The Global Business Environment Meeting Challenges - Greggs - Essay Example

? Greggs_Business Introduction Greggs, the pioneering hub of fresh baking in the United Kingdom (UK) has been engaged in the incessant delivery of extravagant products including freshly baked products stuffed with magnificent food quality and unparalleled taste for nearly 70 years. Quality food at affordable prices with its prime agenda, Greggs currently holds a 1 million customer base and operates through 1500 shops around the United Kingdom The shops of Greggs are infiltrated around the streets of UK, local shopping parades and currently concentrated in the retail, airports, universities, bus rail interchanges, industrial arenas as well as in diverse locations explored by the people for living, work and squander their leisure time. The company presently has a central savoury production unit and an armada of 375 delivery vehicles present throughout the day for ensuring the punctual delivery of the fresh food to the customers. The company also is the leading employer of approximately around 20,000 people and has a future dynamic plan of installing 500 new shops in the near future and generating 6,000 new jobs. The regional bakeries prepare baked food for the daily delivery shops with expert advices and under strict supervision from the skilled bakers from 90 in- store bakeries responsible for the provision of ultimate fresh baked food (Company Overview, n.d.). Growth potential-present scenario The analysts have established the facts with their sophisticated statistical forecasting tools and inferred that around 50% of the population of UK currently is devoid of access to Greggs shops. Thus they state that there is a boosting potential for the establishment of an additional 600 shops in the United Kingdom in the next few years (Growing Greggs, n.d.). Fig. 1. Dynamic Growth Potential (Growing Greggs, n.d.) The above diagram depicts the positive and rising growth potential forecasted by the analyst. Focus of the paper The paper emphasizes on the analysis of several factors affecting the financial health of the company initially with the macroeconomic environment analysis with respect to the famous PESTEL analysis and subsequently the microeconomic variables including customers, competitors and collaboration. Having a transparent insight about the factors affecting the company the focus will be shifted on the SWOT analysis in order to analyze the strengths, weaknesses opportunities and threats the company faces with an endeavor to formulate optimal strategies to ensure the forecasted escalating growth potential and reaping huge revenue generation along with the spreading of the reputation of the company to an all new dimension. A short insight on the financial health and performance of the company Before entering into the detailed analysis a short glimpse of the financial operations of the company needs to be mentioned. The year 2011 was indeed a challenging year for the company with respect to the economy and the consumers. The performance of the company was noteworthy in 2011 and has maintained the pace of progress towards the attainment of the strategic objectives with the record number of openings of shops across UK as well as investment in two major bakeries in Newcastle and Cumbria. A five period analysis (2006-2010) of the company’s financial health with respect to the key performance indicators (although trhere are many four of them are discussed) can be seen from the graphical analysis provided as below: A) Like-for-like sales growth Fig.2 The Like-for-like Sales growth figure (Annual Report & accounts, 2010, p. 18) The variable Like-for-like sales growth performs the comparison of year on year cash sales in the core shops of the company and is not distorted by the opening or the closure of the shops. The refitted shops are included in the like-for-like comparison unless there have been significant changes in the trading space. The growth of the Like-for-like sales also incorporates the selling price inflation. Year 2009 was a 53 week year affecting the total sales growth for that year and also applicable to year 2010 as well. The Like-for-like sales growth was unaffected by the 53 year week (Annual Report & accounts, 2010, p. 18). B) Growth in net shop numbers Fig. 3 Growth in net shop numbers (Annual Report & accounts, 2010, p. 18) The above figure shows the percentage of the growth of the number of net shops of the company. The growth dipped in span of 2009 but it recovered its pace and accelerated in the year 2010 (Annual Report & accounts, 2010, p. 18). C) Operating Profit Fig.4 Operating Profit (Annual Report & accounts, 2010, p. 18) The above figure reflects the operating profit of the company throughout the span of 2006- 2010. The margins showed a decline in the figures in the span of 2007-2008 but enhancement intensified and reached the summit in 2010 (Annual Report & accounts, 2010, p. 18). D) Diluted Earnings Per Share (DEPS) Fig. 5 Diluted earnings Per Share (DEPS) (Annual Report & accounts, 2010, p. 18) The above graph shows the diluted earnings per share of the company in pence. The DEPS is