT in order to target their customers. They were also successful in creating value for their customers through information gained from their loyalty cards.

TASK – 2 TESCO – COMPANY INTRODUCTION

Tesco is a multinational retailer of groceries and general merchandise based in United Kingdom (Tesco Competitive Analysis 2005, 2011). The company was established in the year 1919 and is headquartered in Hertfordshire; U.K. TESCO is the third largest companies in the world, which operates in almost 14 nations with 2,318 stores approximately. During its initial stage company has emphasized on retailing groceries, but later on company decided to enlarge their assortment of goods to furniture, clothing, electronics, financial services, software and telecoms (Newman and Cullen, 2002).  The company was able to capture large amount of market share in UK through its rapid innovation and efficient operational management system.  They have adopted many business strategies from time to time in order to became an outstanding international retail stores all around the globe (Humby, Hunt and Phillips, 2004).

Porter’s five force analysis

Porter’s five force model is used to analyze the competitor and industry. It is a framework for industry analysis and business strategy development. It includes five forces i.e. Threat from the New Competition, Pressure of prices from the complementary products, Bargaining powers of the suppliers, Bargaining powers of the buyers and Rivalry among the existing competitors (Porter’s five forces for private health care industry, n.d). This will help Tesco to evaluate the competitor position in the market.

Competitor analysis of TESCO

Company faces competition from many firms in the market (Humby, Hunt and Phillips, 2004). However, with the use of innovative technology and efficient operational management system, they were able to achieve the path of success and positioned itself as a dominant player in the market. TESCO faced competition from ASDA, Exxon Mobil, the Big Food Group, Safeway, Super markets and many other firms (Finne, 2008). TESCO has the largest share of market in UK of around 30.6%. However, ASDA is not far behind with 16.6% of the total market share in the UK. There are other companies whose market share is little and are far behind to give a strong competition to TESCO and ASDA.  The following figure shows that competitor analysis of Tesco and supermarket share (Newman and Cullen, 2002):

CONCLUSION AND RECOMMENDATION

With reference to the above analysis it can be concluded that Tesco was successful in holding a leadership position within highly disordered retail segment of UK (Clarke, 2002). In such as situation, firms need to pursue both differentiation and cost leadership strategies. Through agile and lean supply chain management, Tesco has successfully achieved both. Company’s alignment with the business environment has been the major competencies and therefore it highlights the positive future outlook for the company (Huxley, 2003).

By over viewing the strategic direction of Tesco, it is being recommended to the company to slow down its process expansion plan and they should concentrate on refitting their existing stores and outlet. They can also improve their services by merging and forming a strategic alliance with the other potential companies in the market.

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BIBLIOGRAPHY

  • Clarke, R., 2002. Buyer Power and Competition in European Food Retailing. Edward Elgar Publishing.
  • Finne, S., 2008. The Retail Value Chain: How to Gain Competitive Advantage through Efficient Consumer Response (ECR) Strategies. Kogan Page Publishers.
  • Humby, C. Hunt, T., and Phillips, T., 2004. Scoring Points: How Tesco Continues to win Customer Loyalty. 2nd ed. Kogan Page Publishers.
  • Newman, A., and Cullen, P., 2002. Retailing: Environment & Operations. Cengage Learning EMEA.
  • Powell, T. C., 1995. Total quality management as competitive advantage: a review and empirical study. Strategic Management Journal, 16, pp. 15-37.
  • Traill, W. B., and Pitts, E., 1991. Competitiveness Food Industry. Springer.

 

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