UK Grocery Retailing Industry Macro Influences And Tesco Marketing Essay

UK Grocery Retailing Industry Macro Influences And Tesco Marketing EssayThe pla sackary retail industry has metamorphosed more in the concluding seven decades than it has in the last seven centuries. History tells us that the retail business depends on the economic and disposable income levels of the populace that moves from the centres of economic deprivation to the industrialised and fortunate environments. The evolution of the retail industry in the United Kingdom bears affirmation to this phenomenon.The last few decades entertain seen heterogeneous elaborateness in sustenance retail in the UK, including the materialisation of innovative stool formats, superior logistics, metropolis fall outlays in sunrise(prenominal) engineering, sophistication of put up chain processes, and the continuous crop of super commercialise chains (Nicholson-Lord, 2004).This report takes up the food retail vault of heaven, with phonationicular reference work to the strategies followed by Tesco, for examination and analysis.Super trades reflect, in the United Kingdom as elsewhere, the public of contemporary economic life and pass on an enormous and urbane catch over the grocery supply chain (Defra, 2006).The supermarket industry is lucritive and could be state to be networkeering at consumers expense, so far recent investigations into the industry by the rivalry commision show that this is non the case the industry is genuinely broadly combative and that, overall, excessive prices argon not universe charged, nor excessive profits earned. (Defra, 2006). The sector has changed and adapted over time from solely selling groceries to offering a wide range of products on a lower home adept roof. With technologcal improvement and the internet universe customd by the many, operations provoke in like manner moved online consent toing guests to mark for anything from bread and milk to car insurance and teleph iodines from their computer.This structured r eport deals with the delineate macro factors in the evolution of UK supermarkets the current attractiveness of the supermarket sector, and Tescos ri spateh strategy.2. mark Macro Factors in the Evolution of UK SupermarketsThe retail business in British cities, till the 1960s, had a hierarchical arrangement and focused on the key commercial districts. It was balanced by a comparatively minor issue forth of town or district centres, offering a strapping convenience-goods selling function, and a secondary array of comparison w bes for particular city centres (Bromley Thomas, 1993).The beside stage of transformation from the mid-1960s onwards increasing successfulness and disposable incomes acclivitous levels of vehicle ownership urbanisation attachd levels of female participation in employment, has driven new patterns of consumer behaviour and increased demand for specialized and civilize ranges of goods and service (Bowlby, 2001). This transformation has been instrumental in ever-changing the character of the urban retail landscape (Bromley Thomas, 1993).Political and LegalThe supermarket sector is under uniform political watch since restriction of competition and accusations of being an oligopolistic market arose. Investigations carried out by the Competition Commission resulted in the adoption of a tag of Practice, which has presently been in operation for some course of studys. The sector is alike under authoritiesal pressure to increase its employment levels, particularly because employment in the supermarket sector has not kept pace with harvest-home (Emerging, 2010).EconomicSupermarket operations ar under pressure because of the ongoing economic downturn. High unemployment levels, along with stagnation in consumer incomes, has affected consumer spending. Supermarkets argon responding with better offers through renegotiation of provider prices and improvement of operational efficiencies (Tesco, 2009).SocialSocial and demographic chang es play a major role in supermarket operations. For exemplar, the ageing population, along with an increasing turn of events of female workers, single parents and divorcees, is decrease the frequency of meals prepared at home. increase consumer focus on health is tether to greater stocking of organic foods and delightfultrade pronounced products (De Chatel Hunt, 2003).TechnologicalMost supermarkets now have an online presence to market their products and have set up efficient, well designed e-commerce websites. Supermarkets use modern technology in a number of separate knowledge bases e.g. electronic shelf labelling, customer data management and supply chain management (Tesco, 2009).EnvironmentalAlthough supermarkets are real popular, they are scrutinised for increased fogy fuel consumption collectible to goods transportation and changing shopping patterns, requiring customers to drive to supermarkets.Also the introduction of cut usage of plastic bags in supermarkets, Ma rks Spencer was a leader in reducing the plastic bags used by its consumers a five pence charge was placed on each carrier bag in a bid to curb usage. Other supermarkets although not charging customers to use the bags withdrew from the shop floor and customers had to ask if they needed the bags. Tesco introduced a club tease apart scheme offering customers clubcard points to customers who do not use plastic bags.3. Current Market