estimated by deflating the profit owing to the shareholders of the company by means of weighted average number of ordinary shares outstanding during the year after adjustments in the effects of the own shares held and the all dilutive potential shares comprising of the shares options granted to the employees. Obviously the profit is calculated after taxation. The figures dropped in the span of 2007-2008 but in accordance with the above parameters discussed it accelerated in the year 2010 reflecting the improved condition of the company’s financial health (Annual Report & accounts, 2010, p. 18). Detailed Analysis The performance of the business at its core is diligently impinged on the external environment as it is by its competitors. It is important for the firms rather mandatory that the firms are aware of the alteration in the external environment in order to maintain the competitive edge in the hardcore competitive market. The outright influence of the macroeconomic factors like change in the levels of income, future prospects of the individuals, expectations of the economy, the level of economic activities globally as a whole, global political activities, natural disasters like hurricanes, earthquakes, floods etc, changes in the price of the raw materials, shocks in the global stock market and so on induce the firms in the determination of the current market conditions and also gives the indication of those forces which acts as beneficial for the ultimate success of the business. There are various macroeconomic indicators which directly or indirectly infuse alteration with respect to the business organizations or institutions (Macroeconomic Factors, n.d.). Several framework and models has been exposited in order to help the organizations in their understanding of the macro economic factors affecting their business. One of those stylized and traditional framework established and applied in the business analysis is PESTEL analysis (Uwagwuna, 2011). The PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal factors affecting the firm’s functioning (PESTEL analysis of the macro-environment, n.d.). The inclusion factors of the PESTEL analysis is given in the following tabular representation as follows: PESTEL ANALYSIS INCLUDED FACTORS P= Political international trade, taxation policy, currency E=Economic interest rates, exchange rates, national income, inflation, unemployment, stock market S= Social ageing population, attitudes to work, income distribution T= Technological innovation, new product development, rate of technological obsolescence E= Environmental global warming, environmental issues L=Legal competition law, health and safety, employment law Table 1. (PESTEL analysis of the macro-environment (n.d.) ). UK food industry and the bakery market in particular In the time span between the years 2005-2009, the expenditure of the consumer on food items increased by approximately 20.9% at the current prices. It has been found that the financial crisis and the slowing down of the economy in late 2008 made a drastic impact on the prices of the commodities and also in the food price inflation. Again the consumers of the UK focus on the value and or that reason the sales of the premium-priced products declined in many areas. Towards the end of 2009, the sales of the value-added products increased which included ready meals. Many consumers also encountered increases in their real income due to low interest rates and by the rampant discounting by the retailers. Large food stores like Tesco, ASDA have outperformed as compared with their small rivals and specialist food stores. The value of the brand helped in increasing and capturing the market share (Food Industry Market Review 2010). The Bakery market in UK is worth value of ?3.4 billion and it is one of the largest markets in the food industry. Currently the total volume is around the range of 4 billion units equivalent of around 11 million loaves and packs sold every single day. There are three main sectors predominates the UK Baking industry. The larger (plant) baking companies account for the production of nearly 80% of the bread sold in the UK. Secondly the in store bakeries which accounts for around 17% of the production and lastly high street retail bakers responsible for the production of the rest (UK Bread Market, n.d.). Political factors The U-turns from the budget of Chancellor George Osborne was followed by protests by the bakers and caravanning enthusiasts. The current government made an intention of levying 20% value added tax (VAT) on hot, freshly baked takeaway foods from the food outlets all across the United Kingdom (Pasty tax: U-turn 'a shambles' says Labour, 2012). The definition of hot pasty has been changed for the allowance of reversal and a 20% charge due to be levied on the static caravans. The estimations states that the U –turns will lead to the cost of ?70m in total lost revenue in the financial year of 2014/15. The Greggs Company known for its pasties and sausages-rolls has also warned in the tax rise which would materially affect the sales and the profits. The chief executive of the company Ken McMeikan told in