Position of UK SupermarketsIt needs to be noted that the retail business has evolved from an industrial to a post-industrial stage. More than 2.1 one thousand thousand people, approximately comprising somewhat 10 per cent of the labour force, were working in retail distribution by 1992 (Employment GazetteNovember 1992), and the biggest retailers are now among the major companies (Lowe Crewe 1991).Competitive RivalryThe supermarket sector witnesses intense rivalry between market participants. Supermarkets have grown at the expense of specialist food shop s (e.g. grocers, unripened grocers, dairies, butchers and fishmongers) by offering wider product ranges and lower prices under one roof(keynote 2007). The regular monitoring of market share, price wars, innovative shopping formats, promotions and loyalty schemes not entirely demonstrate the rivalry present but also the skin each supermarket faces for customer footfalls.With the four main supermarkets having such a commodious market share, the UK supermarket industry could be said to be operating as an oligopoly. However as shown by the competition commission and the Office of Fair Trading, there is no anti- war-ridden behaviour taking place. In realty prices would be lower for consumers in a perfectly competitive market quite than the oligopolistic market that is shortly in the UK, however un slight there is clear demo of price-fixing or cartels it would be highly unlikely giving medication pass on substitute and take action to stop the big four supermarkets growing furth er.dicker Power of BuyersThe power of buyers can be interpreted in antithetic ways. At first glance, they appear to be powerful because they have a wide range of products to take away from, and can switch from one supermarket to another. In antithesis, customers have lost the flexibility, home grown service, and range of produce that was easy with traditional providers.Consumers may be loyal to their local anesthetic supermarket, but by no policy or guidelines consumers are technically free to shop at any supermarket. The government through the OFT ensure that a fair price is being charged to consumers. The consumer could be said to have immense power as with the industry being so competitive and incentives always being used customers are benefiting. Also the wide use of the Internet now allows customers to check prices and compare products online in front get, whether they leveraging in break in or online. But they could be said to have very little power as they cannot negot iate, the prices are set by the supermarket and cannot be changed by the buyer.Bargaining Power of Suppliers?The power of supermarket suppliersSuppliers power is the most talked about force within the supermarket industry. UK supermarkets have immense purchasing power callable to their dominant size and can demand products at the price and look they require. The problem facing suppliers is because there are so many suppliers if one fails to meet the requirements of the supermarket then the supermarket can go to another supplier and find out what they want. This gives them relatively little or no bargaining power with the supermarkets.The supplier code of practice has been put in place by the government to stop such bad practice by retailers however its viability is provided to be seen. Many smaller suppliers are still saying that they are being bullied by the large supermarkets price and other conditions. But as with any business transaction, the seller wants to achive the highe st possible price and the buyer wants to nurse costs as low as possible, the engagements of bother parties will be different.Threat of New EntrantsThe threat from new entrants is comparatively wearied because of the immense financial investments required to effectively enter the UK supermarket and superstore segment. It is difficult for entrants to invest the corking required for space, assets, and extremely sophisticated supply chains. Other barriers include real market shares, scale economies, product differentiation and customer knowledge expertise built by existing players.However with supermarkets requiring planning permission for both new store there are lands in the country in which smaller independents which are wearket to get access and launch or cover up their business. With the government offering many grants and revenue enhancement relief for small businesses it could be said that the market is still a free market to channelise in.But by being a free market an d devote economy it also allows large multinationals enter the uk supermarket industry through mergers and acquisitions as that of Wal-Mart purchasing Asda in 1999. By government not intervening it has allowed Asda to debate much more in the industry without the funding it would lag understructure its rivals substantially. This has also been the case with the merger of Safeway and Morrisons. By not intervening the government has allowed the market to be less(prenominal) monopolistic as their would have only been two large players, Tesco and Sainsburys.Threat of Substitute yields/ServicesThe threat from substitutes is weak because of evolved consumer buying habits and the enormous convenience provided by supermarkets. This was recently illustrated by the calamity of Aldi and Lidl who tried to take advantage of the economic recession by introducing new and more economical shopping formats.The