a report that, "If we don't cook to order, our freshly-baked savories will not attract VAT. It's much clearer for everyone in the industry... and a very sensible way forward for the government." Under the purview of the new tax proposals the food which is cooked on-site and then left for cooling will attract VAT. But the food which will be kept hot or re heated will be charged. The company filed a petition against the VAT change and it was supported by 300,000 signatures and the campaign also received the support from the National Association of Master Bakers and the Cornish Pasty Association (Greggs shares heat up 6% after 'pasty- tax' U-turn, 2012) . Economic environment The economic environment is expected to remain a challenging mechanism accompanied with sluggish growth rate and very little enhancement in the disposable income. These trends tend to continue in the encouragement of the people to stay in and make out more of their own meals from the scratch. The change in VAT explained in the political factor described above will be in effect from October 2012. The company sells around 140 million sausages per year and in accordance with the complex VAT processes, the company stated that the products are baked in the store and are thus free of VAT. The companies will make an endeavor for the passing of the higher costs to their customers. The indirect tax officers state that in the juncture of the challenging economic environment the profits will be reduced if they are not being able to pass on the tax increase on their customers. VAT free products of Greggs will result in the attraction of more customer base in this situation of complex economic environment ( Wallop, 2012). Social factors Social and ethical issues always play its utmost predominance in the food industry. A large drive among the people has been towards the mass scale awareness of the reduction in the obesity problem and also the elimination of the artificial colors and preservatives. Greggs has been much conscious in this arena and it has eliminated all the artificial colors and hydrogenated vegetable oils and traces of trans-fat from its products. The highly tested quality standards are now available for the company’s products in the range of sandwiches, drinks, savouries, sweet products and breads. An important social attribute which can be also regarded as strength of the company is that even during the recession the company has managed in accumulating ?739,000 for the BBC children in Need appeal during 2009 and it also helped in the earthquake impoverished people in the Haiti earthquake also ( Annual Reports and accounts, 2009). Technological factors Changes in the demand for the mobile phones changed in the year 2000-2003 with a mixture of pessimism among the handset manufacturers. Although in the latter half of 2003, the market for the smart phones rose up to a high level. In the booming market of smart phones the hand phones are becoming multimedia devices offering a wide range of functions with one of the latest implementation of the wireless internet or the Wi-fi technology. These strategies have been implemented by several companies in the process of up gradation of their business angle (Morrison, 2011). The company is well equipped with all the ultramodern technology for setting up a jet propulsion in its business. The use of modern gadgets has been in flamboyant use in the operation of the business. The company has went to an agreed deal with the Sky-owned Wi-Fi network provider The Cloud for starting up of the wireless internet facilities in its shop around the United Kingdom. The expectations state that using of the technology by more than six million customers every week and it will help the customers in accessing Wi-Fi on their smart phones and tablets by sitting around in cafe areas (Laughlin, 2012). Environmental factors The company encountered a significant fall in the consumer spending on the well known products namely pasties, sausage and sandwiches and attributed that it has been due to the wettest April this year in records. There has been also exaggerated impact on the consumer spending with the hike in fuel, energy and food costs. The performance was encountered as disappointing although the overall sales enhanced. The company is residing on the upcoming events like Queen's Diamond Jubilee, the Euro 2012 football competition, and the Olympics for the further boosting of the consumer sentiments and hence sales in turn (Greggs renews 'pasty tax' campaign as rain hits sales, 2012). Legal factors The latest legal issue affecting the company is the planning of the legal action over the decision of the Chancellor on imposing VAT on food such as the sausage rolls and pasties which the company bakes freshly in the stores. The company has encountered a pitfall in the amount of around ?30 million of the retailer’s shares when the decision was made regarding the hot food which will be liable to VAT whereas the cold food is not. The chief executive officer of the company in regards to this stated that, “The consumer needs help in making their money go as far possible, not to see an increased tax on something