threat of substitutes could be said to be irelavent as there is no substitute as everybo dy needs food, however substitutes such as smaller specialist food retailers could be seen as a substitute. With government emphasis on healthy eating, the large supermarkets have started to label their foods nutritional value in much more depth. This oculd be seen as indirect intervention and government may have in truth hindered smaller food retailers who had found a niche in the market, and also therefore lessen the threat of substitutes. But with some products the price inelasticity or luxury means that customers are unbidden to pay more for the product, for example organic produce from farmers markets.However with more and more emphasis on healthy eating being made on all forms of media by the government, the green grocers, butchers and other smaller units may be seeing an increase in gross sales due to the freshness of their produce. Customers from supermarkets may prefer to purchase food from these smaller retailers as they know the quality may pinch what they would norm ally purchase and will be healthier. Clearly customers are willing to pay more where theySummaryWhilst the industry may appear to be attractive, because of the growth and profitability being achieved by market participants, it is characterised by enormous competition and very high entry barriers. Organisations trying to enter the market need to have high uppercase reserves, a consistent strategy, and the willingness to grow by acquisition, as well as through organic means. In conclusion the supermarket industry can be shaped and restrained by government intervention but by allowing the industry to continue as a free market, everyone is seen to benefit, whether it be consumers getting the best possible price, do suppliers livelihoods, or the economy as whole growing.4. Tesco Strategy and GrowthTesco has a deep-rooted and constant strategy for growth, which has allowed the strengthening of its stub UK business and growth into fresh markets. The underlying principle of the strategy, laid down in 1997, was to fatten out the span of the business to allow the delivery of a sturdy and prolonged long-term growth (Quick facts, 2009). This can be achieved by pursuing current Tesco customers and encouraging them into purchasing from its other domestic businesses, including financial services, non-food and telecommunications (Quick facts, 2009). They are currently ranked 4th in orbicular retail sales and give out in 13 countries in 2008 (Delloite 2009).The objectives of this five pronged strategy are (a) to be a successful global retailer, (b) to grow the core UK business, (c) to be equally robust in food and non-food segments (d) to scale up retailing services like Tesco personal Finance and (e) to place community at the centre of its strategy (Tesco plc, 2009).In being a successful global retailer, Tesco has long practiced the commonly used glocal practices which encompass the ground realities of the local environment with the global best business practices. Bein g close to the consumers enables right away reaction times, especially in the current downturn, to the local changes as they lapse in its markets across the world (Tesco plc, 2009).Dunnhumby, the consumer look for entity that enabled Tescos Clubcard loyalty scheme, has brought about a deep understanding of the consumers wants. This was developed through many yrs of research in customer insight skills and buying patterns. (Tesco concourse, 2010).Market PenetrationDuring the last recession, Value lines was launched in the country to provide the cheapest grocery products, inclusive of caners. safekeeping quality in mind, Tesco made the biggest change to their product range by launching 500 new items as part of their Discount Brands (Tesco plc, 2009). The peculiar competency saving plan called Step Change has already delivered 540 meg of productivity and other changes. These have been ploughed back primarily into efficiency projects that encompass the entire business from store s and depots to the office (Tesco plc, 2009).Examples of such improvements include reducing energy consumption in stores, eliminating 52,000 store deliveries by means of larger-fill transportation, leading to added savings of 12 million road miles. Also, the introduction of new egotism checkout technology for stores, as well as introducing pioneering technology to allow electronic check-in of bread and milk depot deliveries leading to a sizeable removal of paperwork and administration (Tesco plc, 2009).Tescos offer of five pence of a l of fuel in their petrol stations, this a form of market brainstorm in an trail to get more customers through the doors in its supermarket operations, spell giving them a dismiss on fuel. This strategy employed by Tesco could be seen as successful as the promotion is offered regularly on a short term basis, also competitor Sainsburys also do the promotion on a regular basis.DiversificationThe non-food market be an essential component of Tescos l ong-term strategy, since it encompasses a market similar to that in size of food, and provides a vast opportunity. Empirical data strongly suggests that the consumer will buy, even in poor economic conditions, when they see value. By products being sourced globally, consolidating freight volumes and investing in buying hubs,Tesco are able to campaign economies of scale to ensure customers receive the best possible price.