they didn't have to pay tax on previously” (Hot Crossed Bakers: Greggs Opposes 'Food Tax', 2012). The company is in the move of teaming up with the National Association of Master Bakers in order to launch a legal bid against the decision of the government (Hot Crossed Bakers: Greggs Opposes 'Food Tax', 2012). Microeconomic environment factors Customer The customer base of the company is around one million every day. In the recessionary climate the fear of the job losses and increase in the tax rates generally leads the customer to make their money in going as far as possible and the company has incorporated into the sustainability issues like like–for–like sales growth in the times of recession. One of the positive attitudes of the company is that it has listened and responded to the customers with the enhancement of the product innovation along with the delivery of greater range of choice. The company has also launched in varied range of sandwiches without mayonnaise contents and bring backs the roots of its legacy. Apart from being a baker as well as a retailer Greggs reaps a real competitive edge in communicating with a wider mass of people (Annual Report & accounts, 2010, p. 15). Competitors The competitors of the company include everyone who are in the business of manufacturing and selling of the bakery products. The shops of the products include the shops which are on the go shop, from the supermarkets to the other bakers like coffee shops, sandwich retailers and other fast food outlets. The other competitors include national multiple chains as well as several independent food retailers (Facts and queries, n.d.) . One of its greatest competitors, Subway has outweighed the performance of the company in 2006 but with great charisma the company fought back and came up beating the Subway through the adaptation of an integrated media plan (Greggs The Baker: Making a Better Brand, n.d.). Collaborators Collaborations and partnerships are long drawn strategy of the Greggs bakery. In 2010, two pilot initiatives were conducted. Firstly, there was a development of a training skills course for women offenders in Low Newton Prison with partnership with five different businesses in the North East. Greggs was one of the founding companies who worked with the founding companies working with the Cyreniens and other businesses on a work placement program for the destitute people. Both the initiatives are repeated in 2011 and thus generating a strong social base structure. The number of Breakfast Clubs will increase to a number of 150 providing free, nutritious breakfast to more than 7000 pupils each day. Partnership will also be made with other organizations in order to facilitate the further expansion of the breakfast club scheme (Annual Reports & Accounts, 2010). SWOT ANALYSIS The SWOT analysis is also an important tool in analyzing the current position of the company and in formulating strategies which will be optimal to the growth of the company. The SWOT analysis stands for Strength, Weaknesses, Opportunities, and Threats. The scope of detailed analysis is limited; however the major points are summarized in the tabular representation below which will give a quick idea about the current position regarding the company’s foothold in the market. The representation is as follows: Strenghths Weaknesses Opportunities Threats Strong foothold in the market Declining market share Dynamic expansion of the stores Big competitors with huge market shares like Subway Wide range of products Weak financial strength Restructuring of the company Stringent government regulations (Greggs Plc (GRG) - Financial and Strategic SWOT Analysis Review, n.d.) Conclusion The analysis of the company states that Gregg bakery is one of the pioneering companies in the domain of Bakery in the United Kingdom. The company has maintained standards in the quality, cost effectiveness as well as in the ethical perspective of the huge consumer base in question. The company has to make a cost benefit analysis structuring for stabilizing the declining market shares. Propaganda should be also immense through various processes of advertising mechanism and product differentiation strategies. This can be an optimal strategy because it is known that it delivers the market with a wide variety of products. The company’s foreign venture can also lead to the emergence of the business success. The company also needs to make the legal dimension its organization much more focused and strengthened and need to relax their policies against the government induced policies as it can act as a negative move to the company’s’ escalating business performance. References 1. Company Overview, (n.d.), available at: (accessed on June 21, 2012) 2. Growing Greggs, (n.d.), available at: < http://corporate.greggs.co.uk/growing-greggs> (accessed on June 21, 2012) 3. Annual Report & accounts, (2010), available at:< http://corporate.greggs.co.uk/assets/Uploads/630554A4ANNUAL-REPORT2011-3.pdf> (accessed on June 21, 2012) 4. Morrison, J. (2011) The Global Business Environment Meeting Challenges, Palgrave MacMillan 5. 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