(Tesco plc, 2009).The global purchasing office based in Hong Kong is accountable for buying 100,000 non-food products for the entire Group and, wherever possible, the purchases are sourced directly through factories without involving agents. This sourcing team last year shipped 72,000 containers from 54 ports. The sourcing hubs based largely in Asia and atomic number 63 ensure that the goods are delivered from ethical sources, on time, and in the best price and quality (Tesco plc, 2009).Product growthThe Tesco website has around 1.5 million hits per week and Tesco Direct, which is controlled within tesco.com, is effortlessly kindly to customers via the internet and their catalogues (Tesco plc, 2009).The strategic retailing services comprise of tesco.com, online shopping channels, Tesco Direct, telecoms, and Tesco Personal Finance. All financial products are obtainable online and over 50% of customers choose to purchase in this manner (Tesco plc, 2009).Tesco has targeted profitability growth in the services division from approximately 400 million in 2007/08 to 1 one thousand thousand over the next few years (Tesco plc, 2009).High quality practices for supply chain and customer relationship management, used in conjunction with plosive of Sale (POS) software, has enabled Tesco to manage a paradigm shift in its core retail business. This has enabled Tesco to reach out to its exsisting customers in revision for them to utilise the other retail services available. A critical cornerstone of Tescos strategy is to strategically position the commun ity at the core of its operations. The Group has taken a leadership role in its efforts towards climate change and environmental responsibility, and has set ambitious targets to reduce emissions in its own buildings and distribution networks (Tesco plc, 2009).Market DevelopmentTesco is now the first UK retail major to exhibit the full ascorbic acid footprint of all its own-label milk ranges, excluding organic milk, and has vowed to footprint 500 products by the year end. Reassuringly, research has now established that 50% of shoppers surveyed now experience the proper meaning of carbon footprint, as against only 32% of shoppers surveyed in the previous year (Smithers, 2009).Extensive scrutiny of sales and loyalty card data has enabled Tesco to select the main items for economy conscious buyers. This has enabled prices to be reduced on important consumption goods, in order to assist customers in the difficult economic conditions as well as beating competitor prices (Tesco plc, 2009 ).In response to the threat posed last year from the fast-expanding discount stores, including Aldi, Tesco reacted quicker than competitors in taking a stance. The launch of the Discount Brands at Tesco scheme presented price deflation, rather than expecting customers to downgrade, in contrast to competitors. The initiatives main aim was to retain the current market share held by Tesco and prevent these discount stores from acquiring further market share.Tesco was the first major player in the online grocery market (Mintel, 2010), giving it the first mover advantage. This has allowed Tesco to build up a strong customer base as at one point, it was the only UK supermarket to offer onlne groceries. Their share is steadily declining as their competitors are also offering customers the ease of shopping online by having an online presense. Although it operates transacional websites for three countries many of its sales are generated in the UK. It began trading with food only but in only three years of operation it expanded and launched the non-food section, Tesco Direct. From 2004 2008, Tesco.com sales as a percentage of all uk revenue has grown from 2.6% to 5.0, this is shown in attachment Tescos online division has been so successful that two stores have had to be candid just to service online demand (Mintel, 2010)5. ConclusionSupermarkets and superstores are an undisputable part of the geographical contours and the economic foundation of UK society. Such supermarkets, comprising of Tesco, Sainsburys, ASDA, Waitrose and Morrison, provide approximately 80 % of the foods consumed by UK residents and play an important role in the determination of consumer preference across the country.The growth of supermarkets, much of which has occurred during the last few decades has been driven by the rapid and far reaching transformation of UK society, characterised by increasing prosperity and disposable incomes, rising levels of vehicle ownership, urbanisation, increased levels of female participation in employment has driven new patterns of consumer behaviour and increased demand for specialised and sophisticated range of goods and services (Bowlby, 2001). This transformation has been instrumental in changing the character of the urban retail landscape.Tesco, the clear leader of the UK supermarket sector, and otherwise an gamy example of British commercial and retailing skills, has constantly adopted a fundamental and steadfast strategy for growth, which has reaulted in the constant strengthening and expansion of its core UK business and helped it to grow into new markets. The primary principle of its strategy, which is now being followed for more than a decade, lies in enlarging business span iin order to allow for delivery of robust and and continuous growth.Recent years are also witnessing much improved corporate citizenship in the supermarket sector, with regard to the meaningful and determined support for health and organic foods and sustaine d efforts to reduce fossil fuel consumption and greenhouse emissions.Appendices appendix 1 (Tesco Group, 2009)Five year summaryIFRS20052006120072008200953 weeksFinancial statisticsGroup sales (including vat) (m)36,95743,13746,61151,77359,426Revenue (excluding VAT) (m)UK27,14629,99032,66534,858638,191 liberalisation of Europe3,8185,0955,5596,8728,862Asia2,9024,3694,4175,5527,068US166206 summation Group33,86639,45442,64147,29854,327Operating profit2(m)UK1,5561,7882,0832,16462,540Rest of Europe243263324400479Asia153229241294343US(67)6(156)Total Group1,9522,2802,6482,7913,206Operating profit marge2UK5.7%6.0%6.4%6.2%66.7%Rest of Europe6.4%5.2%5.8%5.8%5.4%Asia5.3%5.2%5.5%5.3%4.9%USn/a6n/aTotal Group5.8%5.8%6.2%5.9%5.9%Share of results of joint ventures and associates3(m)748210675one hundred ten internet on sale of investment in associates25 sugar finance costs3(m)(132)(127)(126)(63)(362)Profit before tax (m)1,8942,2352,6532,8032,954Taxation3(m)(541)(649)(772)(673)(788)Minority interests (m)(3)(6)(7)(6)(5)(Loss)/profit for the accomplishment from discontinued operation4(m)(6)(10)18Profit for the financial year attributable to equity holders of the parent (m)1,3441,5701,8922,1242,161Underlying profit before tax5(m)1,9252,2772,5452,8463,128Enterprise value7(m)27,91030,84140,46937,65635,907Basic dinero per share817.52p20.20p23.61p26.95p27.50pDiluted earnings per share817.30p19.92p23.31p26.61p27.31pDividend per share97.56p8.63p9.64p10.90p11.96pReturn on shareholders funds1023.2%24.9%26.7%25.1%23.9%Return on capital employed1111.8%12.7%12.6%1612.9%1713.0%20Group statistics number of stores2,3342,6723,2633,7514,332Total sales area 000 sq ft1249,13555,21568,18976,33888,451Average employees335,750368,213413,061444,127468,508Average full-time equivalent employees242,980273,024318,283345,737364,015UK retail statisticsNumber of stores1,7801,8981,9882,115182,28221Total sales area 000 sq ft1224,20725,91927,78529,5491831,28521Average store size (sales area sq ft)1331,67732 ,81634,20935,0551835,21521Average full-time equivalent employees163,006175,459184,461193,917194,420UK retail productivity ()Revenue per employee14166,534170,923177,084179,840196,436Profit per employee149,56410,19011,29210,8141913,065Weekly sales per sq ft1523.8925.0625.4825.4326.211. Results for the year ended 25 February 2006 include 52 weeks for the UK and ROI and 14 months for the volume of the remaining International businesses.2. Operating profit includes integrating costs and profit/(loss) arising on sale of fixed assets. Operating margin is based upon revenue excluding VAT.3. Share of results of joint ventures and associates is stated net of the interest and tax of the Groups joint ventures and associates. The Groups charges for interest and tax have been reduced by these amounts.4. Consists of the net result of the Taiwanese business which was sold during 2006/7.5. IFRS underlying profit draws IAS 32 and IAS 39 Financial Instruments Fair value remeasurements, the IAS 19 Income account charge, which is replaced by the normal cash contributions for pensions, IAS 17 Leases refer of annual uplifts in rent and rent-free periods and IFRS 3 Amortisation charge from intangible assets arising on acquisition. For further details of this measure,see accounting policies.6. Results have been restated to reflect the US as a separate segment.7. Market capitalisation plus net debt.8. Basic and diluted earnings per share are on a continuing operations basis.9. Dividend per share relating to the interim and proposed final dividend.10. Profit before tax divided by median(a) shareholders funds.11. The numerator is profit before interest, less tax. The denominator is the calculated average of net assets plus net debt plus dividend creditor less net assets held for sale.12. Store sizes exclude lobby and restaurant areas.13. Average store size excludes Express and One Stop stores.14. Based on average number of full-time equivalent employees in the UK, revenue exclusi ve of VAT and operating profit.15. Based on weighted average sales area and sales excluding property development.16. Excludes one-off gain from Pensions A-Day, with this one-off gain ROCE was 13.6%.17. Using a normalised tax rate before start-up costs in the US and Tesco Direct and excluding the impact of foreign exchange in equity and our acquisition of a majority share of Dobbies.18. Excluding 53 US stores and 22 Dobbies stores.19. Excluding start-up costs in the US and Tesco Direct and adjusting average number of full-time equivalent employees in the UK to exclude US and Tesco Direct employees profit per employee would be 11,317.20. Excluding acquisition of TPF and Homever, and India start-up costs, and after adjusting for assets held for sale. calculated on a 52 week basis, ROCE for 2008/9 is 12.8%.21. Excluding 24 Dobbies stores.Appendix 2 (Tesco Group, 2009)Quick factsStaff world-wide468,508Staff in the UK286,394Stores worldwide4,308Total stores in the UK2,282By format177Ex tra10Homeplus448Superstore174 tube961Express512OneStopNumber of markets14Which marketsChina, Czech Republic,Hungary, India, Japan, Malaysia, Poland, Republic of Ireland, Slovakia, South Korea, Thailand, Turkey, UK, the StatesFacts correct May 2009Appendix 3 (Tesco Group, 2010)